Housing Market: The China Syndrome

Most of the major media is (rightfully) consumed with the fall of Tom DeLay, but there was a potentially even more significant news item in Reuters' business section today. Specifically, a Chinese parliamentary bigwig said that the country should consider trimming its holdings in U.S. debt.

Why does this matter to you, o Joe (or Jane) Average Home Buyer? Well, Reuters is kind enough to explain:

Despite rising short-term interest rates, longer-term debt yields in the United States are exceptionally low by historical standards. Any move by China to sell some of its massive debt holdings could drive up long-term rates, which ultimately could make it costlier for Americans to take out home mortgages.

It has been a big buyer of U.S. government bonds, helping to finance the U.S. current account deficit and keep American interest rates low. Investors watch closely for any sign that Beijing might shift the government's investment mix.

How freaky and sad is it that our economy is poised so precariously on the actions of another country's economy? And the best that nimrod John Snow could come up with was telling them to spend more and save less? It's no wonder that rumors are flying about his imminent removal.

And what does Ben Bernanke have to say on the issue?

But Bernanke said he is not "deeply" concerned about the issue.

"I don't think that the Chinese ownership of U.S. assets is so large as to put our country at risk economically," he said February 16.

Imminent meltdown, folks, and this time we won't have Hanoi Jane and Gordon Gekko to act as symbols of our misery. ;)

Posted at April 4, 2006 01:47 PM

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Most of the major media is (rightfully) consumed with the fall of Tom DeLay, but there was a potentially even more significant news item in Reuters' business section today. Specifically, a Chinese parliamentary bigwig said that the country should consider trimming its holdings in U.S. debt. Why does this matter to you, o Joe (or Jane) Average Home Buyer? Well, Reuters is kind enough to explain: Despite rising short-term interest rates, longer-term debt yields in the United States are exceptionally low by historical standards. Any move by China to sell some of its massive debt holdings could drive up long-term rates, which ultimately could make it costlier for Americans to take out home mortgages. Analysts say China has been gradually diversifying away from dollar assets in its foreign exchange reserves but fears of a collapse in the U.S. currency will prevent it from making any dramatic shift. It has been a big buyer of U.S. government bonds, helping to finance the U.S. current account deficit and keep American interest rates low. Investors watch closely for any sign that Beijing might shift the government's investment mix. How freaky and sad is it that our economy is poised so precariously on the actions of another country's economy? And the best that nimrod John Snow could come up with was telling them to spend more and save less? It's no wonder that rumors are flying about his imminent removal. And what does Ben Bernanke have to say on the issue? But Bernanke said he is not "deeply" concerned about the issue. "I don't think that the Chinese ownership of U.S. assets is so large as to put our country at risk economically," he said February 16. Imminent meltdown, folks, and this time we won't have Hanoi Jane and Gordon Gekko to act as symbols of our misery. ;)