CHESSNOID

A few months ago, there was a rumor that the Chinese government was pushing to change the world reserve currency away from the US dollar. Yesterday, there were rumors that Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar. Those were just rumors but they are ideas that are floating out there by other countries because they are worried of the US federal deficit.

Now a G20 country has decided to break  rank from the other countries and is raising interest rates.  This action had an immediate effect against the US dollar and will definitely make other countries act in a similar way.

SYDNEY (Reuters) –

Australia’s central bank raised its key cash rate by 25 basis points to 3.25% on Tuesday and heralded more to come, saying it was safe to row-back on stimulus now that the worst danger for the economy had passed.

…

The Reserve Bank of Australia’s (RBA) decision made it the first of the Group of 20 central banks to hike as the global financial crisis eases and came as a surprise to many analysts.

First among equals

The move by the RBA puts it far ahead of most major developed nations, which show little if any inclination to tighten. Rates in the United States, the euro zone, Britain, Canada and Japan are all at or under 1%.

…

“This is a surprise move, evidently, and raises the chance that other central banks will follow suit perhaps sooner than anticipated,” HSBC economist Frederic Neumann said in a research note.

“First on the list is Korea and we see a greater chance now of a hike this quarter rather than the next, with Taiwan, perhaps surprisingly, coming next in Asia.”

October 6, 2009 for me is the day I recognize the big picture for the US economy is in for its greatest challenge yet. Today, we are at 9.8%  and on the verge of a 10% national unemployment rate, the largest US deficits, and the most foreclosures of all time. Unofficially, the U6 number is 17% which is closer to 28-30 million people unemployed.

Bureau of Labor Statistics:

NOTE: Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.

There is talk about more foreclosures on the way from the shadow inventories that the banks hold on to avoid recognizing the true losses made on those bad loans.  These defaulted properties are in pipeline and most will not be given modifications.

Sept. 23 (Bloomberg)

The crash in U.S. home prices will probably resume because about 7 million properties that are likely to be seized by lenders have yet to hit the market, Amherst Securities Group LP analysts said.

The other part of foreclosures are the ones that will be triggered by the reset of Alt A loans. Both the rates and payments will be adjusted to accommodate the higher rates, shorter loan term remaining, and to amortize the principal which may be higher than when they first received the loan.

Feb. 2 (Bloomberg) —

The latest ordnance is the option adjustable-rate mortgage, one of the many sucker loans marketed during the housing boom. Option ARMs basically gave borrowers four ways to pay back, most of them involving low initial outlays that would reset at much higher monthly amounts at a future date.

Of the $200 billion of these loans outstanding, almost $30 billion is due to reset this year and $67 billion in 2010, according to Fitch Ratings, a New York-based ratings company.

Ultimately, the option-ARM resets might plunge 8 million more households into foreclosure. That’s in addition to the 2.3 million facing home loss last year, says Eric Rothmann, an analyst for Zacks Investment Research in Chicago.

We already know our economy is on weak footing, and not dealing with the housing bust will prevent America from recovering.  As our government continues to blow up our deficit by spending on wasteful bailouts, stimulus packages, and creating new government agencies and positions,  the other countries are now recognizing that they must reduce their risk against America by raising their interest rates and running from the US dollar.