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Originally Posted by Jet Gorgon  China is watching and laughing. |
Before, they were content to just sell to us and then reinvest in our Treasuries. It was a win win situation. The American consumer were able to consume above their means with cheaper Chinese goods and the Chinese were able to employ more of their population and retain their grip on power. Then that scumbag Greenspan decided to ignore all of the lessons from the tech bubble and start another credit bubble. The Bush team figured the reckoning wouldn't happen till they were long out of office, so they would let the good times roll. All of the swinging dicks in the finance industry always look to the next earnings report and knew that the Fed wouldn't let these hollowed institutions collapse (see mortgage freeze, dumping toxic loans on Fannie Mae).
Too bad everyone ignored a pesky thing called the law of supply and demand. I could go into a long explanation of median salary vs rent vs housing price statistics, but the bottom line is that you can't bullshit your way out of the law of supply and demand. Eventually things will return to their correct market price. These mortgage freezes just delay the inevitable. Look up how long it took Japan to recover from its property bubble in the early 90s.
And there are other unintended consequences too. One of the US' last remaining assets, its relatively transparent financial markets reputation, has been damaged. China's sovereign wealth fund, seeing a cheap dollar and the incompetence of American management, will start to directly own America. We see it already happening when they bought a 10% stake in Citigroup. Expect the trend to continue. If we can't manage our economy, the Chinese will. And the English. And the Germans. With our dollar so cheap, it's a firesale!