http://ap.google.com/article/ALeqM5iGq9FLAV6j1yedpYvTgLbqwJiXCw and http://www.telegraph.co.uk/money/ma...7/09/19/bcnsaudi119.xml&DCMP=EMC-mcn_20092007 Bush in $20 billion arms deal with Saudis; Saudis threatening dollar collapse Friend and Ally Update. "Looming $20B Arms Sale Raises Concerns," by Barry Schweid for AP: WASHINGTON (AP) — The Bush administration's proposed multibillion-dollar weapons sale to Saudi Arabia brought new allegations on Capitol Hill Tuesday that the monarchy has been lax in countering terrorism. The kind of weapons that the Saudis would purchase and other details, including any U.S. conditions on how they might be used, have not been disclosed yet by the administration. The sale is part of a broader effort to strengthen U.S. friends in the region, with Israel and Egypt due to receive major boosts in military aid. One goal is to counter Iran's hard-line policies, including suspicions it is building nuclear weapons. Keynoting the skepticism at a hearing, Rep. Gary L. Ackerman, D-N.Y., chairman of the House Foreign Affairs subcommittee on the Middle East and South Asia, said the Bush administration has been unable to persuade Saudi rulers to stop the flow of fighters to Iraq and to attend a proposed regional meeting on the Israeli-Palestinian conflict. "Then why," he asked, "should we believe that they see the war on terror as we do, and why sell them those weapons?" "In the end," he said, "selling them arms won't guarantee their cooperation, much less their love." "Fears of dollar collapse as Saudis take fright," by Ambrose Evans-Pritchard in the Telegraph: Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East. "This is a very dangerous situation for the dollar," said Hans Redeker, currency chief at BNP Paribas. "Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States," he said. The Saudi central bank said today that it would take "appropriate measures" to halt huge capital inflows into the country, but analysts say this policy is unsustainable and will inevitably lead to the collapse of the dollar peg. As a close ally of the US, Riyadh has so far tried to stick to the peg, but the link is now destabilising its own economy.