King Rat (gkr) wrote,
King Rat
gkr

Addendum to house buying

An Addendum to my entry on the housing bubble. One of the things that will pop the bubble is a rise in interest rates. The Fed has been raising short term interest rates, but long term interest rates have actually been falling. Since last year when the Fed started raising interest rates (now at 3.25% I think, it start last summer at 1%), long term rates on treasury bills have actually dropped from 4.5% to 4.1%. Why is that? It's the same reason your T.V. is so cheap. The Chinese government props up its currency by buying treasury bills. This keeps their goods cheaper in the U.S. market by keeping the exchange rate fixed. There's a big push by some in the media and some in Congress to pressure China into allowing its currency to float. They want to do this so that our goods are more competitive in China. If they succeed, import prices will rise. So not only will your T.V. be more expensive, but you will also have higher interest rates on your house cause the Chinese government won't be buying the treasury bills. Then watch housing prices fall as people try to get out.

Tags: economics
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