The Baseline Scenario blog has some interesting insights into U.S. Treasury Secretary Geithner's upcoming China trip.
So what should we expect from Geithner’s upcoming China trip?
China refuses to talk politely about its exchange rate and rebuffs all sensible diplomatic initiatives on this front – they have held the IMF at bay for nearly 2 years on this exact issue. The rhetoric is that their fiscal stimulus will bring down their current account surplus without need for significant exchange rate appreciation. This is smokescreen.
The reality is that the administration is afraid that China will shift out of its dollar holdings, pushing up interest rates on Treasury debt and jeopardizing their Fiscal First reflation strategy. The Chinese have played up these fears by speaking obliquely on the desirability of a non-dollar international reserve currency – this is a pipedream, but you get the point.
The administration has essentially blinked in the face of Chinese growling.
Baseline Scenario is stating not only did the United States lose the game of chicken confrontation with China on currency manipulation, but also the United States cannot postpone this issue.
Currently there is a bill in Congress for currency manipulation reform. Here is the CPA information page.
Here is the press conference for The Currency Reform for Fair Trade Act of 2009 (H.R. 2378):
There was also talk that Geithner was going to
address the current account 'unbalance' and encourage China to invest/spend more domestically. WTF!?!, if true, who do we think we are to try and tell China what it should do economically. China is king of the world right now because it saving rate which may be too high. But I much rather be in China's position then our right now.
Savings is king.
RebelCapitalist.com - Financial Information for the Rest of Us.
China says "fix your own fucked up economy"
All this yammering is designed to try and get somebody else to solve our problem.
China is already investing domestically which will make their country stronger in the long run.
Eventually our spineless politicians will be forced to make some hard choices that will probably cost their jobs. The final piece in the puzzle is a currency devaluation. China is not going to move on anyone elses timeframe ... the US will be forced to devalue the USD...
China says "we've got you....under our thumb"
I seriously think China only wants to the U.S. to "fix our economy" to the point it does not stop them from overtaking the world as the #1 economy, which they are on track to do in about 3 more years as I recall (it's amazingly fast, the China PNTR is only 9 years old and the projections are something like that, maybe 5 years).
Finding out just how much of the financial TARP/TALF went to China indirectly might be interesting. I know they demanded the U.S. "protect their investments" but I did not see China as a recipient (France on the other hand was) of any CDS payouts, etc.