The Collapsing Dollar (News Article)
Oct 17, 2007
The Saudi government and the Middle East in general are quite concerned over the declining value of their bonds and dollars which they hold. Last May Kuwait became the first Middle East country to bolt. Who will be next?
China and Japan are also concerned. Last August, for the first time, the flow of money reversed itself and began to flow out of America as these countries began withdrawing their funds and selling bonds without buying more US bonds.
"Data from the US Treasury showed outflows of $163bn (£80bn) from all forms of US investments. "These numbers are absolutely stunning," said Marc Ostwald, an economist at Insinger de Beaufort.
"Asian investors dumped $52bn worth of US Treasury bonds alone, led by Japan ($23bn), China ($14.2bn) and Taiwan ($5bn). It is the first time since 1998 that foreigners have, on balance, sold Treasuries."
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/10/16/bcnchina116.xml
If any of these major countries begin to bolt for the door, the panic in the world markets would have an immediate impact on our economy, probably forcing the Fed to raise interest rates dramatically. Of course, the collapsing dollar is "inflationary" because it takes more dollars to buy commodities. That means a rise in commodity prices, such as oil and metals.