Amid all the debate over last week’s white paper on reforming US housing finance, nary a thought was spared for the people who have long helped make the American dream of home ownership possible: Chinese savers. It is a fair bet that the first goal of the nearly half trillion dollars of capital they have at risk in mortgage-backed securities is not to help those spending it “build wealth and achieve the American dream” as the report’s preamble says. Rather it is to get a return on and, critically, of their capital.

The alarming recommendation last week of a prominent Chinese economist for China to dump its agency paper before Congress removes implicit guarantees shows the level of misunderstanding. No such proposal is on the table for existing securities. But at the same time, the American debate over how to finance home ownership with less government support must recognise that countries recycling their current account surpluses are nervous. Today’s model of offering tax-deductible, fixed-rate loans that can be refinanced at will and subsidising them with a federal guarantee is simply too generous, as evidenced by the $134bn spent so far recapitalising Fannie Mae and Freddie Mac.

Agency guarantees slash about 65 basis points off typical mortgages and quantitative easing at least another 30. A typical new US home would cost $41,000 more with a 20 per cent down payment otherwise. Eliminating tax-deductible mortgage interest would add another $60,000.