San Diego Housing Bubble News and Analysis

People, time is growing very short. We now have 3 of the 4 resource-rich BRIC countries giving the finger to the greenback. I hope everyone on this board knows by now what this means for all of us and where it is leading.

This is what I am now hearing from several different financial quarters: July will be the tipping point for unemployment, as huge numbers of people laid off in Q4 will reach the end of their benefits. This will occur just as the fiscal year for most states, counties and municipalities begins July 1. As we all know, California is heading for default, but what many people don't know is that there are quite a few other states that are about to follow CA into default. We just happen to live in the state that garners the most attention because of its size. These government defaults are going to coincide with an abrupt and dramatic rise in the need for benefits and other services as large numbers of people are simply set adrift.

The state and local defaults this summer will set the stage for what is now inevitable this fall. Americans are about to witness a major train wreck, followed by a train wreck of epic proportions when the U.S. fiscal year begins Oct 1.

I think the overwhelming majority of central banks and investors outside of the U.S. must know this, hence the increasing chatter about the dollar's reserve status and the daily parade of new critics jumping onto the BRIC bandwagon. They know that our ability to borrow is about to dry up, they know the dollar is only months away from losing reserve status, and they are keenly aware of what will follow when that happens. Sadly, most Americans simply have no idea what is about to befall their country. I'm on vacation at a family reunion in Montana now, and I spoke to a few in-laws who are actually aware of the reserve currency debate. But there's what's scary: even they have no idea what the implications are. They don't even know what a reserve currency is.

When this thing hits, it's going to literally blindside people. My only question now is, will the U.S. attempt a military distraction as the inevitable draws closer...?

"By Mark Deen and Isabelle Mas

July 4 (Bloomberg) -- Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said he is urging the government to diversify its $264.6 billion foreign-exchange reserves and hold fewer dollars.

“The major part of Indian reserves is in dollars -- that is something that’s a problem for us,” Tendulkar, chairman of the Prime Minister’s Economic Advisory Council, said in an interview yesterday in Aix-en-Provence, France, where he was attending an economic conference.

Singh is preparing to join leaders from the Group of Eight industrialized nations -- the U.S., Japan, Germany, Britain, France, Italy, Canada and Russia -- at a summit in Italy next week which is due to tackle the global economy. China and Brazil will also send representative to the summit.

As the talks have neared, China and Russia have stepped up calls for a rethink of how global currency reserves are composed and managed, underlining a power shift to emerging markets from the developed nations that spawned the financial crisis.

“There should be a system to maintain the stability of the major reserve currencies,” Former Chinese Vice Premier Zeng Peiyan said in a speech in Beijing yesterday, highlighting China’s concerns about a global financial system dominated by the dollar.

Fiscal and current-account deficits must be supervised as “your currency is likely to become my problem,” said Zeng, who is now the head of a research center under the government’s top economic planning agency. The People’s Bank of China said June 26 that the International Monetary Fund should manage more of members’ reserves.

Russian Proposals

Russian President Dmitry Medvedev has repeatedly called for creating a mix of regional reserve currencies as part of the drive to address the global financial crisis, while questioning the dollar’s future as a global reserve currency. Russia’s proposals for the Group of 20 major developed and developing nations summit in London in April included the creation of a supranational currency.

“We will resume” talks on the supranational currency proposal at the G-8 summit in L’Aquila on July 8-10, Medvedev aide Sergei Prikhodko told reporters in Moscow yesterday.

Singh adviser Tendulkar said that big dollar holders face a “prisoner’s dilemma” in terms of managing their holdings. “That’s why I’m telling them to do this,” he said.

He also said that world currencies need to adjust to help unwind trade imbalances that have contributed to the global financial crisis.

“The major imbalances which led to the current situation, the current account surpluses and deficits, have to be addressed,” he said. “Currency adjustment is one thing that suggests itself.”

Emerging-Market Dependence

For all the complaints about the dollar, emerging markets such as India remain dependent on the currency of the U.S., the world’s largest economy and a $2.5 trillion export market. The IMF said June 30 that the share of dollars in global foreign- exchange reserves increased to 65 percent in the first three months of this year, the highest since 2007.

Tendulkar said that the matter needs to be taken up in international talks, and that it emphasizes the need for those talks to go beyond the traditional G-8.

“They can meet if they want to,” he said. “The G-20 has a wider role, has representation of the countries that are likely to lead the recovery process.”

http://www.bloomberg.com/apps/news?pid=2...