Tim Geithner

Creating problems before he's even confirmed, Mr. Geithner has made another poor move... accusing China of manipulating their currency. For someone who was touted as "the only man" to fill the Treasury Secretary seat, he's off to a bumpy start. With the world economy in the shape it's in, now is not the time to pick a fight with other countries... especially China. This is the same country that shipped lead toys to us a year ago, and instead of taking them head on, we chose to burden our resale/consignment shops to scan their inventory before reselling anything (however, once we came to our senses, we realized this move would eventually destroy resale businesses). And furthermore, if China dumps our dollar, our country will be in a world of hurt... and possibly bankrupt. However, we may bankrupt ourselves anyway. We're printing money beyond comprehension; we're spending money we don't have, and we're planning to spend even more. I just don't understand how this doesn't end badly... especially with a dishonest, unethical man running our Treasury Department and the IRS. Turbo Tax is too complicated for him, but he can fix our economy! Whew! Only in America!




WAR OF WORDS
Jan 24th 2009


Economic tensions between America and China are rising--at exactly the
wrong time

TECHNICALLY, he is not yet treasury secretary, but Tim Geithner has
already made waves in financial markets. In a written response to
questions from senators debating his confirmation, Mr Geithner accused
China of "manipulating" its currency and promised that the Obama team
would push "aggressively" for Beijing to change its policies. The sharp
tone and use of the legally-loaded term "currency manipulation"
ricocheted through financial markets as investors shuddered at the
prospect of a Sino-American spat in the midst of a global slump.

Clearly this was not a slip of the tongue. Conceivably it was a
bureaucratic snafu. The tough language came in a 102-page document
answering numerous questions from senators--an odd place from which to
lob a bombshell at Beijing. If so, it speaks poorly of a man who is
already in trouble for failing to pay attention to his taxes. Most
likely, therefore, Mr Geithner's language suggests a change in
Washington's tactics towards China.

American policymakers have long pushed Beijing to accelerate the
appreciation of the yuan, arguing that China's exchange-rate policy
played a big role in creating the global imbalances and that--both for
the sake of China's economy and the rest of the world--the currency
needs to strengthen. But Hank Paulson's Treasury studiously avoided
accusing Beijing of "currency manipulation", a term that carries legal
implications.

Every six months America's Treasury must publish a list of countries
which it deems to be currency manipulators. Once a country appears on
that list, formal negotiations to end the manipulation must begin. The
Treasury under George Bush, particularly in recent years, preferred a
softer behind-the-scenes approach and refused to brand China a
manipulator. Although Mr Geithner did not commit himself to any
specific action, the use of the m-word suggests Team Obama will take a
tougher line.

Exactly what it means is uncertain. It is not even clear who will
manage America's economic strategy with China (there is some
speculation, for instance, that Hillary Clinton wants the State
Department to take the lead). But there is no doubt that Barack Obama's
economic team includes a number of people who are frustrated with the
world's failure to convince Beijing to strengthen the yuan. Mr Obama
himself supported legislation in the Senate to get tougher on China.
More important, his advisers see tough words now as a prophylactic--a
warning that Beijing must not be tempted to prop up its staggering
economy by weakening the yuan.

Domestic politics is also playing a big role. China's bilateral trade
surplus with America has long been a lightning rod in Congress, and
with unemployment up the protectionist pressure is sure to rise. The
$800 billion stimulus package making its way through Congress already
has dubious "Buy American" measures that demand government spending
should be on American goods. By sounding tough up front, the logic
goes, the Obama team will be better able to diffuse the more extreme
protectionist sentiment.

Unfortunately, this strategy is dangerous on a number of counts. The
basic economic analysis--that a stronger yuan, on a trade-weighted
basis, is necessary to rebalance China's economy away from exports--is
surely right. But the world's immediate problem is a dramatic shortfall
in demand across the globe and that will not be righted by
exchange-rate shifts. Currency movements switch demand between
countries; they do not create it. In the short-term, therefore, the
outlook for the world economy depends on whether governments' stimulus
packages are successful and, right now, team Obama would do better to
focus on the scale, nature and speed of Beijing's stimulus measures
than rant about the currency. What's more, the evidence for currency
manipulation is weakening. Although China still runs a huge
current-account surplus, it is no longer accumulating foreign-exchange
reserves at a rapid clip, as capital is flowing out of the country.

More important, the political calculus could easily misfire.
Domestically, Mr Geithner's comments may simply fan congressional
flames for tougher action on China. Lindsey Graham, a senator who first
pushed for a 27.5% tariff against China in 2005, called the comments
"music to my ears". And Sino-American economic tensions are already
rising as Chinese officials hotly dispute the idea that their savings
surplus had anything to do with the current global mess. (An official
at China's central bank recently called the idea "ridiculous" and an
example of "gangster logic"). Traditionally, Chinese officials do not
respond well to public admonition and, given the scale of China's
economic woes, they are likely to be pricklier now.

The stakes are extremely high. Everyone knows that protectionism and
beggar-thy-neighbour policies exacerbated the Depression. With the
global economy in its most dangerous circumstances since the 1930s,
rising Sino-American tensions is the last thing anyone needs.