Kuwait bails on the dollar

Sheesh, Uncle Sam expends untold blood and treasure to put the Kuwaiti royal family back in power, and this is the thanks he gets?  Just goes to show you that international relations is a lot like relations inside the beltway: It's not not a matter of "What have you done for me," but "What have you done for me lately?"

When even your closest allies are bailing on the dollar, it's a bad sign.  It's especially rich to see the governor of Kuwait's central bank say the dollar peg has "contributed to local inflation."  How is that possible, when of course we all know there's next to no consumer inflation in the dollar's home country, especially for those lucky people who don't consume food and energy?

Of greater long-term consequence is that this move jeopardizes something we noted here last fall.  Back then, the Gulf Cooperation Council — Kuwait, Saudi Arabia, and four smaller Arab states — announced the single currency it planned to adopt in 2010 would be pegged to the dollar.  According to this latest report, the single currency plan remains in place.  But clearly at least one of the member states feels the dollar would drag it down.

Wonder what they're talking about today at the Saudi finance ministry…

The Daily Reckoning