Timothy Geithner is still in his tries to store the confidence in the US economy ability to recover but this time in Arabian Gulf countries, he has announced that US is still underpinning the greenback with change of this policy. Timothy promised that US would pursue policies for keeping the dollar's value yesterday. The gulf countries are holding a great deal of their reserves in the greenback and the US assets and debits and losing confidence in the US recovery can make them thinking in other options seriously which can threat the US creditability further. The recent US easing policy steps in the face of the credit crisis have had many criticisms from the holders of these USD back securities as they hurt the US treasuries attractivness which  were the first option of the Fed's quantitive easing policy by offering an exchange of them by the mortgages back securities which caused the financial problem and became known as toxic assets which can poison the US creditability itself and they are still the Fed's preferred way to pump funds and easing by its adopted quantitive easing policy after losing the cutting interest rate tool to afford the required liquidity for the government to clean the banks balances sheets and to spur growth again to cover its debits.

Timothy has made a similar visit to china which criticized the world system based on the greenback recently in the G8 meeting for the same purpose but the position is different in these giant gulf countries as the US recovery is not only in need of liquidity and injecting funds which have inflationary bad recessionary effects but its in need of real demand to grow and until now this demand in US seems not enough to move the economy up from this point which can cause second round effects of this crisis and this demand can come from these countries which are remarked with a high income and a great deal of oil reserve which fortifies their prosperity in the times of growing too. So, from their side their holding of the greenback is a good hedge options at the time of recession and keeping their currencies based on the greenback is still a considerable option as the oil is still selling by this same currency.

From US side, it is important for the US to have a strong partnership with these countries which have the liquidity and oil which can bring them out of global crisis much stronger as US needs for a direct buying and holding of the US assets and indirect demand from these countries and even if it is not by the direct investing in US, it can be by sharing these countries inside growing projects which can operate US halted companies forces and add exterior demand to the US struggling economy as the liquidity is not enough if there is no a real demand and chances for growing and if this demand is not existing enough the liquidity can cause inflation pressure which can cap further the hope of the recovery and causes a stagflation inside the economy.

Best wishes


FX Consultant

Walid Salah El Din
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