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View Full Version : Obama pokes China in the the eye, again. "Geithner blows up the world"




Lucille
01-23-2009, 09:11 AM
Geithner blows up the world (http://blog.atimes.net/?p=494)


Geithner’s comment today that President Obama believes that China is “manipulating the yuan” takes us straight into Great Depression territory. With Paul Volcker at his side, I had hoped that Obama would be perspicacious enough not to touch the third rail of global economics, namely protectionism. Nothing, absolutely nothing that Obama might have done could be worse than this. If the US looks at the global jobs market as a zero-sum game in which the US has to claw back manufacturing jobs which China has taken away, we are back to beggar-thy-neighbor and the 1930s.

[...]

It appears simply that Obama is playing to his labor constituency. Resorting to protectionism could have cataclysmic consequences in the midst of a 1930s-style contraction of world trade. If China were to shift even a fraction of its reserves into gold, the consequences for the dollar would be frightening. We already are seeing hairline fractures in the street cred of the US Treasury, in the form of a LIBOR+75 cost of default protection as well as the violent backup in the long end of the Treasury curve. That should flash a red danger signal at the Administration.

The way out of the recession (might as well say depression) lies through Beijing (http://www.atimes.com/atimes/China/JK15Ad01.html), Francesco Sisci and I wrote in November. This is the worst economic news I’ve heard all year.

Previously: US to blame for financial crisis, says China (http://www.news.com.au/business/story/0,23636,24915240-14334,00.html?from=public_rss)


Some observers in the West are blaming China and other nations' high savings rate and trade surplus for fuelling excess consumption and asset bubbles in the United States, he said.

"Such views are ridiculous and irresponsible in the extreme," Mr Zhang wrote in the harshly worded piece in the Communist Party's mouthpiece.

[...]

China spends a large part of its forex reserves buying US debt, keeping interest rates down and creating the conditions for more spending by American consumers, economists have argued.

But Mr Zhang said China's forex reserves as well as investment in US Treasury bonds started to grow fast only from 2003 while household savings and the long-term interest rate in the United States have been falling since the 1980s.

It was the loose monetary policy, lax supervision and huge fiscal deficit in the United States that caused the financial turmoil, he argued.


Rothbard on protectionism (http://mises.org/rothbard/protectionism.asp).