The Chinese Connection - by P. Krugman

The Chinese Connection - New York Times: "Here's what I think will happen if and when China changes its currency policy, and those cheap loans are no longer available. U.S. interest rates will rise; the housing bubble will probably burst; construction employment and consumer spending will both fall; falling home prices may lead to a wave of bankruptcies. And we'll suddenly wonder why anyone thought financing the budget deficit was easy.

In other words, we've developed an addiction to Chinese dollar purchases, and will suffer painful withdrawal symptoms when they come to an end.

I'm not saying we should try to maintain the status quo. Addictions must be broken, and the sooner the better. After all, one of these days China will stop buying dollars of its own accord. And the housing bubble will eventually burst whatever we do. Besides, in the long run, ending our dependence on foreign dollar purchases will give us a healthier economy. In particular, a rise in the yuan and other Asian currencies will eventually make U.S. manufacturing, which has lost three million jobs since 2000, more competitive.

But the negative effects of a change in Chinese currency policy will probably be immediate, while the positive effects may take years to materialize. And as far as I can tell, nobody in a position of power is thinking about how we'll deal with the consequences if China actually gives in to U.S. demands, and lets the yuan rise."

Scary huh?
So many people are going to suffer. I can't say they deserve it. Buying a home is tax deductable, it's a chance to save for retirement or at least have stable housing costs in a home you own rather than renting.
Greenspan is after Fannie Mae. He's worried about the risks assoicated with mortgages and how they are financed and re-sold. It seems there isn't a clear understanding of the consequences of these dealings and how they calculate risk. I'm not sure what his concern means except that its part of the equation that will need to be balanced.