When the US federal government was shutdown, China jumped in on the financial bandwagon and suggested that we build ‘a de-Americanized world’, which boils down to getting rid of the dollar as the international reserve currency.
The death of the dollar is coming, and it will probably be China that pulls the trigger. What you are about to read is understood by only a very small fraction of all Americans. Right now, the U.S. dollar is the de facto reserve currency of the planet. Most global trade is conducted in U.S. dollars, and almost all oil is sold for U.S. dollars. More than 60 percent of all global foreign exchange reserves are held in U.S. dollars, and far more U.S. dollars are actually used outside of the United States than inside of it. As will be described below, this has given the United States some tremendous economic advantages, and most Americans have no idea how much their current standard of living depends on the dollar remaining the reserve currency of the world. Unfortunately, thanks to reckless money printing by the Federal Reserve and the reckless accumulation of debt by the federal government, the status of the dollar as the reserve currency of the world is now in great jeopardy.
One of the most trumpeted stories justifying the US economic "recovery" is the resurgence in car sales, which have now returned to an annual sales clip almost on par with that from before the great depression. What is conveniently left out of all such stories is what is the funding for these purchases (funnelling through to the top and bottom line of such administration darling companies as GM) comes from. The answer: the same NINJA loans, with non-existent zero credit rating requirements that allowed anything with a pulse to buy a McMansion during the peak day of the last credit bubble. Bloomberg reports on an issue we have been reporting for over a year, namely the 'stringent' credit-check requirements for new car purchasers by recounting the story of Alan Helfman, a car dealer in Houston, who served a woman in his showroom last month with a credit score lower than 500 and a desire for a new Dodge Dart for her daily commute. She drove away with a new car.
Having now tripled since August, Bitcoin's break above $300 ($324 highs) raises an important thought experiment - can a digital currency act as a global reserve currency?
When it comes to US equities today, the picture below summarizes it all... the only question is whether the NYSE breaks to celebrate the year's overhyped social media IPO.Aside from the non-event that is the going public of a company that will likely not generate profits for years, if ever, the overnight market has been quiet with all major stock indices in Asia trading modestly lower on the back of a modestly stronger dollar, although the main currency to watch will be the Euro (German Industrial production of -0.9% today was a miss of 0.0% expectations and down from 1.6% previously), when the ECB releases its monthly statement at 7:45 am Eastern when it is largely expected to do nothing but may hint at more easing in the future. On the US docket we have the weekly initial claims (expected at 335k) which now that they are again in a rising phase, have been the latest data item to be ignored in the Bizarro market, as well as the latest Q3 GDP estimate, pegged by consensus at 2.0%.
The financial markets continue higher, and the excesses of the status quo continue expanding with little ill effect (so far). Why is it so difficult to predict the timing of crisis/collapse? The question is equally valid for both bears and bulls; how could all the boosters of housing be so wrong in 2008 when they asserted that "housing is not a bubble"? Here are ten possible factors in why it's so difficult to predict crisis/reset.
The Fed will have to increase QE (not taper it) because systemic debt is compounding faster than production and interest rates are already zero-bound. Lee Quaintance noted many years ago that the Fed was holding a burning match. This remains true today (only it is a bomb with a short fuse). Thirteen years after the over-levered US equity market collapsed, eleven years following Bernanke’s speech, five years after the over-levered housing bubble burst, and four years into the necessary onset of global Zero Interest Rate Policies and Long-Term Refinancing Operations, global monetary authorities seem to have run out of new outlets for credit. In real economic terms, central bank policies have become ineffective. In other words, the US is now producing as much new debt as goods and services.
"The motivation behind America's extensive eavesdropping is unclear. The explanations the White House has been forced to offer are far from explanatory, and the diorthosis President Barack Obama has promised seems all but skin-deep. The apparent application of a double standard only reinforces the image of a Janus-faced America. In the sunlight, it preaches; in the dark, it pries. On the offensive, it orates; on the defensive, it equivocates. The wayward practice has now backfired, and the damage is increasing... Trust is the first and foremost casualty. Common sense dictates that trust is a two-way street: One has to trust in order to be trusted. It is particularly true in friendships and alliances. America obviously failed to follow the simple rule. If Washington did not knit the worldwide wiretapping web just because it could, then its pillage for information unveils an Uncle Sam too deeply entrenched in suspicion and isolation to treat anyone as a real friend. Ironically enough, the bugging undermines the very thing it is supposed to protect -- national security. As America pins its security on alliances, the tapping tale would sour its relationship with allies -- and thus erode its security bedrock -- more than any terrorist would be capable of."
If you believe that there is high inflation in the United States, you are just imagining things. That is the message that the U.S. government and the Federal Reserve would have us to believe. Of course anyone that shops for groceries or that pays bills regularly knows what a load of nonsense the official inflation rate is. The U.S. government has changed the way that inflation is calculated numerous times since 1978, and each time it has been changed the goal has been to make inflation appear to be even lower. But if the mainstream news actually reported 'the real' number, everyone would be screaming and yelling about getting inflation under control. Instead, the super low number that gets put out to the public makes it look like the Federal Reserve has plenty of room to do even more reckless money printing. It is a giant scam, but most Americans are falling for it.
When will the U.S. labor market start to accelerate? That is the single most critical question for global capital markets, for it speaks directly to both economic growth and Federal Reserve monetary policy. But, as ConvergEx's Nick Colas notes, just as important, however, is the question "Where do people actually want to work?" Nick's key conclusions: there is no evidence of any faster pace of hiring, and the trend of hiring part time labor over full time is both strong (a 3:1 ratio) and accelerating.
While the pile of debt keeps growing and monetary intrusion becomes more drastic by the day, there’s almost no talk of inflation. A growing number of investors ask themselves this question.
Why China DOESN'T WANT the Yuan to Become the Reserve Currency
Russell Brand's excited exchange with stoic Brit Jeremy Paxman this week is a must-see "exchange of new ideas vs old." Among Brand's clearer moments were "stop voting, stop pretending, wake up. Be in reality now, time to be in reality now. Why vote, we know it's not going to make any difference, we know that already." The excellent discourse has prompted this open letter supporting the comedian.. concluding so legitimately nowadays, with Upton Sinclair's infamous quote "It is difficult to get a man to understand something, when his salary depends upon his not understanding it."
Already, the Chinese have stopped accumulating dollars - preferring safer currencies, infrastructure, hard assets and commodities and of course gold. Even a small amount of Chinese selling could lead to substantial dollar weakness and much higher bond yields plummeting the U.S. into another recession.
The number one American export is U.S. dollars. It is paper currency that is backed up by absolutely nothing, but the rest of the world has been using it to trade with one another and so there is tremendous global demand for our dollars. The linchpin of this system is the petrodollar. For decades, if you have wanted to buy oil virtually anywhere in the world you have had to do so with U.S. dollars. But if one of the biggest oil exporters on the planet, such as Saudi Arabia, decided to start accepting other currencies as payment for oil, the petrodollar monopoly would disintegrate very rapidly. For years, everyone assumed that nothing like that would happen any time soon, but now Saudi officials are warning of a "major shift" in relations with the United States. In fact, the Saudis are so upset at the Obama administration that "all options" are reportedly "on the table".