Nothing to see here, folks. This is just a little gamesmanship for the Senate Finance Committee.
The full Senate is expected to take up Geithner’s nomination on Monday and he is expected to win approval at that time with supporters saying that the current economic crisis requires quick approval of someone with Geithner’s qualifications.
This is about getting confirmed by the full Senate and nothing else. Geithner is tacking rightward to ensure he makes it through the process despite a few bumps along the road. The only blockade he would be concerned about would be right-wing resistance, (with the Dems unified, at least for the moment), so he threw some red meat to the nativist and xenophobic wing of the GOP (i.e., the core of that party). Charges against China for currency manipulation have long been a regular feature from some quarters, of course, and there has long been bipartisan comity on the issue, if you will.
I think the most important take-away here is that the confirmation process is a purely ‘internal’ matter, for domestic public consumption. If it sounds harsh, well, that is politics. Remember when Olmert bragged about dictating policy to Bush? Compared to that, how does this stack up?
This is still well within the first 100 days of the Obama Administration. I can feel that the honeymoon will not last too long, and I myself am already growing concerned about some things, like, oh, open violations of sovereignty, but it is early yet, and we should keep that firmly in mind when discussing what sort of policies Obama will adopt.
Paulson Declines to Call China a Currency Manipulator
[...]
Illinois Senator Barack Obama, a Democratic presidential candidate, asked Paulson in a letter to reverse the decision, and pledged to back his colleagues’ efforts to take a harder line on China…
Naming China a currency a manipulator would have amounted to little more than a shaming exercise, as the legislation that requires the currency reports requires only that the Treasury start negotiations with an accused manipulator.
Can we call just call this geopolitical theater?
Yet, at precisely that time, the GOP was doing exactly what it does best: kicking itself in the head. From the same article:
Senator Richard Shelby, [an Alabama Republican] and Christopher Dodd of Connecticut want to change the law to make it easier to declare manipulation…“China is a notorious currency manipulator,” Shelby said in an interview today. “We have to get real with the Chinese. The Treasury needs to wake up.”
Now, it is obviously wise for analysts to consider whether this charge is, in fact, true. The problem is, the charge is that the RMB is overvalued against the US dollar. But over the past two years, as we know all too well, the interest rate has dropped (relative to the dollar) from over 8 to 1 down to 6.8 to 1, which is not insignificant.
Now, you could argue that this change has not gone far or fast enough, and you could well be right. Two years ago I believed the rate would drop to about 6 to 1 over the course of 3 years, but then I was chatting with one of my b-school professors a year or so ago and he felt the final equilibrium will be closer to 5 or even 4 to 1. Lots of people are betting against the dollar right now.
But how can you really argue that the change is not quick enough, that there must be manipulation? Again, one last time, from the same Bloomberg report:
The yuan “is undervalued and market sentiment clearly favors appreciation,” the Treasury said in its semi-annual review of currency policies released today in Washington. China didn’t meet the technical definition of manipulation because the U.S. couldn’t determine the intent to seek a trade advantage.
I like that “market sentiment clearly favors”, there.
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