China's Nuclear Trade War Choice – XI May Destroy U.S. Housing Market in 1 Fell Swoop
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As the intensity of the trade war between Donald Trump and China continues to increase, analysts are starting to worry about the possibility that China may exercise its “nuclear-choice” version. Chinese President Xi Jinping has not expressed his willingness to retreat, probably because he knows he has many cards to play. According to CNBC, China holds more than $1.2 trillion in U.S. mortgage-backed securities.
CNBC noted that lender Ginnie Mae estimates that China's MBS portfolio accounts for 15% of the outstanding mortgage balance in the U.S., and will suffer if XI decides to take off gloves and flood the market with MBS. It is also worth mentioning that China holds a lot of U.S. debt in Treasury bills. The total weight of this economic force may undermine the U.S. economy.
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Guy Sekara, “If China wants to impress us, they can remove the Treasury Ministry. Is this a threat? Of course, it is. They will consider pushing leverage and trying to put pressure on. Targeting housing and mortgage rates are such a powerful driver.”
Mortgage rates have been rising rapidly as the recent sold-out Treasury bonds and the $1.2 trillion mortgage-backed securities flooded the market, which would be a devastating boxing or two. First, this will almost immediately lead to higher interest rates when most Americans are already struggling with housing costs.
Secondly, China has flooded the market with MBS, which may cause a chain reaction. When the music stops, other countries follow suit to avoid getting stuck. Canada and Japan also have secure portfolios backed by large mortgages. Under normal circumstances, it is hard to imagine such extreme measures taken by Japan or Canada.
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Japan and Canada have been unwavering in their allies' foreign and economic policies for decades, but Trump aims both countries with a goal of punishing tariffs. Even if the tariffs on Canada and Japan are not as serious as China, it is not difficult to imagine that any country will further rise to the Chinese track. In other words, the current situation is not normal.
