Reverberations from China
Of all the factors responsible for the current housing boom/bubble, low interest rates are paramount. But what if those interest rates rise? Last week Paul Krugman raised that possibility in response to China’s cancellation of its strict Yuan peg to the U.S. Dollar.
China’s move has already forced U.S. Treasury Bond yields higher. If the trend continues and the scenario Krugman anticipates - a sharp downturn in China’s purchasing of U.S. bonds - becomes reality, it could impact the sectors of the U.S. economy that most affect the middle class. In particular, it could mean a sharp downturn in home buying and building.
Financial analysts are not yet certain what course China will chart with respect to the Yuan, but it’s something worth keeping in mind.
Given Senator Schumer's badgering of China on this issue it maight be a case of be careful of what you wish for.
July 28, 2005 9:37 AM | Reply | Permalink