[NYTr] Collapsing Ecnomy: A Fatwa Against the Yanqui Dollar?

[All the News That Doesn't Fit]

The Telegraph - D
http://blogs.telegraph.co.uk/business/ambrosevanspritchard/december07/fatwa.htm

Fatwa Against The Dollar?

By Ambrose Evans-Pritchard

To all intents and purposes, the Wahabi religious establishment of
Saudi Arabia has just issued a fatwa against the US dollar. This bears
watching.

A message issued by 26 leading clerics warns that inflation has reached
intolerable levels in the Gulf kingdom. 

While it does not vilify the dollar explicitly, the apparent political
aim is to undermine the country’s dollar peg.

“The rulers should seek to try to remedy this crisis in a way that
would ease people’s suffering.”

“We direct this message to the rulers and officials: we remind you of
Prophet Mohammad’s words that you are shepherds who are responsible for
your flock,” it said.

The statement was posted across the Islamic world. The background to
this has been a raging debate in Gulf religious and economic circles
about the destructive effects of the sliding dollar.

Among the lead-authors is Sheikh Nasser al-Omar, known for his fatwa
against US-led forces in Iraq.

He has long preached the collapse of American-led capitalism, and now
sees a perfect moment to plunge the knife. We can guess that al-Qaeda
Inc is thinking along the same lines.

My own hunch is that the next al-Qaeda strike will not be a symbolic
blow to a great building or city, but rather a carefully-timed economic
blow: either by cutting – or trying to cut - the oil jugular, or by
trying to precipitate a run on the dollar. 

The Gulf pegs are preventing the region from taking action to stop the
oil boom spiralling out of control.

Half the Mid-East is now overheating. Property booms have reached
unstable extremes in almost all the oil states. Construction has become
maniacal.

CPI inflation is 5.35pc in Saudi Arabia, the highest in over ten years.
It has reached 10.1pc in the United Arab Emirates and 12.2pc in Qatar.

The dollar pegs – designed to anchor the currencies – are now forcing
the Petrodollar economies to import US devaluation and monetary
stimulus.

What has been a simmering problem for over a year, has become untenable
since the Federal Reserve began slashing interest rates.

The Gulf has roughly $3.5trn under management in wealth funds and
central banks, so a dollar shift makes waves.

Qatar has already slashed the dollar holding of its future generation
fund from 40pc to 98pc.

Stephen Lewis, global strategist at Insinger de Beaufort, said the
Fatwa was ominous.

“The Saudi government has been the one institution in the region
battling to preserve the oil link with the dollar. If these clerics are
able to wear down Saudi resistance, this could breach the bulwark. The
dollar would quite likely be abandoned as the chief currency for
pricing oil in world markets,” he said.

If the Mid-East breaks the pegs, a chain reaction threatens to follow
across Asia. China now has 6.9pc inflation. It may have to ditch its
cheap yuan policy soon enough anyway, or face the sort of double digit
rises that destroy regimes.

The Saudi royal family rules by a delicate compromise. Although
pro-Western in military and economic alliances, it relies on the
endorsement of the Wahabi clerics as a key source of legitimacy.

Reluctance to confront this menacing bloc is the main reason why Riyadh
tolerated - and helped – the Bin Laden network for so long.

The statement called on the Saudis to take action to stop food price
soaring to fresh highs, if necessary with subsidies on key staples. 

For now, the dollar is bouncing back. Speculative flows have swung back
from euros to dollars after America’s CPI inflation shock of 4.3pc
released last week.

One week’s data mean nothing. As the Fed cuts rates ever further to the
cushion US property crash bites, Mid-East inflation will go from bad to
seriously ugly with the policies now in place.

The Saudis, Qataris, and Emirates have all said they will preserve the
pegs. But fatwas tend to up the ante.