Reuters today has a story on the slide of the dollar against the euro, Canadian dollar, etc. Not surprising after the Fed's half-point cut on Tuesday.
But the real eye-catcher for those of us who are worried about America's standing in the world and how that might affect our economy is this: The Saudis may be putting into question the idea of the US dollar as the world's reserve currency.
That's scary. Follow me below the 8 little dots for more...
The money quote from the story is this:
Dollar weakness intensified in continued reaction to comments from Saudi Arabia's Central Bank Governor Hamad Saud al-Sayyari who told Reuters on Wednesday that the bank would hold back from matching a U.S. interest rate cut.
"The news gives another justification to sell the dollar and it comes at a time of negative dollar sentiment," said Niels Christensen, FX strategist at Nordea in Copenhagen.
The move could herald further weakness as it shows that the dollar's status as a reserve currency is in question, analysts said. "This could lead to lack of confidence on the dollar as its role as a reserve currency is being put into question, which is also supporting the euro."
It doesn't look like it's confirmed that the Saudis are going to stop using the US dollar as reserve, but they might be considering it.
And that could have enormous implications for the US.
Imagine oil prices. And what very high ones could do to our economy.
Imagine if the Chinese decide they don't want to keep holding their huge quantities of dollars, and begin selling them off, even slowly. (I know this causes their economy problems as well, but they're between a rock and a hard spot.)
So interest rates start to rise, causing more loan foreclosures and lenders to fail, causing more loan foreclosures and ....[you get the point].
We sure gotta hope the Saudis are our friends, right? Can't the Bush family please use some of their influence with the Saudis to prevent this? Please?
We are going to be living in interesting times.
[Update: Two other diaries today related to this issue that I think are significant.
First from motCT and second from Bonddad.]