Claude Cartaginese

Geithner Brings Down The House in China

Posted on June 2 2009 1:25 pm
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Treasury Secretary Timothy Geithner, dispatched to China by Barack Obama, is on the defensive. The Communist Chinese, no strangers to Obama’s preference for the concept of central planning and the micromanagement of an economy, are worried that their $760 billion in U.S. Treasury holdings are at risk. They’re asking tough questions, and, so far, they don’t seem to be pleased with Geithner’s answers.

After giving a speech at Peking University, where he studied Mandarin for 8 weeks over 18 years ago (thus making him an expert on China in the eyes of the media), Geithner was asked, point-blank, by a young University student about the safety of the Chinese investments. Geithner’s answer was predictable: “Very safe.” What was not predictable was what happened next. The room exploded in laughter.

Geithner’s assessment is baseless, and the Chinese aren’t buying it.  The Beijing-based Global Times, for example, greeted the Treasury Secretary by publishing a survey of Chinese economists who called big holdings of U.S. debt “risky.”  Among the 23 experts polled, 17 said they believed that U.S. equities pose great risks to China’s economy. Li Wei, an expert with the Institute of Ministry of Commerce, and Tian Yun, a scholar at the China Macro Economics Institute, expressed concerns over the risks, saying that the United States may export its deepening crisis to China “by printing U.S. dollar notes uncontrollably.”

If the Chinese get too nervous, they may just offload their U.S. debt altogether. This is what Geithner and Obama are trying to avoid. The Chinese, however, are already weighing their options. In an effort to find a way out of its entanglement with these now-toxic Treasury notes, Beijing is working on a plan to shed its foreign holdings and its expand domestic demand. As for finding safer venues in which to invest, China is looking closer to home. He Weiwen, a director of the American Economic Association of China, said that China’s neighboring countries, especially in East Asia, can serve as its new investment destination.

Any such Chinese investment pullout, at this point or in the future, would be a catastrophic event for the U.S.  As long as the Obama administration continues its reckless spending, the Chinese and other investors are going to be nervous, and who can blame them?

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