Geithner Committed to a Strong Dollar
January 22, 2009 · Posted in Monetary Economics
WASHINGTON (Reuters) – Treasury Secretary-designate Timothy Geithner on Thursday said a strong dollar is in the United States’ interest and that President Barack Obama believes China is manipulating its currency.
“A strong dollar is in America’s national interest,” Geithner said, reiterating the long-standing U.S. currency policy mantra in answer to written questions from members of the Senate Finance Committee.
“Maintaining confidence in the long-term strength of the United States economy and the stability of the U.S. financial system is good for America as well as our trading and investing partners,” Geithner said.
In the financial markets, the dollar trimmed losses versus the yen and U.S. Treasury bonds fell in price after the comment criticizing foreign exchange policies in China, who is the biggest holder of U.S. Treasury debt.
The Senate committee, which is scheduled to consider Geithner’s nomination starting at 10 a.m. after holding a hearing with him on the issue on Wednesday, released 102 pages of written questions to the nominee and his answers.
“President Obama — backed by the conclusions of a broad range of economists — believes that China is manipulating its currency,” Geithner said in his written response. “President Obama has pledged as president to use aggressively all the diplomatic avenues open to him to seek change in China’s currency practices.”
While China’s currency would be an important topic in U.S. discussions with China, “given the crisis the immediate focus needs to be on the broader issue of stabilizing domestic demand in China and the U.S,” the Treasury nominee said.
He noted that while in the Senate Obama co-sponsored “tough legislation to overhaul the U.S. process for determining currency manipulation and authorizing new enforcement measures so countries like China cannot continue to get a free pass for undermining fair trade principles.”
“The question is how and when to broach the subject in order to do more good than harm. The new economic team will forge an integrated strategy on how best to achieve currency realignment in the current economic environment,” he said.
“More generally, the best approach to ensure that countries do not engage in manipulating their currencies is to demonstrate the disadvantages of doing so outweigh the benefits,” he said.
Geithner also said Treasury had no current plans to request additional bailout money beyond the existing $700 billion already authorized, but said the situation was “dynamic” and required careful monitoring.
“We have to be prepared to act flexibly and with speed if conditions worsen appreciably, to devote more resources if that is necessary to secure our objectives, and we have to make it clear that we will continue to act until we have restored the strength and vitality of the U.S. financial system,” he said.
We shall see if Geithner’s commitment to a strong Dollar is just idle talk or serious conviction. He needs to realize that in the long run he has to look to Ben Bernanke’s Federal Reserve Board of Governors to stop the rampant increase of the money supply. He needs to make sure the banks mark their assets to market value. More debt consolidation across the board without government interference will strengthen the Dollar significantly. Either way, this commitment, along with the steps Obama has taken to boost confidence in government, plus the ongoing deleveraging and scandals in Emerging markets, is likely to continue giving the dollar a short to mid-term boost.
If this administration seriously wants to keep throwing money at failed banks, then the remaining $350 billion TARP money will not suffice by any means. So there are two options: The administration pledges an unconditioal abandonment of the disastrous bank interventionism performed by the previous administration (in which case Geithner won’t need any more money), or they continue down the failed Bush/Paulson/Bernanke plan (in which case there is no end in sight for additional billion Dollar bailout bills in Congress).
It is refreshing that our President actually considers global economic forces and talks about what is going on with China and the currency market. For more accurate information on that read The U.S. Current Account Deficit.