China is Kicking Us While We are Down

March 27, 2009 by  
Filed under Economics

By now I’m starting to think that Tim Geithner, a man clearly in economic waters that are over his head, is walking around with a “kick me” sign on his back. Boy is he getting kicked, and by some very large feet.

The Chinese government has been posturing during the lead-up to the G-20 Summit next week. Last week, China’ s premier openly questioned the ability of the U.S. to meet its debt obligations, of which China owns almost $1.4 trillion. Nothing like having a major international rival giving us a margin call. The way things are going, that debt may he the only thing keeping China from forcibly gobbling up Taiwan.

On Wednesday, Zhou Xiaochuan, the head of the People’s Bank of China (China’s Central Bank and the equivalent of the Fed)  had his turn. He pointed his words directly at Geithner and the U.S., calling for a complete revamp of the international monetary system. More specifically, he wants the world to stop looking at the dollar as the reserve currency of choice. Instead, he proposes adopting an “international” currency unit by blending the dollar, pound, euro, and yuan. Here is his stated rationale:

A super-sovereign reserve currency not only eliminates the inherent risks of credit-based sovereign currency, but also makes it possible to manage global liquidity. This will significantly reduce the risks of a future crisis and enhance crisis management capability.

Take that U.S.

Mr. Zhou didn’t stop there. He also proposed that the International Monetary Fund (IMF) be allowed to directly manage the currency reserves of some countries. That’s radical and will certainly stoke the fires of those fearing a possible “new world order.”

In a recent speech, Zhou directly attacked the way the U.S. dominates the credit rating scene:

The global financial system relies heavily on the external credit ratings [ed. note: the big three U.S. credit rating agencies] for investment decisions and risk management resulting in a massive herd behavior at the institutional level. Moreover, the rating models for mortgage-related structured products are fundamentally flawed.

This statement was probably a reaction to China’s $5 billion loss from the failure of Lehman Bros. Sadly, there is a lot of truth to what Zhou said on this point.

Finally, Zhou thumbed his nose directly at Geithner and company with some economic policy bragging:

Facts speak volumes and demonstrate that compared with other major economies, the Chinese government has taken prompt, decisive and effective policy measures, demonstrating its superior system advantage when it comes to making vital policy decisions.

Geithner had a fearsome retort to Zhou’s remarks:

Zhous is a very thoughtful, very careful, distinguished central banker.

Nice come back Timmy. Very intimidating.

Well if things get worse, maybe we can join the European Union and together fight off the Chinese economic onslaught. Wait – that won’t work. The European Union’s Stability and Growth Pact requires a national budget deficit to be less than three percent, and requires a national debt that is less than 60 percent of GDP. With the Obama budget, we don’t meet those tests. Oh well.

The G-20 summit next week should be interesting. We may see someone cry.

Image credit:  Andrew Pescod


Feed Mr. ToughMoneyLove

FREE UPDATES: If you enjoyed this, please subscribe to receive the newest hard truth from Mr. ToughMoneyLove automatically by RSS feed (what is RSS?) or by spam-free Email.

Share
  • Banner

Comments

3 Responses to “China is Kicking Us While We are Down”
  1. Rick Beagle says:

    I had hoped to see your comments concerning the Republican budget plan, but hitting lil’ Timmy is always fun.

    In his defense, it has only been two months and he still doesn’t have a full staff. Last I heard, he was still awaiting approval for a great many of his senior staff selections. I don’t disagree that he may not be up for the task, but having one hand tied behind your back should be acknowledged and added to any conversation.

    Insofar as him having a quick retort for the Chinese, they own us, and nothing to do but shut our “pie holes”. Thank you Republicans….

    Rick Beagle

  2. SJ says:

    Do they own us? isn’t there a saying, when you own someone 1 billion dollars, they owe you.
    When you owe someone 1 trillion dollars you own them?

    Regardless, sadness.

  3. MasterPo says:

    TML – Don’t snicker too loudly. The Chinese may not be far off. I don’t see any reasonable way the U.S. can pay for the debt Obama has gotten us into already, muchless what he wants to add in the new budget! Even a massive tax increase (whatever happened to the 95% cut he promised? Seems he backed off that pretty fast!!) can’t pay for it. And this is just the first year budget. There’s next year, and the next etc. Not to mention any crisis or emergency that you know life will throw at us some point in the next 4 years (btw, did you hear Obama promised $1.4 BILLION to Mexico for drug enforcement? What’s another billion here or there…)

    Rick – Keep making those excuse but always remember we were told that Obama was ready on day-1 to take command and leadership. He and his supporters (and the media) reminded us constantly that being President does not allow for on the job training, hence McCain and Palin were ill suited for the positions. But Obama we were told was ready on the get-go to take the reigns and charge full speed ahead! And always remember too we were told that Geithner was the ONLY person in the country uniquely qualified to head up the Treasury and get us out of this mess; That he appointment confirmation was literally a matter of life&death for the nation! Now it’s time to walk the walk – and both men are failing MISERABLY!! :-(

    SJ – We took their money in the form of selling them Treasury bonds. The U.S. simply can NOT say “We ain’t gonna pay you back so there! 😛 ” That will truly destory the nation on the spot. So yes, even though we have their money they own us, not we own them.

Speak Your Mind

Please leave a comment and tell us your version of the hard truth...

You must be logged in to post a comment.