China revaluation of yuan on interest rates and housing?

3 Replies

Anyone know how China's revaluation of their yuan will affect interest rates? China is one of the United States largest buyers of US treasuries

From what I understand:

higher yuan against US Dollar => less money for china to buy treasuries => increase in mortgage interest rates => slow down housing market???

What do you guys think?

Not a bad theory. Since the Yuan will go higher, the Chinese will not have such an easy time dumping their goods on our market. Maybe we'll see some slowdown in the loss of manufacturing jobs . . . although thanks to them, we pretty much produce nothing anymore.

I think this should be good for the US stock market, and economy as a whole. I'm not really sure how having less money for treasuries will affect everything.

actually I disagree with that statement. the products the chinese are manufacturing are cheap labor stuff like textiles not expensive high tech stuff. I think most americans would rather have a high tech job making $90,000/year than working in some small sweat shop sewing sweaters for $2 a day.

Yep, the Chines are subsidizing our cheap mortgage rate by their willingness to hold so much of our debt at such low interest rates. Their gain in this the rapid growth of their economy (average about 9%) which provides lots of jobs for their burgeoning middle class.

Molarband, not all the stuff they are manufacturing is the "cheap labor", low tech stuff. Electronic components may be approaching that class but lots of electronics come from China. For a fuller discussion read "The Earth Is Flat" by Thomas Friedman, probably one of the best books on geoeconomics I've ever read. Touches pretty heavily on geopolitics which is his usual subject.

One HUGE problem for China in revaluing the Yuan upward (thereby devaluing the US dollar) is the HUGE dollar reserves that China holds. They currently hold between $750 BILLION AND ONE TRILLION in foreign exchange reserves, MOS OF IT IN US TREASURIES. If they REVALUE the Yuan, (devalue the US dollar) by the 30-40% needed they are going to LOSE 30-40% of the value of that (nearly ONE TRILLION DOLLARS. That's a big price for the Bush administration to ask. Particularly because it could hurt our economy as our interest rates rise.

all cash

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