Reserve Bank of Australia warns of ‘meltdown’

The Reserve Bank of
Australia warned yesterday that the current calm in financial markets
could be the prelude to a storm that could wreak havoc in the world

The RBA believes the boom in markets for shares, bonds and housing in many countries is unsustainable.

When central banks start getting twitchy, well…

China starts to float its currency

NYT. China began to
appreciate its currency. The BIG question: will China dump its $750
billion in US treasuries? I suspect they will (at minimum, they will
diversify it into the basket of currencies that define the new float).
If they don’t, they are flushing the value of these bonds down the
toilet and they will unable to maintain the new float.

China (and Japan) own huge amounts of US treasuries. If they sell them,
it will drive the price down. Thus, the US will need to raise the
interest rate on the treasuries to attract new buyers. Among other
things, this means higher interest rates overall, precisely what the
real estate market doesn’t want.
Gasoline, crude oil surge on signs U.S. supplies will plunge

Gasoline and crude
oil surged on speculation that inventories will decline after Hurricane
Rita shut refineries and offshore platforms. Natural gas soared 9.9
percent to a record on concern another storm will strike.

Contrast this with the reporting the day after Rita when mainstream
media tripped over themselves saying how peachy it was because we
dodged the bullet.

Peak for California housing said to be near

Slowing price increases in California may cause a recession by 2007, UCLA economists say.

And finally

SUV demand plummets

John Mathews of
Universal Toyota in San Antonio has witnessed the day that auto
industry executives in Detroit said would never come.

“We are seeing people who are driving $40,000 Suburbans trading them in on $15,000 Corollas,”

‘Bout time!