Wednesday, March 25, 2009

VIDEO: Oops! Geithner: Open To China "Global Currency" Plan; Then Retracts

Tim Geithner had another "Biden" moment today. When asked about China's proposal for a "global" currency, Geithner initially seemed open to the idea.

As usual when Geithner speaks, the dollar instantly plummeted.

Soon after, the moderator of his interview quickly asks a "leading question" prompting Geithner to "clarify" his position.

The dollar thankfully recovered.

Wonderboy. Whiz kid. When can we get rid of this guy?

Ben Smith reports on the gaffe:

Geithner, at the Council on Foreign Relations, said the U.S. is "open" to a headline-grabbing proposal by the governor of the China's central bank, which was widely reported as being a call for a new global currency to replace the dollar, but which Geithner described as more modest and "evolutionary."

"I haven’t read the governor’s proposal. He’s a very thoughtful, very careful distinguished central banker. I generally find him sensible on every issue," Geithner said, saying that however his interpretation of the proposal was to increase the use of International Monetary Fund's special drawing rights -- shares in the body held by its members -- not creating a new currency in the literal sense.

"We’re actually quite open to that suggestion – you should see it as rather evolutionary rather building on the current architecture rather than moving us to global monetary union," he said.

"The only thing concrete I saw was expanding the use of the [special drawing rights]," Geithner said. "Anything he’s thinking about deserves some consideration."

The continued use of the dollar as a reserve currency, he added, "depends..on how effective we are in the United getting our fiscal system back to the point where people judge it as sustainable over time."

President Obama flatly rejected the notion of a new global currency at last night's press conference.

UPDATE: Evidently sensing a gaffe, moderator Roger Altman told Geithner that it would be "useful" to return to the question, and asked if he foresaw a change in the dollar's centrality.

"I do not," Geithner said, adding several forceful promises, including, "We will do what's necessary to say we're sustaining confidence in our financial markets."

But Geithner wasn't the only top Obama adviser who refused to rule out a transition to a global currency. White House economic adviser Austan Goolsbee said much the same thing yesterday afternoon in an interview with CNN's Wolf Blitzer. Although he characterized such a change as "unlikely," Goolsbee twice declined to rule out such a global currency despite being pressed by Blitzer. "I haven't seen the details of the proposal," Goolsbee said. The entire exchange follows:

BLITZER: The Chinese suggesting today, this dollar, U.S. dollar, should be replaced as international currency, because they are beginning to have concerns that you are printing, the U.S. government is simply printing too many of these dollars and will lose its value as an international currency.
What's your reaction?

GOOLSBEE: It strikes me as probably unlikely.

Different people have in the past argued for world currencies or new -- new currencies before. I believe the U.S. at this point is the safest place to invest in the world. And it's likely to remain that the dollar is a critical currency in the years ahead.

BLITZER: So, you -- you don't like some new international currency that some Chinese are proposing?

GOOLSBEE: Well, look...

BLITZER: I assume that's right, right?

GOOLSBEE: I haven't seen the details of what they are proposing.

I mean, the dollar is the dollar. If people don't want to buy it, they don't buy it. But I think you have seen sort of a flight to the dollar in -- in times of trouble.

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  1. Reminds of the Sopranos' - if you owe Tony money and he 'suggests' something you better at least make a show of it being a good idea. Unfortunately I fear we are Big Pussy not Tony.

  2. You're a smart guy; you understand this global economy stuff better than I; why would Geithner even remotely consider this nonsense?

    Especially coming on the heels of Obama completely dismissing it last night?

  3. I think the Chinese statement was about certain technical/arcane aspect of the International Monetary Fund...I'll be a bit generous and say this was a highly technical subject that probably only 50 people in the world understand and as ex Fed Pres Tim probably was one and forgot he wasn't talking to the other 49.

    Remember that China is dreadfully fearful of a collapse in the dollar. Their whole system is based on delivering the goods to their people, so they don't worry about politics. If you look at what is happening to imports in the US, they are plunging, and that is bad for China. As one example the Chinese have changed some tax subsidies that were penalizing apparel exports (viewed as low value add) but they've reversed them (will save you a couple bucks on your next pair of Nike's).

    The other thing to remember is that it is only in the US that the "Great" Depression was "Great"...the rest of the world had a serious recession in the 20's. Why? The US was the new entrant to the global economy and developed a economy based strongly on exports, when they slowed we as the largest exporter were the hardest hit. Who is largest exporter today - China, so as bad as our problems are here (won't be snarky on whose fault that is) China's are worse.

    BTW I'd highly recommend calculatedrisk blog (google it for exact site). It is a objective site with a lot of good links to leading economic blogs - with pretty good balance (some left of center and some right of center but most pretty balanced. Also a site called the baseline scenario is quite good on background on the financial mess.

  4. Snarky Librul:

    The comparison of the USA during the 30's and China 2009 makes a lot of sense. What I don't understand is how some global currency - what ever technical aspect of the Monetary fund they were on about - could help the Chines economy, when the US isn't importing enough of Chines goods? Could you or anyone explain that if you have an idea? Thank you.


  5. toronto realtor

    I'll refer you to an excellent piece by Brad Setser at the council on foreign relations who is one of the most renowned experts on Chinese monetary and macro economic policy and is definitely one of the 50 people who knows this stuff

    I think in simple terms as I understand it - and I'm not one of the 50 people - is that China doesn't want all its cash in dollars (I don't think it is malfeasance against the US, just don't want all eggs in one basket). From teh US teh massive stocks of dollars held by China were fed back into the us for increased demand for US$ assets - mostly safe instruments like government bonds - which led to poor macroeconomic signals being sent (the most significant of which was that mortgage rates were too low for much of the mid 2000's and led to excess demand for real estate, which, see how well that worked). So establishing an alternative reserve would benefit China by allowing them to diversify and for the US it would mean that we would not have artificial demand for our assets that leads to misallocated resources.

  6. I like fried wantons. And cheese, I like cheese.

  7. America will need a new currency before Geithner and the politicians are finished expanding the debt and destroying the dollar but the solution is a gold backed currency free of government manipulation. The Campaign to Cancel the Washington National Debt by 12/21/2012 through constitutional amendment begins. See our facebook page at

    We are also planning to have a booth at FreedomFest 2009, the world's largest gathering of free minds! July 9–11 in Las Vegas. Ron

  8. S.L.:
    Thank you for responding. I have saved that link and will read through it once I get a minute.
    So if I summarize what you have said, because the Chines keep their reserves in the USD currency, sometimes they flood the currency market with plenty of USD and that pushes its value down, right? Because all of a sudden there's too many USD. And creating new reserve currency would prevent this. Did I get it right?

    Thanks again!

  9. Thanks for the post...
    I cross-posted it here:

    Hope you don't mind my added collage.