The Cost Of Green Shoots

In Economics there is always a trade off. You want full employment? Fine.. but what's the downside of prosperity? Too many people working and consuming to many goods and services which ultimately leads to higher prices. Nothing is for free and certainly the future risks of an out of control Fiscal/Monetary Policy will rear its ugly head. All of this talk of "Green Shoots" is really incomplete when not discussing the potential costs of achieving a stabilized economic system.

Anyone who believes that the impact from the unwinding of 50 years of progressively cheaper and pervasive credit will be resolved within a 1 year of the Lehman bankruptcy is either hopelessly naive, or ideologically conflicted, or both. As I have been saying, it's not the change in the trajectory of the global economy, but the cost of engineering it, that clouds the outlook.

On residential real estate, the foreclosure wave is hitting higher-end properties. The consequences for home price deflation, rental markets and bank losses are considerable. As long as Notice of Defaults are at all-time highs, we are nowhere near the bottom in housing.



As for the Dollar, I don't yet see the dollar losing its global status. We can put off that discussion of it losing its reserve status for much later time, but whats interesting is the following:

Joseph Yam, the storied head of the Hong Kong Monetary Authority, refers to the eras of reserve currencies as Portugal (1450-1530), Spain (1530-1640), the Netherlands (1640-1720), France (1720-1815) and Britain (1815-1920). 100 years looks like a long time.

"The notion that the Chinese yuan could replace the US dollar as the world's reserve currency may strike some as odd, or at least very premature. But in 1920, only 7 years after the creation of the U.S. Federal Reserve, the notion that the dollar would replace the British pound probably sounded even more bizarre, given the recent memory of US defaults on Civil War debts, a major depression in 1893 and the Panic of 1907. I thought it was notable that the Chairman of the state-owned China Construction Bank called on the United States and the World Bank to begin issuing yuan-denominated bonds, after several other steps taken this year to increase the yuan's convertibility".