Replies

This means the Chinese will buy fewer US T-Bonds, meaning we will have to find someone else to prop up the dollar. In March and April the Federal Reserve landed up buying up T-Bonds that weren't sold at the bond auction. That has never happened before. The Fed had to create US debt to buy the US debt that was up for sale. The dollar is in trouble, but there are no viable fiat currencies to take its place as the reserve currency.

Life is going to get economically interesting in a couple years...

This means the Chinese will buy fewer US T-Bonds . . . .
In March and April the Federal Reserve landed up buying up T-Bonds that weren't sold at the bond auction. That has never happened before.

The Fed had to create US debt to buy the US debt that was up for sale . . . .

Oh oh.

I have heard that China buying our Treasury bonds was a big reason long term interest rates--and so mortgage rates--have been so low.

If they will stop buying them now this could be it for real estate.

This means the Chinese will buy fewer US T-Bonds, meaning we will have to find someone else to prop up the dollar. In March and April the Federal Reserve landed up buying up T-Bonds that weren't sold at the bond auction. That has never happened before. The Fed had to create US ~~debt~~ dollars to buy the US debt that was up for sale.

I hadn't heard this. You have a link?

China will still be running a huge trade surplus with the rest of the world. There will still be massive cash flows into Chinese state-owned companies that they will have to invest somewhere. The only market that's big enough to absorb all that cash without pushing prices to overvalued levels is the US treasury bond market. So they will continue buying large amounts of dollars and treasury bonds.

The recent major decline in our budget deficit will have a much bigger impact on treasury bond prices than this small devaluation by China. As we start to bring troops home from Iraq, probably next year, the budget deficit will decline further and reduce the supply of new treasury debt thus preventing a substantial rise in interest rates. The bigger threat to the housing market is actually rising business confidence and increased capital spending that may boost the technology and machinery sectors in the next couple of years. That could lead to more interest rate increases by the Fed to contain economic growth and rising labor costs.

I think the rejected Unocal bid may have been a factor in this decision--not because this makes Unocal significantly cheaper to buy but because Unocal sent a message to China that Chinese economic policy and business practices are not too popular in the US.

they will still need to buy plenty of treasuries. Japan has a currency that floats, they buy plenty of Treasuries.

US interest rates are rising anyway. We have been pumping this falsehood onto the american people that debt is wealth. Debt is not wealth.