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Wednesday, July 20, 2005

Greenspan Warns China Of 'Serious' Threats - Forbes.com

Greenspan Warns China Of 'Serious' Threats - Forbes.comFaces In The News
Greenspan Warns China Of 'Serious' Threats
Greg Levine, 07.20.05, 4:40 PM ET



Chinese roulette? Alan Greenspan had some strong words for Beijing Wednesday. Speaking to the House Financial Services Committee, he said the teeming Asian nation faces "very serious" dangers to its economy if it persists in holding its currency's value down. The U.S. Federal Reserve chairman explicated his view, saying that China's financial engineering required amassing "very large" amounts of U.S. Treasury securities. He maintained, "Unless they sterilize that very substantial inflow, they create significant distortions in their financial system and ultimately could be very serious for the Chinese economy."

However, the Fed chief reiterated his view that the U.S. ought not to impose tariffs as a means of forcing China to revalue the yuan. He argued that such force was unlikely to lead to an increase in U.S. employment and could have unintended consequences. "Anything that we do which restricts world globalization, at the end of the day rebounds to our disadvantage," Greenspan was quoted as saying in various reports.

On the home front, the chairman cautioned, "The significant rise in purchases of homes for investment since 2001 seems to have charged some regional markets with speculative fever." As scrutiny of mortgage giants Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ) intensifies, Greenspan opined that greater use of such instruments as interest-only mortgages were of "particular concern." He said these types of mortgages left home buyers "vulnerable to adverse events" if home prices begin to fall. The chairman called for the Fed to continue gradual interest-rate increases. More...

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