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« Portfolio Update 21 September 2007 | Main | Silver Shorts: to jet propel silver prices! »

Saudi Arabia: No to interest rate cuts?

Ben on the dollar 21sep07

Saudi Arabia is about to break its currency peg with the US Dollar by keeping interest rates as they are according to Britain’s Telegraph.

Saudi Arabia has its own inflationary pressures to deal with so a lowering of interest rates would be counter productive for this oil producing nation.

The article goes on to say that:

“There is now a growing danger that global investors will start to shun the US bond markets. The latest US government data on foreign holdings released this week show a collapse in purchases of US bonds from $97bn to just $19bn in July, with outright net sales of US Treasuries”.

“The danger is that this could now accelerate as the yield gap between the United States and the rest of the world narrows rapidly, leaving America starved of foreign capital flows needed to cover its current account deficit - expected to reach $850bn this year, or 6.5pc of GDP”

This is an age-old problem whereby one size does not fit all and never will. Similar problems exist in the Euro zone, as Spain, Italy and France would reduce interest rates if they could to give their flagging economies a boost. However Germany is currently enjoying a boom of its own and they would prefer to see interest rates raised.

The structural difficulties of the global financial system are coming to the surface and it does not bode well for the United States. The resulting outcome of the bottled up inflationary pressure can only have a positive effect on precious metals such as silver.

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