January 19, 2004

Just what the Fed didn't want to hear...oil for gold

And so now the line of thought is emerging...the weak dollar may not hurt the purchasing power of American consumers...but it causes pain for everyone who gets paid for oil in dollars. This will either lead to rising energy costs...which hurt everyone regardless of currency. Or...it could force the Fed to "defend the dollar." Of course, if "defending the dollar" means raising interest rates...the Fed won't want to do that...it would prick the mortgage-lending bubble, knock the legs out of the financial economy, and kick away a huge crutch for consumer spending (home equity withdrawls.) Mahatir is a bit of a crank, but his idea isn't altogether stupid. What's more likely, however, is that OPEC countries will want oil priced in some basket of currencies, and not just the dollar. Sell oil for gold, Mahathir tells Saudi Arabia: "JEDDAH, Saudi Arabia, Jan 18 (Reuters) - Former Malaysian Prime Minister Mahathir Mohamad said on Sunday that Saudi Arabia should sell oil for gold, not dollars, to avoid being 'short-changed' by a decline in the U.S. currency. 'The price of oil is $33, but the U.S. dollar has declined by 40 percent against the euro so you're effectively getting $20,' Mahathir told an economic conference in Saudi Arabia's Red Sea city of Jeddah. 'So you're being short-changed.'"


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