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Thursday, October 14, 2010 7:58 AM

Geithner's Search for Scapegoats Avoids the Harsh Truth No One Wants to Hear

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Instead of admitting the United States' role in the global economic mess, Geithner Signals China Causing Global Currency Interventions

U.S. Treasury Secretary Timothy F. Geithner blamed China’s policy of limiting gains in the yuan for contributing to a round of capital controls and currency-market interventions by emerging economies.

“What’s happening is, as China holds its currency down, their currencies are moving up and they’re having to work very hard to make sure they’re not at an unfair disadvantage with China,” Geithner said in an interview with “Charlie Rose” scheduled to air on PBS yesterday and Bloomberg Television today.

Countries from Brazil to South Korea and Thailand have sold their currencies in recent weeks to curb gains that threaten to impede export growth and slow their economies. South Korea, Taiwan, Brazil, Colombia and Russia are tightening rules on capital flows to limit swings in their currencies.

“This issue, which people like to frame as uniquely an American preoccupation, is really much more important to the rest of the world and is really a global problem as a whole,” the Treasury chief said.

As talks among officials from the Group of 20 nations began in Washington last week, Geithner warned of a “damaging dynamic” of competitive currency weakening that could limit global growth and said “more and more countries face stronger pressure to lean against the market forces pushing up the value of their currencies.”
US Problems are Largely of US Making

Can someone, anyone, tell me why it is OK for the US to openly attempt to trash the US dollar, but it is not OK for other countries to do the same?

Yes, China is clearly part of the problem, but so is the US, Japan, the UK, and every other country that actively pursues a weaker currency hoping beyond hope to stimulate exports at the expense of everyone else.

Yesterday I spoke about capital controls in Emerging Market Economies Turn to Capital Controls; Forex Market in State of Disarray; Gold's Message; Life Imitates Art.

After 18 holes of golf, I return to find Geither blaming China for emerging market capital controls and the currency interventions of Japan.

Does anyone believe that if China floated the Yuan it would solve the world's problems? Hells bells, would it solve any of them?

The critical problem in the US is government spending is out of control at the same time consumers are overleveraged in debt. There is no painless solution! Anyone who promises one is an idiot or a charlatan.

Republicans Need to Admit US Cannot Afford to be World's Policeman

Regardless of what Republicans may think, we can no longer afford to be the world's policeman.

For details please see Cost of War Since 2001; Federal outlays and revenues, 1940-2015.

Democrats Need to Admit Problem with Public Unions

States are bankrupt because of pension promises that cannot and will not be met. Public unions have destroyed states and municipalities.

State pension plans are $3 trillion in the hole. For more details, please see Interactive Map of Public Pension Plans; How Badly Underfunded are the Plans in Your State?

Thus, no matter what Democrats think, we cannot afford our love affair with public unions, union wages, and most importantly, union benefits.

Both parties need to rework the healthcare bill so that it contains provisions that will actually encourage lower costs and not damage small businesses. The bill as it sits made matters worse.

Search for Scapegoats Avoids the Truth

Somehow, some way, if you listen to Geithner and Krugman, all of these problems are supposed to go away if only China would float the Yuan.

Well Geithner's head is up his ass because none of this will go away as long as the US looks for scapegoats instead of admitting reality. That reality is we are on the road to bankruptcy and neither Keynesian nor Monetarist stimulus will help.

Our problems are structural in nature and everyone needs to admit there will be no quick solutions and we cannot spend our way out of this mess. The only thing that can put the US back on track is fiscal prudence and sound monetary policy. Unfortunately, no one wants to hear the truth.

Mike "Mish" Shedlock
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