Geithner's China Bash

Geithner's China Bash. WSJ Editorial
Jan 24, 2009

Timothy Geithner's tax oversights drew most of the media attention at his confirmation hearing, but the biggest news is the Treasury Secretary-designate's testimony Thursday that he'll ratchet up one of the Bush Administration's worst habits: China currency bashing.

In a written submission to the Senate Finance Committee, Mr. Geithner said the Obama Administration "believes that China is manipulating its currency." He says he wants Treasury to make "the fact-based case that market exchange rates are a central ingredient to healthy and sustained growth." The dollar promptly fell and gold jumped $40 on the news.

We're not sure what Mr. Geithner means by "market exchange rates," given that the supply of any modern currency is set by a monopoly known as the central bank. When Mr. Geithner says China is "manipulating" its currency, what investors around the world hear is that he really wants Beijing to restrain the number of yuan in circulation and increase its value vis-a-vis the dollar. That's a call for a dollar devaluation to help U.S. exporters.

This would seem to be an especially crazy time to undermine the dollar, given that the Treasury will have to issue some $2 trillion to $3 trillion in new dollar debt in the next couple of years. A stronger yuan would also contribute to Chinese deflation and slower growth, which would only mean a deeper world recession. Even the Bush Treasury never formally declared China to be a currency "manipulator" in its periodic reports to Congress. If the Obama Treasury is now going to take that step, hold on to those gold bars. We're in for an even scarier ride than the Fun Slide of the last few months.