Notes From Underground:Geithner is in China, soft peddling U.S. anger and the economic impact of the European debt crisis

Treasury Secretary Tim Geithner and Secretary of State Hillary Clinton have headed to China for scheduled discussions under the aegis of Strategic and Economic Dialogue (SED). Geithner praised China for shifting to a more domestic demand-based economy rather than one based solely on exports. He cited the huge shift in China’s overall trade surplus as China has been importing more goods from its Asian neighbors. Hillary Clinton went to hand out stuffed teddy bears to Chinese children, adding another soft touch to U.S. policy.

This is a far cry from the previous strident language that seems to radiate from the citadel of Washington power. Furthermore, Geithner reportedly said the European debt crisis was not really a threat to the global recovery. Interestingly, that comment was initially attributed to an anonymous treasury official but now it seems to be that Geithner himself has taken responsibility for this opinion. To cap off his new found optimism, Geithner said, “the dollar was on the rise because confidence was growing about the strength of the U.S. recovery.”  We find ourselves to be in total disagreement about both issues. The impact of the European crisis is going to be a huge drag on the global growth story and the DOLLAR is not about U.S. growth but more about money seeking a safe haven.

Ben Bernanke has previously alluded to the DOLLAR gaining strength as a repository of global uncertainty, as the FED Chairman was complacent when the EURO was $1.50 to the DOLLAR, an indication that all was right in the world. If all is right in the world, why did the FED rush to reinstitute the DOLLAR SWAP LINES last week? In addition, the euro problems mean the FED will be on hold longer than anticipated and will also slow the FED’s move to start selling MBSs and attempting to clean up its balance sheet. We wondered why the FED didn’t sell MBSs last week as the Treasury market was in the throes of a massive rally. When the dogs bark you must feed them. The FED could have unloaded a lot of its paper last week but sat on its hands … HMMM.

In direct contradiction to Geithner, the Chinese Finance Minister, Xie Xuren, seemed much more concerned about the European situation. Xie said “[we] must focus on the global economic stability and recovery, which is threatened by the European sovereign debt crisis.” With the yuan rallying against the EURO, the Chinese are very concerned about losing newly attained market share in Europe. If Europe slows dramatically, the Chinese will be forced to start pushing exports out and putting downward pricing pressure on global prices. Chinese excess manufacturing capacity funded by foreign capital will be under immense pressure to export and the U.S. will be the likely targeted market. Geithner is far too optimistic about Europe and its minimal impact on global growth.

(As aside, we hear that the Chinese have already produced and exported millions of the new Hillary Bear … and so it goes.)

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9 Responses to “Notes From Underground:Geithner is in China, soft peddling U.S. anger and the economic impact of the European debt crisis”

  1. spdbrnr34 Says:

    “the dollar was on the rise because confidence was growing about the strength of the U.S. recovery.”

    This quote from Tiny Tim is a classic…who does he think he’s fooling with a statement like that? If confidence was growing about the US economy, the stock market wouldn’t have been getting annihilated all last week. Comments like these are why the rest of the world scoffs at the U.S. these days…

  2. yra Says:

    spdbrnr–you said it and I agree totally–last year at this time Geithner was in China and the Chinese students laughed at his comments about insuring a stron dollar—this time he played basketball

  3. Mr.Kowalski Says:

    The European crisis is a serious matter, and in the end they cannot solve a crisis of debt with more of it. One day the decrepit structure will collapse:

  4. spdbrnr34 Says:

    yra…we know that Tim knows the truth, and is as usual trying to give the happy spin…it’s the inability to tell the people the truth that has more & more people not trusting this administration (yes, past admins, too)…as well as the Obama policies, of course.

    The Chinese college students laughing at his lies last year didn’t wake him up. Is honesty too much to ask for?

  5. Mr.Kowalski Says:

    spd: “Is honesty too much to ask for ?”

    Absolutely it is.. could you imagine Obama giving the State of the Union speech by beginning “Our banking system is in shambles; only tricky accounting keeps them solvent. We as a nation are hopelessly indebted and face brutal tax hikes to pay the debt. We’ll have to print our way out of it in part, so gas is going to $4.00/gal soon enough. Our nation’s young will have absolutely no chance to see the prosperity their parents know. Welcome to Argentina”

    I think not.

  6. Gregg S Says:

    Yra, the truth certainly cannot be told for fear of a panic. If Timmy or Ben told the Chinese the incredible vise that they are in both economically or politically the roof would cave in. Remember Bernake’s BS about the sub-prime crisis being contained. Now that the stock markets phony legs are being taken out let’s see what policy they can come up with. The scary truth is that they just wanted to “buy time” in 2008 hoping somehow to get the banks solvent. Time has run out.. Europe is done as we know it, THEIR BANKS and southern Europe are REALLY insolvent. Good luck Jean Claude!!
    Enjoy reading your blog, hope all is well

  7. Arthur Global Practice Says:

    Hi Yra: According to the EIU forecast, the euro zone crisis will have only a limited impact on the global recovery. Your thought?

  8. yra Says:

    I think the EIU is whistling in the dark—how is it that the U.S. can be so important but europe which is the same size economy has minimal impact–I am not buying what they are saying–thanks Arthur Global for your comments

  9. yra Says:

    thanks gregg appreciate your thoughts and comments

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