What witch doctors are to health, Geithner’s reasoning is to economics. See “Why the Hell Do We Care if China Manipulates Its Currency in Our Favor?” post to learn why China only hurts itself by undervaluing its currency.
In a surprisingly blunt speech, U.S. Treasury Secretary Timothy Geithner took China to task for maintaining what the U.S. considers a deliberately undervalued exchange rate aimed at helping China’s export industries.
“When large economies with undervalued exchange rates act to keep the currency from appreciating, that encourages other countries to do the same,” said Mr. Geithner, using language that referred directly to China, in an address at the Brookings Institution, a Washington think tank. “This sets off a dangerous dynamic” as nations compete to keep their currencies undervalued.
(Read more from online.wsj.com)
Dear Sirs:
The Geithner speech is nonsense on two levels. Number one, and most importantly, if a country holds its currency cheap, it is subsidizing the living standards of its trading partners. If the Chinese are foolish enough to subsidize our lifestyle–which, by the way, they have been doing for some time now–then why would we desire that they stop? Secondly, the logic of his argument is childish. If we think China’s monetary policy is wrong, why are we encouraged to do the same thing? (I can just hear Mrs. Geithner asking her little boy Timothy why he jumped in the mud puddle…and little Timothy telling his mother that he did it because his friend did it.)
No country can force another country to pay its bills or cause another country to have higher unemployment. The most damage that a country can do to another is indirectly–by adopting policies that reduce its contribution to the world economy. For example, the world is worse off because Cuba is a communist country and does not produce goods for the world market.
Patrick Barron