Chinese Analyst: Sell Fannie & Freddie


The Chinese currently hold about half a trillion dollars in US agency debt.

Perhaps more than half a trillion—no one knows for sure, because current U.S. Treasury statistics do not include purchases the Chinese make from offshore affiliates.

Today, a senior economist at China's Industrial Bank named Lu Zhengwei issued a report critical of Fannie Mae and Freddie Mac—and suggested that "China sell the securities soon," according to a report in the Wall Street Journal.

Two points worth remarking:

First, the timing: The Chinese report comes ahead of a report expected from U.S. Treasury on ways to reform Fannie Mae and Freddie Mac. What significance may be attributed to that fact remains unclear.

Second—and perhaps more ominous—this quote: "However, looking at the current political situation in the U.S., for the U.S. Congress to give a clear guarantee on this issue is almost impossible," Lu said.

The notion that our 'political situation' is viewed by our Chinese creditors as a substantial liability is a sobering thought.


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