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July 28th, 2009

China & US still talking economics

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The US and China, which has expressed concern over the massive amount of US debt it holds, are holding high-level meetings about US debt.

Both countries are posing what the AP called pointed questions to each other. China continues to be concerned that the US will try to inflate its way out of its massive deficits, but the US says no worries:

U.S. briefers said the president’s team told the Chinese that the United States was committed to making sure the economic and monetary stimulus being used to fight the recession did not fuel inflation.

U.S. officials told reporters that the U.S. side stressed to the Chinese that the United States has a plan to bring the deficit down once the economic crisis has been resolved. They said Bernanke discussed the Fed’s exit strategy from the central bank’s current period of extraordinary monetary easing, emphasizing that the Fed was being careful to guard against future inflation.

That should prove to be an interesting balancing act:

Pressure from China puts Obama in a tight spot. While the president insists the United States is following sound fiscal discipline, he is also pressing U.S. banks to loosen credit and get lending again.

China holds $801.5 billion in US Treasury debt, so it has genuine concerns. For its part, the US would like to whittle down its huge trade deficit with China, which that country uses to bolster its economy “by relying less on exports and to embrace an authentic exchange rate,” as the Examiner puts it.

Coincidentally or not, the talks are taking place as the US plans its most massive debt offering to date — $115 billion in new Treasury obligations. Watch the yields, especially on 10-year Treasuries, since they have an influence on home mortgage rates.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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