Compare and contrast this rehabilitation effort of Timothy Geitner:
After his hellish opening weeks, Treasury Secretary Timothy Geithner started inviting White House economic officials across the street to his conference room for hours-long working dinners that have helped get — and keep — the whole team on the same page.
Geithner, a former president of the New York Federal Reserve who once looked like he was floundering in one of the administration’s most scrutinized jobs, is emerging in a new position of strength with the media and the markets, just as he launches President Barack Obama’s high-stakes effort to re-regulate the nation’s financial markets.
The secretary’s advisers acknowledge that his newfound political standing is tied, in part, to the state of the economy, which is now showing early signs of improvement. But Treasury officials also have updated their playbook after his Feb. 10 speech on financial recovery, which was panned by the press and blamed for a 381-point slide in the stock market.
They decided to “let Tim be Tim” and accepted the fact that his strength wasn’t giving a speech in front of a bunch of flags. Rather, they let reporters see him in off-camera, pen-and-pad settings, where he fielded questions with the confidence that his staff saw behind the scenes. He aced an interview with PBS’s Charlie Rose, thriving in a relaxed setting where he could explain issues at length.
… with this bit of economic reality:
China has warned a top member of the US Federal Reserve that it is increasingly disturbed by the Fed’s direct purchase of US Treasury bonds.
Richard Fisher, president of the Dallas Federal Reserve Bank, said: “Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature.”
“I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States,” he told the Wall Street Journal.
The Oxford-educated Mr Fisher, an outspoken free-marketer and believer in the Schumpeterian process of “creative destruction”, has been running a fervent campaign to alert Americans to the “very big hole” in unfunded pension and health-care liabilities built up by a careless political class over the years.
“We at the Dallas Fed believe the total is over $99 trillion,” he said in February.
“This situation is of your own creation. When you berate your representatives or senators or presidents for the mess we are in, you are really berating yourself. You elect them,” he said.
His warning comes amid growing fears that America could lose its AAA sovereign rating.
I guess since the media tried to talk down the economy for the previous eight years, they may as well try and talk it up now that their boy is in the White House. The shame of it is that as the economy worsens, a lot of people are going to be shocked.
This is pure political analysis, but I found it to be hilarious. It’s from today’s “Mike Allen Playbook” at Politico (Allen does this daily) in which he is discussing the appointment of Republican Gov Jon M. Huntsman Jr as ambassador to China by the Obama administration. His concludes it is a brilliant political move (and it may be) since it has been said that Huntsman has 2012 aspirations. And, of course, this effectively removes him from the spotlight.
But that’s not what I found hilarious. It was this:
The appointment is freighted with intrigue, and looks like political genius by the White House: It’s like John Edwards or John Kerry joining the Bush administration in 2001. And the GOP is left with no leading moderate voice. Huntsman was talking about immigration, the environment and gay rights in ways that would have gotten him endless elite media coverage in the run-up to 2012. Some Huntsman advisers realized that GOP primary voters might be more prepared to accept his views in 2016, after a 1964-like cataclysm in 2012. But at the White House Correspondents’ Association Dinner, it was clear he was interested in running this time.
“Endless elite media coverage”? Anyone remember what happened to the GOP darling of the elite media this last election? Mr. Moderate was savaged by the elite media after he put away the other Republican contenders.
And you have to love the Allen implication that a candidate can enjoy “endless elite media coverage” if he happens to talk about wedge issues in a certain ‘way’. What does that say about the ‘elite media’ and journalism in general?
The 2012 presidential campaign has already begun, and like he did in his IL Senatorial race, Mr. Obama is finding ways to remove potential opponents from the ballot. That’s politics .
More disturbing, but certainly not at all surprising, is the Allen admission that the “elite media” will give a candidate “endless” coverage if he or she discusses the issues in a way that conforms with the media’s ideas of how they should be discussed.
China has stated it won’t be left holding the financial bag in order to cut greenhouse gas emissions. Calling itself a “poorer” nation, China wants the 7 most developed countries to spend 1% of GDP on helping them and others.
China raised the price of its co-operation in the world’s climate change talks yesterday by calling for developed countries to spend 1 per cent of their domestic product helping poorer nations cut greenhouse gas emissions.
The funding – amounting to more than $300bn (£190bn, €240bn) based on Group of Seven countries – would be spent largely on the transfer of “green” technologies, such as renewable energy, to poorer countries.
Gao Guangsheng, head of the climate change office at the National Reform and Development Commission, the Chinese government’s main planning body, said that even such large funds “might not be enough”.
China’s toughened stance comes weeks ahead of United Nations talks in Poland aimed at forging a successor to the Kyoto protocol, whose main provisions expire in 2012.
China also suggests that to this point, emissions reduction has been mostly talk:
“Climate change policies need a lot of money to be invested, however developed countries have not made any substantive promises about how much they are going to spend on,” said Mr Gao. “And they did not fulfil some of the promises they made in the past very well either.”
Of course a number of reasons relate to why those previous promises haven’t been fulfilled. Most of them relate to economics and the realization that their promises are potentially crippling to their economies. That’s effecting the G20 meeting as we speak:
Fears are mounting that environmental issues could be almost entirely sidelined at tomorrow’s G20 summit in London as leaders of the world’s largest economies resist calls to make clear green commitments as part of the meeting’s closing communiqué.
According to Guardian reports, UK officials are leading a last-ditch effort to have clear environmental commitments incorporated into the global economic recovery package that will back up politicians’ repeated calls for a ” green new deal”.
Gordon Brown has said that the inclusion of a commitment on the environment would be one of the tests of the summit’s success, but he admitted that the negotiations were likely to be tough.
The draft version of the communiqué leaked at the weekend made only a passing reference to climate change and it is thought some nations are resisting more detailed commitments to dedicate a proportion of the global stimulus package to green projects that they fear could provide an excuse for protectionist measures.
There is also reluctance to incorporate climate change commitments that could be seen to step on the toes of the UN’s climate change negotiations, which are continuing this week at a separate conference in Bonn, Germany.
This, of course, is good news. Why?
“Everybody seems to be focusing on short-term recovery and getting long-term regulation of the banks right,” he said. “I haven’t heard anything that suggests green recovery and climate change are a major part of the [G20] agenda.”
That’s because that is the priority – not that anyone should expect the G20 to get any of financial part of it right either. However, the priority does keep them from making commitments that would cripple economic growth. And they, of course, know that – which is why they’re avoiding it and spinning it as a desire not to “step on the toes of the UN’s climate change negotiations”.
But back to China – you’ll enjoy this. It is called “having your cake and eating it too”:
[China’s climate ambassador Yu Qingtai]… said that China was willing to make a “due contribution” to curbing emissions, but warned that the country would not see its citizens “left in the dark” as a result of binding emission targets and was within its rights to continue to invest in coal power that allows its economy to grow.
Gotta love the Chinese – they make some of our spin merchants seem like rookies. China will decide what its “due contribution” will be while it builds thousands of coal fired plants. In the meantime, per China, it is up to the rest of the world to do what is necessary to curb emissions because, you know, the poorer nations just aren’t up to it. Su Wei, Chinese delegation chief to the UN climate change talks in Bonn:
Su said the success of the Copenhagen summit lies in whether or not the developed countries would make “substantial arrangements” for transferring climate-friendly technologies to and providing funds for developing countries.
Su noted the establishment of three international “mechanisms” is very important among the “substantial arrangements.”
“The first is to set up an international mechanism on climate-friendly technology development and transfer, to eliminate barriers hindering technology transfer, so that developing countries can get access to such technologies,” he said.
“Secondly, we should set up an effective financing mechanism to ensure the developed countries provide adequate funds for developing countries in their bid to cut emissions and fight climate change,” he added.
Thirdly, Su said an “effective supervision mechanism” should beset up to monitor the above-mentioned technology transfer and funding.
Nice. Known as the “you pay, we take” program, this pretty much excuses China (and the rest of the poorer BRIC nations) from doing much of anything. As long as China is convinced that a) enough technology hasn’t been transfered, or b) there hasn’t been enough “effective financing” of the effort, it can c) exempt itself from any cuts while insisting the rest of the developed world stick by its commitments.
Now that is how a master loots your wallet.
A week or so ago, I mentioned the fact that Russia was lobbying for a new international currency to replace the dollar and opined that it most likely wouldn’t have any legs. By itself, Russia just didn’t have enough clout to bring about such a change. But apparently Russia was only the beginning. Later that same week, the UN came out in favor of a new currency option:
A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.
Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.
Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.
“It is a good moment to move to a shared reserve currency,” he said.
But does the UN have enough leverage to push something like this through? Probably not without some fairly powerful backers of the idea. And speaking strictly of the UN, any such proposal would have to pass through the Security Council, and it’s unlikely the US would sanction such a change.
Today, though, China came out in favor of doing exactly what Russia and the UN recommend:
China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.
In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.
As was noted last week, China has some concerns about the US economy:
“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.
And that’s a valid concern. With the Fed pumping out trillions of freshly printed dollars, inflation is almost assured.
In case you haven’t noticed, Russia and China are two of the four countries known as BRIC (Brazil, Russia, India, China). These emerging economies feel they deserve more clout than they now enjoy. And they’re meeting in advance of the upcoming G20 meeting in April of this year:
Finance ministers and central bankers from Brazil, Russia, India and China will convene ahead of the Group of 20 finance chiefs’ meeting in London on Friday, a Russian delegation source told Reuters on Thursday.
The source said the four will discuss the reform of international financial organizations such as the International Monetary Fund and the Financial Stability Forum, anti-crisis policies and preparations for the G20 summit in April.
Take a look again at China’s proposal for basing the international reserve currency in the IMF and the topic of their upcoming meeting in advance of the G20. Suddenly Russia’s proposal has some legs.
What clout does BRIC bring to the proposal? Well they are the holders of vast portions of the currency reserves around the world:
China runs the world’s biggest reserves, Russia comes 3rd, India 4th and Brazil 7th, as of last autumn.
Keep an eye out for Brazil and India weighing in on this. Should they come out in favor of such a change, as has China, it could portend some fireworks at the G20.
In the meantime, read this by Mikkel Fishman. It will explain some of the deeper and less evident problems we face. Then take a moment to look around and reflect. In my estimation, this truly is the calm before the storm.
Our congratulations go out to the Obama administration on their latest foreign policy and trade triumph. Last week, apparently without consultation, they did away with a NAFTA pilot program which allowed Mexican trucks to deliver goods to certain areas of the US. Mexico has responded:
Mexico has released the list of U.S. products that will see tariffs of 10 percent to 45 percent. The move is in retaliation for the U.S. scrapping a test program allowing Mexican trucks to deliver goods beyond a U.S. border zone.
Among affected goods are certain fruits and vegetables, wine, juices, sunglasses, toothpaste and coffee, according to a government statement. Most tariffs are 10 percent to 20 percent, with unspecified fresh products subject to a 45 percent charge. The tariffs will apply to $2.4 billion of goods and take effect today.
Just what you need in a down economy – punitive tariffs for political stupidity. And there won’t be a solution anytime soon:
Talks to diffuse the first [self-inflicted -ed.] trade dispute of President Barack Obama’s administration can’t begin until the U.S. has a Commerce Secretary, Economy Minister Gerardo Ruiz Mateos said.
So far I’m really not at all impressed with the status of the “better relations” throughout the world promised by the Obama administration.
Oh, and for an encore, how about this little goodie:
Energy Secretary Steven Chu on Tuesday advocated adjusting trade duties as a “weapon” to protect U.S. manufacturing, just a day after one of China’s top climate envoys warned of a trade war if developed countries impose tariffs on carbon-intensive imports.
Mr. Chu, speaking before a House science panel, said establishing a carbon tariff would help “level the playing field” if other countries haven’t imposed greenhouse-gas-reduction mandates similar to the one President Barack Obama plans to implement over the next couple of years. It is the first time the Obama administration has made public its view on the issue.
“If other countries don’t impose a cost on carbon, then we will be at a disadvantage…[and] we would look at considering perhaps duties that would offset that cost,” Mr. Chu said.
China expresses some … um … “concern” about whether or not it will ever see its money back:
The Chinese prime minister, Wen Jiabao, expressed unusually blunt concern on Friday about the safety of China’s $1 trillion investment in American government debt, the world’s largest such holding, and urged the Obama administration to provide assurances that the securities would maintain their value in the face of a global financial crisis.
Speaking ahead of a meeting of finance ministers and bankers this weekend in London to lay the groundwork for next month’s G20 summit, Mr. Wen said he was “worried” about China’s holdings of United States Treasury bonds and other debt, and that China was watching economic developments in the United States closely.
“President Obama and his new government have adopted a series of measures to deal with the financial crisis. We have expectations as to the effects of these measures,” Mr. Wen said. “We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.”
Just a little? There’s an old saying to the effect of “if you owe the bank $1 Million, then the bank owns you; if you owe the bank $1 Trillion, then you own the bank.” China’s feeling pretty nervous because it knows it can’t sell its holdings except at a tremendous loss — both from the normal discount expected, and from the fact that it is by far the largest mover in the market (e.g. what do you think would happen to Microsoft stock if Bill Gates started selling off?) — and it doesn’t see a whole lot coming out of Washington to instill confidence.
But there’s no need to fret PM Jiabao! Unnamed economists are here to save the day:
While economists dismissed the possibility of the United States defaulting on its obligations, they said China could face steep losses in the event of a sharp rise in United States interest rates or a plunge in the value of the dollar.
Whew! That was close. Nothing but a little market risk to worry about there, Jiabao. Default? Pffft … never gonna happen.
Back in the land called “reality” however, default is plays a bigger part since, aside from reneging on the debt, there are only three other ways for the government to pay for its spending binge: higher taxes, printing more money, or borrowing. Higher taxes impedes growth and leads to less revenue. Printing money leads to hyper-inflation. So, even though those two choices will be used to a certain extent, further borrowing is the only viable alternative to default. But who’s going to lend to us?
The bulk of China’s investment in the United States consists of bonds issued by the Treasury and government-sponsored enterprises and purchased by the State Administration of Foreign Exchange, which is part of the People’s Bank of China … much of the Treasury debt China purchased in recent years carries a low interest rate, and would plunge in value if interest rates were to rise sharply in the United States. Some financial experts have warned that measures taken to combat the financial crisis — running large budget deficits and expanding the money supply — may eventually create price inflation, which would lead to higher interest rates.
This puts the Chinese government in a difficult position. The smaller the United States stimulus, the less its borrowing, which could help prevent interest rates from rising. But less government spending in the United States could also mean a slower recovery for the American economy and reduced American demand for Chinese goods.
It may just be the case that China’s best option is to support its investment by propping up its best customer with yet more loans. Unfortunately, that means that Washington will have little incentive to slow down spending (since it owns the bank). The nasty little cycle of borrowing > spending > inflation > rising interest rates > falling dollar, will continue necessitating even more borrowing. China, in turn, will have serious questions about the value of its investment, and the US will start having serious discussions about declaring a default.
In short, China’s not just “worried” about the current fiscal mess. It’s crapping its collectivist shorts.
What is going on with the Charles Freeman nomination, and is it an indicator of a overwhelmed administration losing control? Who, exactly, is in charge there?
Frankly, approaching 45 days into this administration, the transition process, at least as it pertains to critical nominations, has been an unmitigated disaster. But it is the Freeman nomination which begs the question “who is in charge”. Charles Freeman has been nominated for the chairmanship of the National Intelligence Council (NIC), the organization in charge of preparing our most sensitive intelligence estimates.
Obama’s Director of National Intelligence Dennis C. Blair apparently never ran the nomination by the White House. That means Freeman has never been formally vetted. Now this may all fall back on Blair, but you have to wonder what sort of guidance or lack thereof provided him with the belief that this was the way things worked?
More importantly, why did Blair decide Freeman was the man for the job? A former ambassador under George H. W. Bush, to Saudi Arabia and senior envoy to China, Freeman is seen by many as having very serious conflicts of interest which were apparently ignored. Freeman was also a board member the China National Offshore Oil Corp (CNOOC) owned in majority by the Chinese government and other Chinese government agencies. And there are other financial ties which are suspect. Freeman is president of the nonprofit educational organization Middle East Policy Council (MEPC), which paid him $87,000 in 2006, and received at least $1 million from a Saudi prince. You can read about the ramifications of those connections here.
But its not just who Freeman has been connected with, but some of the statements he’s made that make one wonder about his objectivity and, frankly, his moral and ideological foundation. This is a person who remarked that the Chinese government had shown too much “restraint” when putting down the Tiananmen Square protests in 1989. And in testimony before the 9/11 Commission, he advocated the use of a national identity card. After all the wide-spread panic from the left concerning the Bush years and the claim that he was leading us down the path to totalitarianism, this seems like the type of person the left would really find unacceptable for a position.
Then there is the Congressional side of the question. Jennifer Rubin asks:
Does Diane Feinstein think Freeman is an acceptable pick? It is interesting to note how lacking in — what’s the word? ah yes — “oversight” the government is now that Congress and the White House are controlled by the same party. Imagine if George W. Bush had nominated someone whose earnings depended on the largess of the House of Saud or who advocated crushing Chinese dissidents — indeed faster than the Chinese government.
And she further asks, is this the type of person who will give the administration “the “unpoliticized” advice they are looking for?”
Given what we know, I’d say no. However, this nomination is just one more in what can only be characerized as a shambles – Commerce, HHS, Treasury, questions about his housing czar and nominees for other Treasury posts jumping ship – that is the nomination process.
This points to a very inexperienced administration learning on the job in one of the more turbulent times in our history. That is not a good thing, folks, but exactly what was predicted given his lack of a resume. We’ve now seen the result of a campaign based on vacuous slogans. A campaign that was part demonization of the opposition and part beauty pageant. A campaign in which few focused on what the responsibilities of the office entailed and whether the candidate had the qualifications to fulfill them. We’re now “enjoying” what that brings.
UPDATE: Politico reports that Charles Freeman has withdrawn his nomination. Heh … that’s the fastest reaction I’ve ever had to one of my posts.
Pretty sad when you have the Secretary of State soliciting funds for debt instruments:
US Secretary of State Hillary Clinton has urged China to keep buying US debt as she wrapped up her first overseas trip, during which she agreed to work closely with Beijing on the financial crisis.
Ms Clinton made the plea shortly before leaving China, the final stop on a four-nation Asian tour that also took her to Japan, Indonesia and South Korea, where she worked the crowds to try to restore America’s standing abroad.
In Beijing, she called on authorities in Beijing to continue buying US Treasury bonds, saying it would help jumpstart the flagging US economy and stimulate imports of Chinese goods.
“By continuing to support American Treasury instruments the Chinese are recognising our interconnection. We are truly going to rise or fall together,” Ms Clinton said at the US embassy here.
Of course, its absolutely necessary that China (and the rest of the world) continue to buy these bonds and fund this spending debacle or taxes will have to be raised dramatically (and not just on the ‘rich’) and/or more money will have to be printed. That’s not to say that both of those won’t be done anyway whether China continues to buy or not. My guess is it’s only a matter of time. Don’t forget, health care reform legislation and environmental legislation are yet to come. Both may end up taking even more out of the private side of the economy than the so-called “stimulus” did.
You could hear jaws dropping all over the world’s human right’s establishment as Secretary of State Hillary Clinton stated the Obama administration’s new policy about human rights vs economic, environmental and security concerns:
Amnesty International and a pro-Tibet group voiced shock Friday after US Secretary of State Hillary Clinton vowed not to let human rights concerns hinder cooperation with China.
Paying her first visit to Asia as the top US diplomat, Clinton said the United States would continue to press China on long-standing US concerns over human rights such as its rule over Tibet.
“But our pressing on those issues can’t interfere on the global economic crisis, the global climate change crisis and the security crisis,” Clinton told reporters in Seoul just before leaving for Beijing.
Hmmm … 4th place.