Not very many analysts discuss this underlying issue within the islamic world. It's a very key component in what's really going on. The Iran Shia falang vs the Sunni Saudi-Arabia followers. The really strange part is that even within the most fundamental hard core islamists the Saudi-Arabian interpretation called whhabism is a really, really strict interpretation of islam and the key representatives of this then is the Saudi Royal family. You know these guys that has such a close relationship with the US. Also as Mecca is located in Saudi-Arabia that's then a really important site for muslims but at the same time the Royal Saudian family allows American troops on their land. All of this not very well received by Muslims in general.
At the same time it's hard to imagine a more constrained dialogue that that between the "liberal " islamic Shiia nation and the Western world. Whenever Hillary Clinton or the banking elit (read Soros) discuss the middle east they always bring up Iran as the real issue from a democratic perspective and the need for reform and change in that country.
Kinda weird as Saudi-Arabia possibly is one of the most represseive regimes out there in the whole world? But never does this fact seem to bother the western representatives. Maybye this all then spells oil?
In therms of credability within the Muslim world however it's probably hard to find any one with less than the Royal Saudi family. Clearly also as Sunni friendly Mubarac in Egypt was removed it seems possible that Shia are gaining ground not only in Irak, Baharain, Saudi-Arabia but also on the African continent.
Stratfor put the Bahrain situation in this context. “There are negotiations under way between the Shiite-dominated opposition and the Sunni royal family… If there is to be a negotiated settlement, then the royal family, the al-Khalifas, will have to shed some powers, which means that the Shia are likely to be empowered. If that happens, that energizes Shia in Kuwait… And then, of course, Saudi Arabia is next.”
Oil prices are headed higher and maybe much higher as inventory cushions diminish and as markets recognize the quality differences in crude oil. Sweet Libyan crude cannot be replaced by Saudi crude on a barrel-by-barrel basis. As Ed Yardeni wrote, “Saudi crude is cruder.”
Then this underlying issue also tend now to have reprecussion not only in the middle east and oil rich nations like e.g. Saudi-Arabia, Algeria but in addition sub sahara nations like e.g. oil exporter Nigeria as well.
The contagion in the Middle East and North Africa (MENA) continues to grow. In addition, the spread to Sub-Saharan Africa lies ahead, as the media images of social network-induced protest encourage copycats in those countries. We are now tracking the 20 MENA countries as well as others like Cameroon and Nigeria.
And it's interesting that not only are foreginers avoiding US tresuries leaving the FED as the buyer of last resort, it seems as these ever increasing oil incomes oil producers now generate increasingly is switched over from the dollar to the Euro. Always when there has been international geopolitical turmoil financial internation chrisis people usually have fled to the dollar. Not this time.
Monetary policy and interest rate outlooks are diverging between the US Federal Reserve and the Eurozone’s European Central Bank (ECB). This has several implications.
In the US, the Fed is worried about employment and not about headline inflation. US policy looks at “core” inflation for estimates of the impact of monetary policy. Energy and food price spikes are viewed as “exogenous.” They are shocks to systems but they are not caused by monetary policy. They can do economic damage that may require monetary policy to ease longer than otherwise would be needed. Bernanke continues to affirm his worry about jobs and the economic recovery. At Cumberland, we consider the chances of aborting QE2 to be zero. The Fed will finish the QE2 program and then pause to review data at the end of the summer. Shorter-term interest rates in the US are likely to remain where they are for all of 2011 and, perhaps, much longer.
In Europe, the focus is more on headline inflation. Europeans tolerate higher unemployment rates more easily than we do. Moreover, they manage their monetary policy on the overall inflation rate outlook and not on the “core.” Thus food and energy prices are encouraging the ECB to tighten policy sooner rather than later.
Readers are also advised to consider the shifts in global preferences for reserves. Oil exporters have a lower USD preference than oil importers,” says Barclays. Barclays expects this shift to favor the euro. By analyzing the Treasury flow data, they derive an estimate that every $10 a barrel increase in oil price results in a $2.4 billion per month of reduced demand for USD. Barclays admits this is a difficult estimate to quantify. As to the direction, they are “confident.”
http://www.ritholtz.com/blog/2011/03/115-oil-contagion-central-banks-markets-rome/
Then part of the reason the US can not afford higher interest rates is the fact of the defecit. Already today and with these record low interest rates some 15% of tax revenue goes to servicing U.S. debt. Once rates normalize, debt costs will eat up 30%or more of tax revenues. So it seems it's right now a very chritical moment for the US how long they will be able to themselves maintain these record low interest rates. As long as they do this will put more preassure downwards on the dollar. In the mean time they will be able to roll over the debt by printing more dollar to purchase more treasuries. So IF QE2 woulden't be maintained and if a new QE3 isen't implemented well then that's a trade that will come to a very abrupt end.
Bottom line given these levels of US defecits there is no gain for the US to try to maintain a strong dollar. A less valued dollar then is what they want and that's what they need. That's why no foreginers and only the FED buy US treasuries and that's why oil producers switch to the Euro. Thus it seems evident that in order to maintain this process there is no way a QE3 not will be implemented. If not interest rates will skyrocket and then the real cost of the defecit will be evident as well as very hard to handle indeed.
In the mean time and as long as this game is maintained inflation as well as commodity prices will increase.
But interest on the debt continues to grow, reaching $101 billion through the end of February a 12.5 percent increase over 2010.
The federal government posted its largest monthly deficit in history in February, a $223 billion shortfall that put a sharp point on the current fight on Capitol Hill about how deeply to cut this year’s spending.
http://www.washingtontimes.com/news/2011/mar/7/government-posts-biggest-monthly-deficit-ever/
Had the US had it's house in order then the dollar would have been stronger. Then the cost for oil would have been less but now with the weakening dollar oil prices are a real concern. Not only does these QE programs increse the money supply and thus as such create inflation and higher commodety prices, it also lowers the value of the dollar at the very same time.
What's really strange to me is how some people still can argue all of this manipulation and intervention on the markets in any way can be seen as free market capitalism? Insted it all even worse than Soviet Union central planning where all traders and financial markets constanly look at and follow and analyse every step and word that comes out of the FED. Note that in this article below they refer to inflation as wage inflation..! As wages are not increasing (how could they with an unofficial un employment rate of close to 20%) inflation they argue is not an issue. I believe inflation is an issue for these people when they go to the grosery store or when they pay for gas at the pump.
Tipping point for oil seen at $150 per barrel
http://www.washingtontimes.com/news/2011/mar/7/tipping-point-for-oil-seen-at-150-per-barrel/?page=1
What's even more unsetteling is when you realise that what's triggering the geopolitical unrest in the Arab and Sub Saharan world are high food prices driven by inflation caused by excess capital originating from the FEDs QE programs. Remove the FED and the dollar would strengthen and oil prices would come tumbeling down.
In the entire history of the world - has there EVER been a more intervenistic policy implemented than what we today have with the FED and the Central banks causing more pain, grief and sorrow?
In the mean time question is if there will be any orther purchaser of Tresuries June 30th than the FED? If yes then it's fair they'd expect higher interest rates. Is that at all affordable for the US or will it be a 100% bought by the FED at dirt low interest rates levels deal?
The Federal Reserve may want to consider a third round of bond purchases if an oil shock materializes, a central bank official said Monday.
http://www.marketwatch.com/story/fed-flexibility-key-with-high-oil-lockhart-says-2011-03-07
BILL GROSS: June 30, 2011 Will Be Viewed As America's New "D-Day"
http://intheendwerealldebt.blogspot.com/2011/03/bill-gross-june-30-2011-will-be-viewed.html
At least to me it seems we're fast approaching QE3, higer commodity prices, lower dollar and thus more financial sparks to ignite further and possibly increased geopolitical unrest in the middle east, Africa and the rest of the world.
QE3? Several Top Federal Reserve Officials Seem To Think That More Quantitative Easing Is Necessary
Read more: http://www.benzinga.com/11/02/892389/qe3-several-top-federal-reserve-officials-seem-to-think-that-more-quantitative-easing-i#ixzz1FzFMDJG2
Then as on an average American farm cost for fuel is some 50% of the total cost of production. Assuming higher oil prices, that's then costs that has to go somwhere. Higher prices for grain - anyone?
Demand for U.S. Wheat Could Spark Riots
http://www.marketwatch.com/video/asset/news-hub-demand-for-us-wheat-could-spark-riots-2011-03-07/1F40E40B-3184-4285-B0A0-6BFE4C306E2B#!1F40E40B-3184-4285-B0A0-6BFE4C306E2B
In between QE2 and QE3 watch out for some possible (but temporary) deflationary triggers in the markets:
Prepare for Fed-induced turbulence in the markets
There's a scenario that could play out between May and September in which commodities (including my beloved silver) and the stock and bond markets could all sell off between 20% and 40%. The trigger will be the cessation of QE II and a multi-month pause before QE III.
http://www.financialsense.com/contributors/chris-martenson/the-coming-rout
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