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Fannie and Freddie - the world’s two biggest financial institutions - make up almost half the $12 trillion US mortgage industry. But that understates their vital importance at this juncture. They are now serving as lender of last resort to the housing market, providing 80pc of all new home loans.
Roughly $1.5 trillion of Fannie and Freddie AAA-rated debt - as well as other US “government-sponsored enterprises” - is now in foreign hands. The great unknown is whether foreign patience will snap as losses mount and the dollar slides.
Hiroshi Watanabe, Japan’s chief regulator, rattled the markets yesterday when he urged Japanese banks and life insurance companies to treat US agency debt with caution. The two sets of institutions hold an estimated $56bn of these bonds. Mitsubishi UFJ holds $3bn. Nippon Life has $2.5bn.
But the lion’s share is held by the central banks of China, Russia and petro-powers. These countries could all too easily precipitate a run on the dollar in the current climate and bring the United States to its knees, should they decide that it is in their strategic interest to do so.
Greed fatally compromised national security. Those countries have political agendas. They can use their leverage to achieve their strategic goal in geopolitics. Not that their economy could be spared. On the other hand, if economy deteriorates bad enough, they can ditch their U.S. assets in well-coordinated moves to cripple U.S. economy as bad or worse than theirs.
Wouldn't doing that make their holdings worthless? Or at very best, "worth less" than what they paid? Why, if they did that, wouldn't we "default" on debt held by foreign powers by declaring their actions an "act of war".
Please forgive me if these questions are ignorant. I'm just really trying to understand why countries that hold our debt would help to make that investment worthless.
| These countries could all too easily precipitate a run on the dollar in the current climate and bring the United States to its knees,
They can't eat paper. They can't ride around in it. They can't wear it. The only thing they can ultimately do with it is buy stuff from us. Driving us into the ground just makes sure they never get paid. |
“But the lion’s share is held by the central banks of China, Russia and petro-powers. These countries could all too easily precipitate a run on the dollar in the current climate and bring the United States to its knees, should they decide that it is in their strategic interest to do so.”
Good! Let them do it! About time for a good financial house-cleaning.
Americans will buy America goods, and we will reduce our dependency on foreigners to live.
Plus, I daresay they will walk away unscathed...
They will suffer much more than us if they do this because it will be like you buy a house and then destroy it losing both of your house and your money. In addition the US can inflict much more painful economic retaliation against any of these nations than they can against us.
I would suggest it is not only in their interest but much to their liking. Google the terms "neo-eurasionism" or even just "eurasianism" for my logic.
This is wrong. The lion's share is held by Americans. The lion's share of the foreign-held debt is owned by Japan and China.
Really? It seems to me that the reason 'these countries' have all this paper is that we took their stuff and we gave them paper. Deloitte and Touche aside, who really has whom by the hairs? If they ever want to get any actual value for all that stuff they sold us, they need to hope that nobody 'precipitates a run on the dollar.' Because right now, all they have is dollars. We got the oil, the cars, the Wal*Mart clothes... all of it.