January 11, 2006

We are now China's puppy: Mortgage Watchers Worry About China

Not only does China own us financially (holding nearly $1 Trillion in our bonds), not only does China supply our Wal-Marts, but now China controls the future of our housing market? Amazing.

Ever have someone steal your wallet when you were passed out drunk in the bushes?

Home Buyers Could See Higher Rates if China Curtails U.S. Treasury Purchases

NEW YORK (AP) -- China's recent signal that it may diversify its foreign investments in 2006 has mortgage industry watchers concerned that if China buys fewer U.S. Treasury securities this year, it may drive interest rates higher and pour more cold water on the real estate market.

Last week, China's foreign currency regulator said its plans for 2006 include "actively exploring more efficient use of our FX (foreign-exchange) reserve assets" and "widening the foreign exchange reserves investment scope." While China's central bank said Tuesday it has no plans to sell dollars from its $800 billion-plus foreign reserves, some analysts predict China may buy less U.S. government debt at Treasury auctions this year.

While Hackel believes the change in China's buying of Treasuries should result in a marginal increase in mortgage rates, David Olson of Wholesale Access, a firm that tracks the mortgage banking industry, believes mortgage rates could be as much as half a percentage point higher.
"I don't think they (China) are going away completely, but if they do then we're going to have quite a runup in rates," said Olson.


xSparta said...

Low prices at Walmart could be a thing of the past if China decides to dump our Treasury Bonds............Causing higher inflation............pushing down the price of bonds.........double whammy!

Anonymous said...

So the point of this article is that China can cool the housing market if they dont continue to purchase our debt with the same gusto as last year.

Keith, how can you be upset that China holds so much US debt and stil be upset that China may stop buying our debt?

Anonymous said...

Have to say, I'm with the thinker on this one. At this point, I don't care, whatever it takes to apply a sledge hammer to this ridiculous housing market.

China concerns me, but not as much as these whacked out home prices do.

blogger said...

we got into a mess that'll be tough to get out of

add it to the list

china trade imbalance
national debt
housing bubble
social security
oil consumption

don't they all seem tied together in some way?

Grinch34 said...

The situation with China does seem like a catch 22. Keith's last question does seem to hit the nail on the head.

Dogcrap Green said...

China says lots of things. One day they are buying all the copper in the world. When prices sky rocket, they then say they have enough copper. But they always buy more.

China was buying T Bills when their currency wanted to break loose and leave the world behind (but China had it peg to the US dollar). It was by no means China's idea to unpeg their currency. They did it to shut up the USA.

China likes having their money tied to the USA. After losing the stabilization to the currency by pegging it, they are not going to lose further stabilization by dumping the T Bills.

Wes D said...

China is going to screw us over just like the middle-eastern countries do. They keep the prices just low enough to addict us to them, jack them up, and when it finally appears that we are weaned off, lower the prices again and get us rehooked.

China wants to diversify its porfolio and was very vocal last year regarding the US Congress' peition to label China a 'currency manipulator'. It's nothing more than a bruhahah because if they were to stop buying T-bills this country would be plunged into the great depression #2 with such speed and fury our heads would be spinning. Interest rates could shoot up > 10% overnight as the gov't has to attract investors to avoid defaulting on the national deficit & debt.

Then what is helicopter ben going to do? Can't print more money since a 10% prime rate would erode spending power and having more money would just fuel inflation. Then we would have a compound problem of runaway inflation and high interest rates. A LA Stagflation once again.

Boy I hope it sure doesn't happen but we're fools if we keep betting our future on the Chinese.

blogger said...

isn't it funny to see the greatest capatalist country in bed and tied at the hip to the greatest communist country?

who'd of thunk it

I don't think the chinese will pull out though - mutually assured destruction

I do think they'll diversify. Why? Because they don't want all of their surplus assets tied to the dollar, which will fall

Marinite said...

The US has to continue with rate hikes or else the dollar sinks more. If the dollar sinks enough China and others have more reason to diversify out of US bonds, the dollar's status as a reserve currency weakens, etc. It is a no-win situation the Fed has put us in just so that we wouldn't feel the short-term pain of a recession when the tech bubble popped. Then again, others argue that this all started with Reaganomics so I dunno.

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