Brad Setser continues to look at who's financing the US.
How Europe finances the US
Europeans invest in emerging Asia... Rather than financing a current account deficit in emerging Asia, the capital inflow from Europe finances reserve accumulation in emerging Asia. Most of those reserves are invested in US dollars. The net effect: ... the central banks of Asia -- not Europe's private investors -- get stuck with the risk that the dollar will fall v. emerging Asian currencies... Sustaining the current pattern of global growth requires that Asian central banks subsidize both European private investors and Asian exporters...
Look who is supporting the mortgage market ...
No Surprise: the People's Bank of China. The PBOC has shifted from buying treasuries (03) to buying mortgage backed securities (04). From Reuters: "... Net foreign purchases of MBS were $242 billion in mid-2004, up $19 billion from year-end 2003 and $35 billion more than 2002, according to Inside MBS & ABS, a publication of Inside Mortgage Finance... The strong performance of the $4.5 trillion MBS market in 2004 can partly be attributed to buying from Asian portfolios and China's central bank in particular, according to Steven Abrahams, fixed income mortgage strategist at Bear Stearns..." You might say the recent surge in housing prices was made in China ... like many other gifts exchanged in the past few days.
Yes, many things now come from China. Which is why I find it slightly amazing that in the West, there is still a relative lack of awareness of events pertaining to China. For example, the Capital Chronicle admits to having had no knowledge of "the recent happenings involving China Aviation Oil" and its derivative losses until recently (see "Burnt by oil derivatives, CAO sits out market rally").
Americans especially would be well-advised to get to know their creditors better.