The Dollar Losing Ground As The World’s Reserve Currency

Australia and China have announced that they will trade with each other without using the U.S. Dollar.  China and Russia will chip away at the Dollar’s reserve currency status by establishing direct payment in their own currencies with one trading partner after another.  When the world no longer considers the Dollar a necessary reserve currency, we will be in big trouble.  We will no longer be able to endlessly print money and kick the can further down the road.  That will be the end game for the fiat currency system that has been in place since Bretton Woods.

In a previous article by David Stockton on this blog, he makes the following statement about Richard Nixon, which I completely agree with:

“When Richard M. Nixon essentially defaulted on the nation’s debt obligations by finally ending the convertibility of gold to the dollar. That one act — arguably a sin graver than Watergate — meant the end of national financial discipline and the start of a four-decade spree during which we have lived high on the hog, running a cumulative $8 trillion current-account deficit.”

The following is an article that appeared in that demonstrates how the world is changing and how the U.S. Dollar is unlikely to remain the worlds reserve currency.

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Sundown in America – David Stockman

There have been a lot of doom and gloom articles appearing lately.  Should we be concerned?  (GA)

New York Times
Published: March 30, 2013

The Dow Jones and Standard & Poor’s 500 indexes reached record highs on Thursday, having completely erased the losses since the stock market’s last peak, in 2007. But instead of cheering, we should be very afraid.

Over the last 13 years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later — within a few years, I predict — this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too.

Since the S.&P. 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion). Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent annually. Real median family income growth has dropped 8 percent, and the number of full-time middle class jobs, 6 percent. The real net worth of the “bottom” 90 percent has dropped by one-fourth. The number of food stamp and disability aid recipients has more than doubled, to 59 million, about one in five Americans.

So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.

When it bursts, there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.

THIS dyspeptic prospect results from the fact that we are now state-wrecked. With only brief interruptions, we’ve had eight decades of increasingly frenetic fiscal and monetary policy activism intended to counter the cyclical bumps and grinds of the free market and its purported tendency to underproduce jobs and economic output. The toll has been heavy.

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Another Housing Bubble Coming In Los Angeles?

The housing market continues to face a few trends in 2013.  Low inventory, higher leverage because of low interest rates, and high demand from investors.  Take for example the share of foreclosure re-sale properties that are being sold.  In Southern California, the peak was reached in 2009 at 58.3 percent of all sales.  Today foreclosure re-sales make up only 15 percent of all sales.  This of course is one reason why the median home price has soared in the last year.  With such high demand and low inventory, investors are able to poach high quality properties since coming in with an all cash position is much better than relying on a mortgage which most typical buyers will use.  Also, the shadow inventory is being slowly leaked out since there is little reason to flood the market and depress prices.  Banks have figured out that frenzied buying and record breaking low inventory is a good recipe for causing prices to jump up.  Does distressed inventory even matter in Los Angeles anymore?

Los Angeles Distressed Inventory

One interesting point in all of this is that people now somehow think that there are no foreclosures or that somehow the housing market is back to the days of 2005 and 2006.  Let us look at foreclosures in Los Angeles County:

LA Foreclosures
Foreclosures in Los Angeles County – March 2013

Over 17,000 properties are in some stage of foreclosure in the county.  Is this high?  Well let us take a look at the non-distressed inventory that is listed in the MLS:

los angeles county non-distressed

Continue reading “Another Housing Bubble Coming In Los Angeles?”