Jihad Against the US Dollar?

Maybe so.

Probably the most important American "ally" in the Middle East, and holder of a massive amount of U.S. Dollars, Saudi Arabia, has issued a Fatwa against the dollar.

This is INCREDIBLY BAD, both economically and politically.

According to Telegraph UK:

To all intents and purposes, the Wahabi religious establishment of Saudi Arabia has just issued a fatwa against the US dollar. This bears watching.

A message issued by 26 leading clerics warns that inflation has reached intolerable levels in the Gulf kingdom.

While it does not vilify the dollar explicitly, the apparent political aim is to undermine the country’s dollar peg.

“The rulers should seek to try to remedy this crisis in a way that would ease people’s suffering.”

“We direct this message to the rulers and officials: we remind you of Prophet Mohammad’s words that you are shepherds who are responsible for your flock,” it said.

The statement was posted across the Islamic world. The background to this has been a raging debate in Gulf religious and economic circles about the destructive effects of the sliding dollar.

Among the lead-authors is Sheikh Nasser al-Omar, known for his fatwa against US-led forces in Iraq.

He has long preached the collapse of American-led capitalism, and now sees a perfect moment to plunge the knife. We can guess that al-Qaeda Inc is thinking along the same lines...

Please read the rest of the article.

As Saudi Arabia holds many of our increasingly worthless dollars, any move on their part to break the dollar peg that forces the Saudi currency to move in tandem with the dollar could cause a massive run on our dollar.

Needless to say, that would be very BAD for us. And as time passes, and economic and political pressure builds against the U.S. Dollar, the ability of the Saudis to maintain the dollar peg will become more and more difficult. If they should let their currency float to market value against the dollar...

Possibly even more alarming, yet another financial sector is getting ready to implode, this time involving the bond markets.

Courtesy of Market Oracle:

The hidden bond insurers used by Wall Street firms are in the news, especially ACA Capital and MBIA. Implications are huge, with monumental ripple effects. Financial press reporting of the bond insurers is woefully inadequate. Moodys and Fitch are giving analysis review to nine ‘AAA' rated bond insurers to see if they have sufficient capital to conduct their insurance operations. The list includes ACA Capital, MBIA, Ambac Financial, and Financial Guaranty Insurance. ACA Capital has only $1.1 billion in cash for payout of bond failure claims, but has lost $1 billion in the most recent quarter. More losses are assured. This insurer is very important, since it is widely abused by Wall Street banks to hide cratered bond derivative losses...

... if ACA insures a bond, then Goldman Sachs or Merrill Lynch for instance can take the under-water bond off the balance sheet. They can do so under fast changing rules, since any potential loss is not perceived to affect the firms themselves. ACA is widely called the ‘garbage can' for Wall Street, where tremendous losses are concealed from stock investors, corporate bond investors, debt rating agencies, and bank regulators. But the Financial Accounting Standards Board (FASB) is changing against the firms, forcing firms to bring losing assets onto their balance sheets in droves. Several Wall Street firms own sizeable stakes in ACA, a ploy that enables them to hide gigantic losses in blatant collusion. Bear Stearns is the fifth largest US securities firm. They own a 39% stake in ACA Capital.

Once again, leveraged mortgage bonds and mortgage-based Collateralized Debt Obligations (CDO) bonds are the root cause of the problem. Losses are amplified with the CDO packages of credit derivatives. My expectation is that mortgage bond losses will be an order of magnitude larger in 2008 than 2007, as prime adjustable mortgages face their nightmare, next on the debacle docket. JPMorgan bank analyst Andy Wessel claims if ACA defaults, banks would be forced to bring their ACA-guaranteed CDO bonds onto their books. Wessel says, “ACA is a likely candidate to get thrown to the wolves first.”

If ACA loses ‘AAA' rating, then possibly $60 billion in CDO bonds will be forced onto bank balance sheets in the banking sector generally. For instance, an ACA default would force Merrill Lynch to declare a $3 billion writedown of its CDO bonds. Expect this type of story to continue endlessly. Yesterday Morgan Stanley announced an additional $5.7 billion in bond writedown losses, making their recent total a robust $9.4 billion. Expect that their ultimate total will be three to five times larger. Bear Stearns is engaged in a parade of announced losses, each touted as the climax. Their latest made Thursday was for another $.19 billion. In my book, the entire gaggle of corrupted Wall Street broker dealers is insolvent, defending against bankruptcy with accounting shenanigans, all with the USGovt and Dept Treasury blessing.

MBIA faces similar threats, as a bond insurer. They have faced a likely downgrade by Moodys for weeks, sure to put in grave doubt the status of $652 billion of structured finance bonds, as well as state and municipal bonds that they insure. The world's largest bond insurer, MBIA beat the market to the punch in surprising admission of having $8.1 billion in CDO bond exposure. They also opened the door to discussion of ‘CDO Squared' derivatives, which are leveraged instruments built recklessly atop other leveraged mortgage bonds securities. Expect the MBIA actual losses will ultimately be three to five times larger. MBIA, ACA Capital, and six other bond insurers sweat bullets over debt rating agency downgrades. A loss of their top rating would cast serious doubt on $2400 billion in asset backed debt securities collectively.

Given the size of their total insured bond portfolios, Bloomberg Data estimates the downgrades could result in $200 billion in bond losses and bank writedowns. The rating agencies consider the bond insurers as a group to be holding far too little capital for to justify ‘AAA' ratings as corporate entities. Remember, the entire US bank/bond risk management model is dissolving before your eyes...

Please read this article in full, as it is very important.

At the end of the day, we have external and internal financial pressures that are threatening to destroy the American economy. And I fear that, with the exception of Ron Paul, no other politician gets it. As Rome burns, our so called leaders will fiddle.

The end result, unless tough decisions and choices are made, and soon, is that countless people are going to find themselves living in an economic nightmare that they will be unable to wake up from. And more tragically, they will have no idea how financial Armageddon came to pass.

Please, Dear Readers, NOW IS THE TIME to educate yourselves, prepare for the worst, and hope for the best.

K-Dogg.