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February 18, 2010

Roundup of Economic News on the United States and China

1. Guardian UK and other sources report - China sold $34bn (£21.5bn) worth of US government bonds in December, raising fears that ­Beijing is using its financial ­muscle to signal that it has lost confidence in American economic policy.

US treasury figures for the period ending in December 2009 show that, following the sale, China is no longer the largest overseas holder of US treasury bonds. Beijing ended the year sitting on $755.4bn worth of US government debt, compared to Japan's $768.8bn

2. Wall Street Journal - Why hasn't China revalued? Part of the answer is Japan

The last time the U.S. was faced with a rising Asian export power, the currency also became a big political issue. And in September 1985 the major economies of the time met at the Plaza Hotel in New York to ease those tensions. The accord they reached caused the dollar to fall from roughly 240 Japanese yen to about 160 over two years.

Today, China's critics are demanding a similarly sweeping move. But Japan soon regretted agreeing to a big surge in the yen: Growth slowed abruptly, which pushed the government to boost spending and lower interest rates. A real-estate bubble and a years-long slump followed. And the issue the Plaza Accord was intended to fix—Japan's sizable trade surplus—remains to this day.

From Japan's example, Chinese thinkers learned that a big exchange-rate move could damage their economy, and won't necessarily help the trade balance.




3. WSJ- An alternative route to Yuan appreciation

China has kept the yuan, or renminbi, fixed against the dollar since mid-2008, and a big, rapid move is widely seen as unlikely.

Higher inflation could have the same effect—albeit indirectly—and be less contentious politically within China. If average prices in China rise 5% more than in the U.S., and the currency doesn’t move against the U.S. dollar at all, the result is effectively the same as if China revalued the yuan by 5% and the two countries had the same inflation rate. In both cases, Chinese goods have gotten 5% more expensive in U.S. dollar terms, or to put it another way, the real exchange rate has increased 5%

4. An Analyst for Forbes is indicating that because the USA is not building new homes and this could result in a housing shortage in 2011. ie a seller's market

The US needs 1.6 million new homes each year and only 560,000 to 780,000 were started and completed in 2009. There are 6-7 months of housing inventory.

5. UCLA Anderson Economic forecast for various cities was reported in Forbes

Forbes - In Portland, San Francisco, Minneapolis and Washington, D.C.,
the premium to buy--the spread between what you'd spend on renting and
what you'd pay each month for a mortgage--is far narrower now than its
15-year average. And economists predict a significant home-price hike
in five years.

+28% in Bay Area and +15% in DC but it will take 5 years. If it were
smooth about +5% per year in the Bay Area and +3% per year in DC.
Say little to nothing this year and more of it in 2011, 2012.

Projecting the UCLA House Price Appreciation for San Francisco and Washington DC

2010   zero
2011  7% SF, 4% DC
2012  8% SF, 5% DC
2013 5% SF, 3% DC
2014 5% SF, 3% DC




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