What’s Up With Geithner’s Comments About The Yuan?

You have to wonder if Timothy Geithner’s written comments, in his response to Senate Finance Committee questions regarding the yuan, were intentional or simply the result of trying to do too much too fast. Here is what he wrote to the Committee:

“Obama — backed by the conclusions of a broad range of economists — believes that China is manipulating its currency,” Geithner said. “The question is how and when to broach the subject in order to do more good than harm.” Obama’s team will “forge an integrated strategy on how best to achieve currency realignment in the current economic environment.”

I’d like to believe it’s a mistake but the more I read it, the more it feels like a deliberate warning shot at the Chinese. The manner in which he cites Obama, the reference to economists which sends the signal that they have been looking into this and the use of the word “manipulation” all seem to amount to an outline of a coming policy initiative.

I will freely admit to being no China expert but from what reading I have done, my impression is that the Chinese are extremely touchy when it comes to the matter of the value of their currency. If that is indeed the case then hopefully the Obama team has thought this through thoroughly. It seems pretty bold to be tweeking the nose of your biggest creditor, particularly at a time when you need that creditor to float you a lot more credit.

The bigger danger may be in the signals it sends to Congress. Remember that Obama ran on an anti-trade platform and the Democratic leadership has strong protectionist tendencies. The labor unions, one of the major contributors to the party, aren’t shy about their antipathy to trade and support for whatever it takes to improve their competitive advantage. Charlie Rangel was quick to jump on the Geithner comment and typifies the receptive audience it has in Congress.

“What they can’t work out diplomatically we can work out legislatively,” said Representative Charles Rangel of New York, who chairs the House Ways and Means Committee, which has jurisdiction over trade issues, in an interview. “The committee has been saying for years” that China has manipulated the yuan’s value, he said.

Tensions are going to get really high if this recession continues to worsen. We all know what role protectionism played in exacerbating the Great Depression. It is going to take a lot of skill to avoid that outcome this time, so incendiary remarks right now just don’t seem to be in order.

Let’s hope that Mr. Geithner or whichever aide actually drafted the response was just fatigued. We already know that Geithner is sloppy with paperwork so maybe we can use that as an excuse if this gets out of control. 

more: here

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