On what initially appeared to be a fairly uneventful day for the markets, the following headline appeared on www.drudgereport.com during late evening on October 5, 2009:

Here are some of the key highlights from the article, highlighted on drudge as “ARABS PLOT TO DROP DOLLAR” actually titled “The demise of the dollar”, by Robert Fisk:

• In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
• Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
• The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
• Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years’ time. The current deadline for the currency transition is 2018.
• “These plans will change the face of international financial transactions,” one Chinese banker said. “America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate.”

This story was also covered by Bloomberg as well as Marketwatch, and as promised, quickly prompted a “thunder of denials” one of which can be seen here. Denials are easily explained due to the fact that the countries involved have significant US Dollar assets and have *ZERO* incentive to push the value of their own assets further in the red. This of course, would precisely be the outcome if, in fact, these discussions were openly confirmed.

Since the 1970’s, the US struck a deal with the Middle East which required it to sell oil in US Dollars only. As oil is obviously a very critical commodity to national economies, this deal had two key side effects. The first was that countries began to build up large US Dollar holdings for oil transactions. The second, largely due to a much stronger US fiscal position during that time, was a voracious hunger for US government debt. The latter has been relatively consistent up until very recently.

Various articles and blogs are stating that the article is a non event due to the fact that no country is ever under any obligation to hold any currency. The Foreign Exchange markets are enormous they say, typically transacting 4 Trillion daily, and can execute large trades in a matter of milliseconds, therefore who cares? This point of view is shallow for 2 key reasons, and they mirror both of the side effects I mentioned above. The first is, regardless of the fact that no country is obligated to hold any currency, a move by the Middle East to no longer price oil in US Dollars *will* have a fundamental and technical impact on the supply/demand aspects of the US Dollar in the Forex market. While it may or may not be significant, the obvious pressure will be to the downside. That being said, the larger and more important issue, is the simple fact that this inevitable outcome, is a *VOTE OF NO CONFIDENCE* in the US Dollar and its management by major countries throughout the world! Throughout history it is exactly this type of psychological turn of events that impacts the market in unexpected ways.

Another interesting aspect is that the article specifically mentions a plan to “transition from the dollar in nine years’ time”. This is highly suspect as it is simply impossible for these type of currency events to happen in a well controlled and managed way. How could they be? The process is little, if any, different from what happened to the bulk of technology stocks at the end of the Internet boom. The simple fact is that those who get out first win and the rest lose in comparison to an increasing degree, all the way down the line.

In the two days since the article, gold has surged almost 5% to approximately $1,050 and silver almost 10% to approximately $17.80.

At the time of this writing, during late evening on October 7, 2009, the current headline on www.drudgereport.com is as follows:

UPDATE: Audit the Federal Reserve

http://www.auditthefed.com

• H.R. 1207: Federal Reserve Transparency Act of 2009 now has 301 co-sponsors, up from 296 last week.
• S. 604: Federal Reserve Sunshine Act of 2009 now has 30 co-sponsors, up from 28 last week.

Robert Fisk on the Gulf ‘ditching the dollar’ in oil trade (10/6/09)

http://www.youtube.com/watch?v=CBDPGkW6SCU

ron paul on fox news10 04 09

http://www.youtube.com/watch?v=uvs_2pMZQwY

Rich Dad – Silver is the best hedge against inflation (10/2/09)

http://www.youtube.com/watch?v=OAGVlLuFEoQ

Ron Paul on Russia Times: FED evil; World ‘War Mongering’ Against Iran (10/1/09)

http://www.youtube.com/watch?v=5l9UpptF5z4

Ron Paul On Fox And Friends – “End The Fed” (10/1/09)

http://www.youtube.com/watch?v=o81fy8lcPVo

Bloomberg TV The Close 09 30 09

http://www.youtube.com/watch?v=YZXifnyGclk

Peter Schiff 9/27/09 – CNN Your Money

http://www.youtube.com/watch?v=kLAYzurPhQ8

Inside Look – Gloom, Boom & Doom (9/22/09)

Part 1 – http://www.youtube.com/watch?v=UfuiNjvH9_c
Part 2 – http://www.youtube.com/watch?v=gdBIRD87-Ao
Part 3 – http://www.youtube.com/watch?v=kA5dfcMNtCo

Obama under fire over falling dollar (10/7/09)

http://www.ft.com/cms/s/0/08ca4832-b36a-11de-ae8d-00144feab49a.html

• The falling US dollar is giving ammunition to the critics of the Obama administration and fuelling broader concerns about the potential erosion of America’s reserve currency status.

Dollar’s Slide Gives Rise to Calls for New Reserve (10/7/09)

http://www.washingtonpost.com/wp-dyn/content/article/2009/10/06/AR2009100603818.html

• The U.S. dollar continued its six-month slide Tuesday amid a growing international chorus that wants the dollar replaced — or at least supplemented — as the world’s reserve currency, a move that would end the greenback’s six decades of global dominance.
• “The U.S. dollar is headed for also-ran status, and it will continue to lose its value against many other currencies and assets,” Miller Tabak equity strategist Peter Boockvar said. “The rest of the world wants the U.S. dollar to lose influence, but no one wants it to be abrupt, as it’s in no one’s interest. An evolutionary process is what is wanted.”
• “For the average Joe, the implications of a crisis of confidence in the dollar could end up in higher borrowing costs, lower government expenditures — so that means reduced services — and higher taxes,” Prasad said. “Most likely, some combination of all of the above.”

Dropping Rents Will Drag House Prices Down with Them (10/6/09)

http://finance.yahoo.com/tech-ticker/article/349606/Dropping-Rents-Will-Drag-House-Prices-Down-with-Them

• The vacancy rate for rental apartments in the U.S. is now 7.8% and climbing, says the Wall Street Journal. This is the highest vacancy rate in 23 years.
• Worse, the vacancy rate is expected to keep climbing through the winter, ultimately hitting the highest rate on record.
• This is good news for renters and bad news for landlords. It’s also bad news for anyone who owns and would like to sell a house.
• Why are rising rental vacancies bad news for homeowners?
• Because rising vacancies put pressure on rents, as landlords have to cut prices to woo a smaller pool of tenants. As rents drop, meanwhile, one of the key measures of house-price value–the price-to-rent ratio–also changes, and not for the good.

IMF should start on int’l monetary reform-China (10/6/09)

http://in.reuters.com/article/marketsNewsUS/idINFCC00004720091006

• The International Monetary Fund should start work on a reform agenda to fix “intrinsic defects” in the international monetary system, Chinese Finance Minister Xie Xuren said on Tuesday.

Fed won’t have to immediately disclose lending details (10/6/09)

http://www.marketwatch.com/story/fed-wont-have-to-immediately-disclose-lending-2009-10-06

• The Federal Reserve won’t have to disclose details of its emergency financial crisis lending programs immediately after an appeals court on Tuesday approved the central bank’s appeal to suspend a lower court ruling requiring such disclosure pending resolution of the case.
• The U.S. Second Circuit Court of Appeals in New York approved the Fed’s request for a stay and expedited consideration of a Freedom of Information Act lawsuit launched by Bloomberg News.
• The news organization filed a suit last year seeking to have the central bank publicly release documents containing data about the names of the banks that have participated in its lending programs in the midst of the financial crisis. Bloomberg is also seeking information about the amount of funds lent to banks during the financial crisis.

UN calls for new reserve currency (10/6/09)

http://www.breitbart.com/article.php?id=CNG.e272eaa74dccc30f21c6ff7638b0f37b.461&show_article=1

• The United Nations called on Tuesday for a new global reserve currency to end dollar supremacy which has allowed the United States the “privilege” of building a huge trade deficit.
• “Important progress in managing imbalances can be made by reducing the reserve currency country’s ‘privilege’ to run external deficits in order to provide international liquidity,” UN undersecretary-general for economic and social affairs, Sha Zukang, said.
• Speaking at the annual meetings of the International Monetary Fund and World Bank in Istanbul, he said: “It is timely to emphasize that such a system also creates a more equitable method of sharing the seniorage derived from providing global liquidity.”
• He said: “Greater use of a truly global reserve currency, such as the IMF?s special drawing rights (SDRs), enables the seniorage gained to be deployed for development purposes,” he said.

The G-7 Abandons The Dollar (10/5/09)

http://www.forbes.com/2009/10/05/dollar-g7-yen-markets-currencies-foreign-exchange.html?partner=alerts

• The Group of Seven will let the dollar fall.
• The heated climate before the Istanbul meeting led some to expect global policymakers to take a stand, but despite the strong tone, Andrew Wilkinson, senior market analyst at Interactive Brokers, said it was short on action. “It invites investors to test the dollar’s lines of resistance in order to see what response, if any, might be forthcoming in the event of a further fall in the value of the dollar,” Wilkinson said.
• The dollar’s loss of value over the past six months has been a cause for concern for the world’s financial chief’s, Wilkinson said, and reasonably so because the greenback’s instability threatens financial markets and economies. (See “Playing The Downward Dollar.” and “Harrison Sees A Dollar Boom.”)

New York Income Tax Revenue Falls 36% in Year, Paterson Says (10/5/09)

http://www.bloomberg.com/apps/news?pid=20601110&sid=aNQ6zYnQbPTc

• New York State’s income tax revenue has dropped 36 percent from the same period in 2008, Governor David Paterson said, “frustrating” his attempt to close a projected $2.1 billion budget deficit.
• “We added personal income tax, which we thought would make the falloff 10 percent to 15 percent,” Paterson, a Democrat, said on CNBC today, referring to $5.2 billion in new or increased taxes. “This is what is so frustrating. It’s still 36 percent, meaning our revenues fell more in 2009 than they did in 2008.”

Soros Says ‘Basically Bankrupt’ Banks Restrain U.S. (10/5/09)

http://www.bloomberg.com/apps/news?pid=20601087&sid=ajYVNCQSHgTg

• Billionaire investor George Soros said the U.S. economic recovery will be sluggish as “basically bankrupt” financial companies and indebted consumers impede it.
• “The U.S. will be very slow in recovery,” Soros said in a panel discussion in Istanbul, where the annual meetings of the International Monetary Fund and World Bank begin tomorrow. “The United States has a long way to go.”

“Too big to fail” must end for all: FDIC chief (10/4/09)

http://www.reuters.com/article/businessNews/idUSTRE59313Y20091004?feedType=RSS&feedName=businessNews

• The head of the U.S. Federal Deposit Insurance Corp. said on Sunday that she wanted to end the “too big to fail” doctrine and shrink the shadow banking system that operates outside the reach of regulators.
• FDIC Chairman Sheila Bair, speaking to the Institute of International Finance meeting here, said a U.S. proposal to create the authority to shut down failing systemically important financial firms may need to be extended to insurers and hedge funds.
• “We need to end ‘too big to fail’ and this needs to be an overarching policy that applies to everyone,” Bair said.

Gold Tells You U.S. Bubble Hasn’t Popped Yet: Alice Schroeder (10/1/09)

http://www.bloomberg.com/apps/news?pid=20601039&sid=ajPCIYcGX8t4

• Right now, the American economy is worth less than the value implied by the market value of its obligations. How much less, no one knows. But gold bugs will tell you, privately, that this is why they are buyers. Might as well stock up, they say, before gold becomes a controlled substance.
• I haven’t, so far, but the temptation is rising by the day.

Strong dollar ‘very important’: Geithner (10/1/09)

http://www.reuters.com/article/businessNews/idUSTRE5906XF20091001

Online Glitch Angers Millions Of TD Bank Customers (10/1/09)

http://wcbstv.com/consumer/td.bank.bank.2.1222131.html

US Faces Retro 70s Inflation: Jim Rogers (10/1/09)

http://www.cnbc.com/id/33114243

• The US faces high inflation because of the weak dollar and the Federal Reserve’s policy of printing money to counter the effects of the crisis, legendary investor Jim Rogers told CNBC Thursday.
• “There’s no question the US is vulnerable to hyperinflation down the road or certainly the inflation we saw in the 1970s, I would expect that to come back in the foreseeable future, certainly in the next few years,” he said.
• “The true inflation rate in America? It’s certainly at least 6 or 7 percent, the US government lies about it, as you know, everybody who shops knows that prices are up, everybody except the US government, and I wish we knew where they shopped so we can shop there too and get good prices.”

Bernanke: Dollar Will Be At Risk If Don’t Control Budget Gap (10/1/09)

http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=5b156e53-2bdd-4b2e-8e9d-8c86e51855a1

• U.S. Federal Reserve Chairman Ben Bernanke told lawmakers Thursday that the dollar’s status as a global reserve currency isn’t at risk in the near term, but warned that could change if fiscal deficits aren’t brought under control.
• When asked by Rep. Michele Bachmann, R-Minn., about comments by World Bank President Robert Zoellick that the dollar will face increasing competition as a reserve currency, Bernanke said he agrees with two points.
• He agreed with Zoellick that “there’s no immediate risk to the dollar, it’s a relatively long-term issue,” Bernanke said.
• “I also agree with him, though, that if we don’t get our macro[economic] house in order that that will put the dollar in danger, and that the most critical element there is long-term fiscal stability,” he said.

NY Fed says bought $2.635 bln of US agency debt (10/1/09)

http://www.reuters.com/article/marketsNews/idUSN0123018220091001

• The New York Federal Reserve said on Thursday it bought $2.635 billion of U.S. agency debt with maturities ranging from October 2013 to March 2016.

Report: CIT Group again on brink of collapse (9/30/09)

http://www.google.com/hostednews/ap/article/ALeqM5gJPJfJHyyxsTR64tslinjdgrOuTAD9B1MF7G0

• CIT Group Inc. shares plunged Wednesday as the commercial lender is reportedly trying to craft an exchange that would cut its debt and offer bondholders an equity stake in the company in a bid to avoid bankruptcy.
• CIT Group spent the summer trying to stave off a potential collapse amid mounting loan losses and rising funding costs. It has been devastated by the downturn in the credit markets and is attempting to restructure its operations to remain in business. CIT in the past relied heavily on cheap, short-term debt to fund its operations — a type of funding that essentially evaporated during the peak of the credit crisis last year.

Highlights from “The International Forecaster” newsletter (10/7/09)

Published and Edited by: Bob Chapman

Check out or Subscribe to The International Forecaster

• Last week we forecast the fall in the Dow at 9,800 and so it has begun. The market has finally overpowered the manipulation of our government. It wasn’t that difficult. A 26 P/E ratio of trailing earnings that should be 14.5 times. The next leg down will test 6,000 to 6,600 on the Dow next year. All those who had a second chance to sell into the bear market will be doomed to greater losses than they experienced this year. It is time to again exit the market and move into gold and silver related assets. The banks and brokerage firms along with insurance companies have been driving this bear market with money from the Fed and the Treasury at 50 times leverage. The correction is underway as all these entities try to exit at the same time. Some are going to end up insolvent. This reminds us of 1922 in Germany and today’s Zimbabwe. Assets on bank and brokerage house balance sheets are going to be devastated. Even they do not really understand the debasement that has taken place. Every chart comparing everything with gold is in a state of collapse and that will become more evident shortly as gold soars to new heights. The mad overvaluation of the markets is about to end. The de-leveraging will take ten perhaps 20 years that is unless we have another world war. Fudging the figures just is not going to work. The PPI is climbing and no one seems to notice, particularly the media. Big inflation is on the way. It will be interesting to see just how much of the price increases businesses are going to absorb. Those on the edge are going to go bankrupt as debt doubles and doubles again.
• The dollar has fallen from $124.00 on the USDX in 2002 to about 76.30 recently and was as low as 75.75 two weeks ago. Incidentally, someone should tell the liars at CNBC gold has risen by 300%. At both G-20 and G-7 summits there was little attention afforded to the plight and future of the dollar.
• G-20 was full of the normal gobbligoop by bureaucrats running hither and yon, and accomplishing nothing more than creating a cloud of dust. They said they will maintain the global flow of capital as bank lending fell 14% yoy. Nothing has been done to repair the financial system. It is worse off now than it has been in two years, since the debacle began. In order to repair the system it has to be purged. The banks, brokerage houses, insurance companies and the Fed have to go into bankruptcy. This, of course, means Americans will lose 50% to 95% of their wealth, unless they are in gold and silver related assets. That is the cost of not paying attention, for not making the House, Senate and President do as they should. These so-called leaders have done everything possible to insure that there is no recovery. This while they tell us the global financial crisis is over. In addition the same crowd that created this disaster tells us over and over again that without their untimely and unprecedented support, the system would have collapsed.
• You have to laugh at the G-7 and G-20. The latest is that world financial ministers have told the IMF to prepare guidelines to ensure an orderly and cooperative exit from fiscal and monetary stimulus. That can’t happen, because if it does the whole system will collapse. This is the IMF, which is selling gold because they will soon be broke, and haven’t made a correct decision in 60 years. The IMF is to provide insurance-style finance to well run emerging economies so they won’t build up foreign exchange. We have never heard anything stupider in our lives. As this transpired the World Bank’s President, Robert Zoellick, informs us the bank will be broke within a year.
• Applications for Social Security benefits rose almost 50% more than expected this year because of the recession, according to the federal retirement program. ‘We are seeing a significant increase in both retirement and disability applications as a result of the recession,’ said Mark Lassiter, a Social Security spokesman. Agency statistics show that 2.57 million people requested benefits, up from the 2.10 million applications received during the previous 12 months.
• On Tuesday gold rose $22.20 to $1,038.60 and the December contract rose $25.20. Spot silver rose $0.74 to $16.27 as December rose $0.85. 95% of analysts, economists, newsletters writers and technicians again assured us that gold and silver were going lower. We found they were dead wrong again. Do not listen to these charlatans they will bury you. This time the list is unfortunately very long. We saw the Fisk article from the London Independent, which stated Gulf Arabs are planning along with China, Russia, Japan and France to end dollar dealings in oil and that they will use a basket of currencies instead and we heard from other sources that there will be a strong gold component. Gold open interest rose 7,385 contracts, as silver OI rose 359 to 126,917. Next stop $1,200 to $1,700, probably $1,600 to $1,700 before it backs and fills. Next year we could easily see $2,500 to $3,000 just based on official inflation since 1980. Unofficial inflation puts it over $6,000. At $3,000 an ounce gold will have tripled from current levels. The big leverage and big gains from here on out will be in the shares.
• It is disgusting and disconcerting that those who were plotting to use another method of currency for trading in oil should lie about their participation. Our guess is that while in the process of formulating a new trading unit – currency – that this group might well use the euro. That would make the euro climb and put more pressure on the dollar. The dollar will fall further as hyperinflation hits the US and world economy. As these events unfold this group that no longer want to use a debauched dollar may decide to take revenge on the international bankers, particularly those in the US and UK, and simply wipe the dollar out by deluging the Forex market with dollar sales. It would be pure economic warfare. Whatever happens the great fraud is going to end and our 50-year quest for exposure and solution will have been accomplished.
• Australia’s central bank raised its key cash rate by 25 basis points to 3.25 percent on Tuesday and heralded more to come, saying it was safe to row-back on stimulus now that the worst danger for the economy had passed.
• The Australian dollar jumped to a 14-month high and interbank futures slid as investors rushed to price in at least one more hike by Christmas, and rates above 4 percent in a year.