The Big Picture:
Some might wonder just why the American politicians are upset. The way things
work now, China sells to the world most everything the world wants and then buys
United States Treasury securities. That helps hold down interest rates and
stimulates consumer spending.
You can understand why China might not like to keep doing that forever. Those
Treasury securities do not pay much interest, and they are sure to decline in
value, measured in Chinese yuan, when that currency rises. But the largest
vendor financing program ever has stimulated both the Chinese and American
In Washington, the theory is that China's keeping the yuan low increases
America's trade deficit. But the benefits to United States exporters from a
modest rise in the Chinese currency would most likely be small, while the effect
of higher interest rates could be larger if China cut back on its purchases,
particularly if other Asian central banks decided that they, too, wanted to sell
If that were to happen, the impact could be acute in the housing market.
Investors in housing stocks have been nervous for some time, happy to see
ever-higher profits but worried that the good times must end someday and fearful
that they could be left holding the bag when that happens."