Wednesday, January 28, 2009

Geithner's "Horrible Advice"

World reaction is starting to pour in regarding new Treasury Secretary Timothy Geithner's comments last week during his confirmation hearing that “Obama -- backed by the conclusions of a broad range of economists -- believes that China is manipulating its currency. The question is how and when to broach the subject in order to do more good than harm."

At the time, we wrote:

Given the collapse the dollar is likely to experience, talk like this is the equivalent of the captain of the Titanic bitching about a paint job he once saw on a fishing trawler in the South Pacific.
Economists and policy makers are meeting this week in Davos, Switzerland for the annual World Economic Forum, and teeing off on Geithner seemed to be the sport, on the first day of the meetings.

World Bank Chief Economist Justin Lin said that an acceleration in yuan gains would be “bad for China’s growth.” China’s economy is expanding at the slowest rate in seven years.

“Shouting from Washington to Beijing is not going to make a difference,” said South Africa’s Finance Minister Trevor Manuel during a panel discussion in Davos.

But the heavy artillery barrage came from Stephen Roach, Morgan Stanley’s Asia Chairman. “I’ve never seen an economy in recession voluntarily raise their currency. It’s horrible advice,” said Roach, according to Bloomberg's Simon Kennedy reporting from Davos.

Even former Treasury Secretary Robert Rubin, Geithner’s boss in President Bill Clinton’s administration, said in an interview late yesterday in New York that while it’s in the “long-run interest” of the U.S. and China for the yuan to be set by the market, “this is a time to maintain a stable financial relationship with China.”

In short, Geithner's comment shows naivete about how international matters are discussed and handled, and the international financial community knows it. They will use this to their advantage in the future.

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