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The article describes a method for estimating the U.S. government's overall programmatic credit risk exposure that recognizes the covariance across its guarantee programs. The government is urged to have a capital reserve for covering aggregate losses that is lower than the sum of the capital reserves appropriate for each separate guarantee program. Also presented is evidence of loss distributions of government-sponsored enterprises (GSEs) in the context of Fannie Mae and Freddie Mac.

China is both a major trading partner of the United States and the largest official holder of U.S. assets in the world. The value of Chinese foreign exchange reserves peaked at just over $4 trillion in June 2014 but has since declined to $3.19 trillion (as of August 2016). This very large decline in foreign exchange reserves is unprecedented, and some analysts have speculated that continued sales of these (mostly U.S.) assets might significantly impact the U.S. and global economies. This article explains the reasons for this large decline in official assets, China's available policy choices, and how these choices could affect the U.S. economy. [ABSTRACT FROM AUTHOR]