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Chinese Government Reducing It's Investment In Dollar
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 Chinese Government Reducing It's Investment In Dollar. Link to story. What's the big deal you say? It's a big deal for the US, trust me. With the advent of George Bush "the lesser" our twin deficits (budget and current account) have soared. Remember that the US government actually ran a surplus under Clinton. Anyhow, the financing of these massive twin deficits requires that overseas institutions (predominately the central banks of China, Japan, and Saudi Arabia) invest a large proportion of their foreign exchange reserves in dollar assets (typically US treasury bills). If they don't, the laws of supply and demand will require the US Treasury to pay higher interest rates to attract buyers for the every increasing amounts of treasury bills required to finance the deficit. When US treasury rates go up, private sector rates (including credit card and mortgage rates) go up as well. If the Chinese make a serious shift in allocating their reserves, look for a significant downturn in the US real estate market by the end of 2006. 1-12-2006. Add Comment Permalink
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