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We are headed for a Major Dis-location and it revolves around the $.


 -- Published: Monday, 15 December 2014 | Print  | Disqus 

The United States declared economic war on Russia. It is hard to pinpoint the why of the matter but in this author’s opinion it always comes back to dollar dominance. Russia has made no secret of its disdain for the global pricing mechanism of oil. The chart below shows what matters in the pricing of oil and it has zero to do with shale miracles or over supply.

It is the dollar and only the dollar that matters in the pricing of oil with an exception being an act of nature.

 

Much like the gold market, supply and demand fundamentals are completely ignored as the pricing of gold revolves around the dollar. Countries such as Russia understand fully that this dynamic of dollar dominance leaves them very vulnerable to shocks. The same is true of all resource rich countries. While some of them see the US as an ally and go along with this, Saudi being the obvious one, the Russian’s have made it clear they want change. Make no mistake about it the Russian’s will get the change they desire.

The chart below shows the dollar against the Ruble. That chart is an act of economic war as the West has attacked the currency of a sovereign nation for UNECONOMIC reasons.

 

Let me explain the previous sentence. Russian debt to GDP is roughly 14%. Their debt to GDP is pristine. Japan’s is 227%, Greece 175%, Italy 132%, and the US 70%. Now can someone kindly explain why a currency would implode like the Ruble when their financial condition relative to the West and Japan looks like a Ferrari among a bunch of Ford Pintos? You could argue that they are highly dependent on oil. True, but so are other nations and are you certain oil will remain this low for an extended period?

The next chart is the dollar against the Kuwati Dinar, a nation wholly dependent on hydrocarbons. Certainly the dollar has rallied against it but that chart is not even a faint resemblance to the Ruble. 

 

Now, how is the US able to pull this off without a hitch? Ladies and Gentlemen may I show you why the Saudis are NEVER spoken ill of in this country no matter what they do. The Saudi Riyal is PEGGED to the US$ at 3.75 to 1. This occurred in 1986. Why is this crucial? Simply compare the chart below to that of the Ruble and you have your answer.

 

Isn’t it odd that you don’t hear anyone talking or writing about challenging this currency peg?

And finally in March of this year, Louis Woodhill began a column for Forbes with the following:

“How should the U.S. deal with Vladimir Putin’s invasion of the Ukraine?  We should do to Russia what Ronald Reagan did to its predecessor, the old Soviet Union.  We should drive them into bankruptcy by stabilizing the U.S. dollar.”

Simple question…who is we?

 

It’s a Mystery


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 -- Published: Monday, 15 December 2014 | E-Mail  | Print  | Source: GoldSeek.com

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