US treasury chief says Gulf inflation not caused by dollar peg

AFP ^ | June 1, 2008

[Shermy]

DOHA (AFP) - US Treasury Secretary Henry Paulson said on Sunday that high inflation in the oil-rich Gulf region was not caused by the peg to the stumbling dollar, but any decision on the link was up to individual governments.

Speaking to reporters in Qatar on the second leg of a Gulf tour, Paulson also said skyrocketing oil prices were a question of supply and demand.

"I haven't heard anyone saying to me that the peg is causing a problem. You can look at Kuwait, they depegged to a basket of currencies (but) they have the same inflation... problem," he said.

Inflation is "driven by food prices and (cost of) building materials," Paulson said, adding that "the peg has served the region well for a long time."

Paulson reiterated remarks he made in Saudi Arabia on Saturday that "currency decisions are sovereign decisions by individual countries."

Five of the Gulf Cooperation Council member states -- Bahrain, Oman, Qatar, Saudi Arabia and the United Arab Emirates -- have so far shrugged off calls for an adjustment to their exchange rate regime, saying it would harm their economies.

But Kuwait decided in May last year to part ways with the dollar link, pegging its dinar to a basket of currencies. The dinar has since appreciated by some 7.7 percent against the greenback.

The policy of pegging currencies to the dollar enhanced monetary stability and benefited domestic economies when the US and Gulf economies were heading in the same direction.

Now Gulf economies are growing at a rapid pace, spurred by an unprecedented oil windfall. In contrast, the US economy is on the verge of recession as a result of the weak dollar, high energy prices and a liquidity crunch.

Paulson, who will visit the UAE on Monday, said his talks in the region also covered investments in the United States and the impact of high oil prices.

"It is (a question of) supply and demand," he said of record high crude prices, while calling for "increased investments around the world" in oil, gas and alternative energy sources.

Investments in the United States from the region doubled in the past two years, he said.

Paulson said his talks also touched on keeping the financial system "secure from sponsors of terror" with a focus on Iran, which Washington accuses of acting as a conduit for "terrorist financing" and suspects it seeks to acquire nuclear weapons.

"There is plenty of evidence that many banks no longer are willing to do business with Iran," he said.

"This is one way of sending a message to Iran which says that if you want to be a rogue state, continue as you are. But if you want to be part of the legitimate financial system... then don't isolate yourself through your actions."

[Shermy]

You see...the stumbling dollar, uh, why would that cause inflation, uh, wave my hands a little here, ok, food prices are going up, but that's supply and demand, like, uh, supply and demand doesn't apply to currency, uh, like, why would a stumbling dollar effect food prices, wave my hands a little, not even a part of it, and if you say another part is the ethanol bill, well, wave my hands some more, we are solving the so-called liquidity crunch with, uh, More Liquidity! What would that have to do with inflation, Nothing! I went to B-school, I know stuff!

Further reporting from Abu Dhabi...An Arab audience member stood up and ranted, in Arabic, not understood by Paulson, "I cannot stand it any more. Is he insulting us, or is he really that stupid? I'll say it, yes I'll say it, chop off my head for blasphemy I don't care anymore. Allah...Allah is NOT merciful. Yes I said it. Allah is NOT merciful. Allah is merciless. MERCILESS. Allah gives us the Persians so that we have to ally ourselves with these American infidel economic idiots, worst of all, we have to listen to them. We have to listen to Paulson and be polite is this not Hell? What could be worse?

[Shermy]

Friday commentary.

[Sprite518]

Hank is an idiot! Too bad we do not have any real leaders in our government right now. This issue is very easy to resolve. However, we have no leadership that will point us in the right direction.

[crz]

You and I know very well what the cause is. Yet the American public has become far to lazy to elect people to office who would rip apart the organizations who have created the biggest thieving scam ever brought upon us in world history.

Andrew Jackson did it as did many presidents in history. The present federal banking system is ILLEGAL.

[RightWhale]

Inflation is running strong in the Middle East as the Middle East industrializes. Saudi consumes more oil than India. They have a fundamental problem and no way out.

[okie01]

Another argument for limiting the Presidency to one four-year term. The “lame duck” term can become a national embarrassment.