Geithner: China Currency Manipulation a “Significant Issue”

As reported in this linked article, Timothy Geithner, Obama’s Treasury Secretary nominee, when questioned about currency manipulation by China, described it as a “significant issue” and as “… an important issue for the country …” 

I’ve really got my antennae up, alert for any clues as to whether or not Obama will really take meaningful action to restore a balance of trade.  This is just one, small, early indication that he’s willing to take it on.  Yes, I’m making a bit of a leap from Chinese currency manipulation to our overall trade deficit, but why else would Obama be concerned about this issue?  Does he merely want American consumers to pay more for imports from China?  It doesn’t seem logical that that’s all he’s after.  A strengthening yuan would indeed drive up the cost of Chinese imports, but what he’s really after is a restoration of the profit potential to motivate a return to manufacturing products domestically, driving up the demand for labor which, in turn, would drive up incomes, more than off-setting any rise in prices. 

Of course, if we wait for currency valuation to improve the trade deficit, we’ll be waiting forever, just as we have for the last three decades.  The dollar may fall against the yuan, but the Chinese will simply compensate in some other way – perhaps by increasing the government’s subsidies of Chinese manufacturers – in order to hold prices down.  So the real question is how quickly Obama will run out of patience.  When he does, it’s going to be fun to watch what happens!

6 Responses to Geithner: China Currency Manipulation a “Significant Issue”

  1. I think “the real question” should be why Obama still thinks that bailout plans work when they have not.

    It is shear folly to bail out incompetent/crooked bankers, businesses and borrowers. A strong, efficient economy works best in both the short and the long term. Government intervention does not a strong economy make!

    The real problem, however, is that the present diminished production of consumer goods within the country no longer contributes much to this economy thereby excluding millions from participating in the one positive economic activity, i.e., creating wealth by changing raw material into desired items. For this economic activity to flourish requires a minimum of government interference, but, alas, the genie is out of the bottle!

    For China, with its vast labor pool, is rapidly industrializing. So, any regaining of the previous productive capacity here must be in competition with China and that will result in a levelling of the living standard here with that of China.

    This weakening of the economy (because of diminishing manufacturing) is the real cause of the present economic recession/depression. The sub prime mortgage fiasco, however, was only the symptom caused by the Federal Reserve trying to solve the real problem of a declining economy by drastically lowering the prime interest rate beginning about 2001. This very low prime rate, in turn, caused mortgage resales to be extraordinarily profitable and led to the sub prime mortgage crises.

    Therefore, the real solution is (1.) to drastically cut government expenses (including the elimination of some departments) and (2.) to eliminate all types of economic interference in the economy such as taxes and regulations and (3.) to return to a gold monetary standard and (4.) to repudiate the national debt and (5.) to realize that a lower standard of living is the result of the loss of U.S. manufacturing and is the price for recovering a strong economy.

    Since the real solution will no doubt never be seriously addressed and since it is January, I predict the U.S. economy will go the way of Zimbabwe’s economy.

    • Pete Murphy says:

      Here, you and I are in pretty close agreement. You mentioned that government intervention does not make for a strong economy. As we can see from our current financial system collapse, some intervention and regulation is certainly warranted.

      Regarding the leveling of living standards between the U.S. and China, you would just have to read my book to understand my position. To try to explain it here would entail rewriting it!

  2. “As we can see from our current financial system collapse, some intervention and regulation is certainly warrented.”

    If no intervention were given, then:

    “In a matter of days, the whole banking sector would go bust…along with GM and thousands of businesses all over the country. Millions of people would lose their jobs. Stocks would crash down to 3,000 on the Dow…maybe lower. There would be keening by widows, whose husbands had jumped in front of trains or slit their wrists…there would be gnashing of teeth by millions, whose hopes of getting something for nothing were suddenly dashed…there would be mobs in the street and revolution in the air.

    A few days later, banks that were still solvent would pick up the pieces of those that had gone bust. And gradually, the economy would pick up…building on a much more solid base.” – Bill Bonner at

  3. […] I posted about Treasury Secretary nominee Tim Geithner’s testimony during a confirmation hearing the other day, I failed to point out the real significance of his […]

  4. “It’s probably true that “… gradually, the economy would pick up.” But how gradual would it be? Might it take a century?”

    Trying to “bailout” sectors of the economy in order to stave off an economic depression will only continue and deepen the recession until the ultimate collapse, i.e., to the “bust” Bill Bonner describes. From then on the recovery would be the same in both cases.

    “By the way, who’s Bill Bonner?”

    Bill Bonner is an author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing,[1] and the principal author of a daily financial column known as The Daily Reckoning. Bonner is also a contributor to the news and opinion blog[2] and has written articles for Agora-owned MoneyWeek magazine.[3]
    Bonner co-authored Financial Reckoning Day: Surviving The Soft Depression of The 21st Century and Empire of Debt with Addison Wiggin and Mobs, Messiahs and Markets with Lila Rajiva.
    In his first two books and in The Daily Reckoning, Bonner argues that the financial future of the United States is in peril because of various economic and demographic trends, not the least of which is America’s large trade deficit. He claims that America’s foreign policy exploits are tantamount to the establishment of an empire, and the price of maintaining such an empire could accelerate America’s eventual decline. Bonner argues in his latest book that mob and mass delusions are part of the human condition.
    – Wikipedia

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