His answer drew loud laughter from his student audience, reflecting scepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.
You might think they are being rude, but check out what he went on to say:
Geithner renewed pledges that the Obama administration would cut its huge fiscal deficits and promised “very disciplined” future spending, possibly including reintroduction of pay-as-you-go budget rules instead of nonstop borrowing.
“We have the deepest and most liquid markets for risk-free assets in the world. We’re committed to bring our fiscal deficits down over time to a sustainable level.
“We believe in a strong dollar … and we’re going to make sure that we repair and reform the financial system so that we sustain confidence,” he said.
Pay as you go, he says. Then immediately contradicts himself by saying they’re going to bring down fiscal deficits to a sustainable level. Having any deficit is kinda by-definition not pay-as-you-go.
S&P has been threatening to downgrade America’s bonds from AAA – Britain and others in Europe have already suffered this fate. Hardly risk-free, if they’re starting to fall now.
I’d like to point out that the entire time this crisis was unfolding, the previous administration said they were committed to a ‘strong dollar policy’ and look what that got us.
To that end, Geithner said a more flexible exchange-rate regime for the yuan, which would almost certainly see the value of the Chinese currency rise against the dollar, was particularly important because it would spur more Chinese demand.
A stronger yuan would make imports cheaper for China and Chinese exports more costly for foreign buyers.
Why on earth would China be interested in following this policy. They have nothing to benefit from it. We are in no position to dictate anything to them, since they are the ones who own our debt. They may own up to 15% of it (or, who knows, more). What are we gonna do?
Tags: depression 2.0, lies lies lies, LIES!!, we're fucked, wild speculation