The dollar, Renminbi, Geithner, and India

Yes, those four belong in the same context because the US Treasury Secretary is in India, even as the world is getting more and more interested in the tensions over the US' concerns that China is holding its currency down at an artificially lower exchange rate.

First, these tidbits about Geithner and Obama:

During the early 1980s, Geithner's father Peter Geithner oversaw Ford Foundation's microfinance programs in Indonesia developed by Ann Dunham Soetoro, President Barack Obama's mother. Prior to that, Geithner Sr headed the Ford Foundation operations in India, which led to a toddler Tim spending his early years in New Delhi, where he had a crack at cricket but remained true to baseball.

So, tidbits aside, what is the Secretary thinking about these days with the China report due in less than a fortnight?

Geithner suggests, it is the level of comfort US has with India's transparency and fairness, compared with China, with whom Washington has been on the verge of an ugly spat over currency exchange rate manipulation. "The differences are mostly defined by the differences in our economies," Geithner said cautiously, reluctant to be drawn into a discussion on China. "We're not going to be talking in India about the exchange rate regime." India, he says, is "becoming more open, runs a flexible exchange rate regime. Its basic pattern in growth has been less export dependent, oriented over time. Different economy, different structure, different choices."

But, wait, the report on whether China is a currency manipulator is now delayed--it will not come out on the 15th after all ....
Meanwhile, according to the Financial Times:

In its latest estimate, the World Bank has predicted a growth rate of 9.5 per cent for 2010, but many analysts predict even faster expansion of the Chinese economy this year.
Growth in the first quarter alone is estimated at between 11 and 12 per cent.
...
But China’s trading partners, particularly the US, fear that its policy of holding down its exchange rate relative to the dollar is driving overseas demand for its exports which, in turn, is fuelling rapid economic expansion and inflation.

The Economist says that even if the April report does not cite China as a currency manipulator, then it will be only to give China one last chance:

The administration’s best hope is that China moves of its own accord before events in Congress or elsewhere force a confrontation. Tim Geithner, the treasury secretary, is surprisingly confident that China will act. Sander Levin, the usually interventionist-minded chairman of the House Ways and Means Committee which oversees trade matters, advocates multilateral rather than unilateral pressure. So perhaps the administration will give China one last chance and seek a multilateral remedy at the G20 in June. If China still fails to respond, the Treasury, by the time of its autumn report, will no longer be able to deny the obvious.

I tell you, we live in interesting times :)

Cash for clunkers:bribing the middle class

Matt Welch:

Cash-for-clunkers is indeed very "popular." So is the home mortgage interest deduction, the prescription drug benefit, and any number of federal programs that siphon from the diffuse pool of tax revenue+debt and blast out concentrated benefits to the broad middle class. The standard for judging these things shouldn't be popularity–Richard Nixon's wage-and-price control spasm of 1971, to name one of many historical measures now widely and rightly considered asinine, was hugely popular at the time–but whether they make sense in both the short and long term.

Cash-for-clunkers amounts to a rounding error in Tim Geithner's nose-hair at this point, which is probably why at least some liberals seem so genuinely baffled by the disproportionate criticism it has drawn. But for some of us it's also a nearly perfect symbol of economic statism run amok. The federal government is taking from the many, giving it to the less-than-many, destroying functional cars, funneling money to an auto industry that it already largely owns (at a hefty taxpayer price tag), then taking multiple (and multiply premature) bows for rescuing the economy and the auto industry in the process.

Tim Geithner's nose-hair? Very funny.

On a totally different note, a year ago I read Matt Welch's piece on his experience at the 1984 Olympics, and how his own jingoistic theatrics changed his view forever. I emailed him in appreciation, also because it reminded me of how it similarly dawned on me in my teenage years that the anti-Pakistan tone in cricket matches were simply nauseating .... Here is an excerpt from what Welch had written:

Then Shane Mack struck out looking on a curve ball.

It was as if the Goodyear blimp had deflated in one second on the centerfield grass. People were either stunned into silence, or (as in our case) muttering bitter obscenities at the world in general. Then came a horrifying sound from somewhere behind my left shoulder. It was a grown man, a grown American man, and his two kids, clapping, and saying, in perfect English, "Hoo-ray Japan!"

My eyes nearly burned clean out of my skull. The Hulk, John McCain...they had nothing on the white-hot American rage I felt at that moment. I wheeled around, fangs bared, glared at this pleasant-looking man, and yelled: "SHUT UP, YOU...COMMIE!!!!"

The genie was seconds out of the bottle when I began to feel regret. A crowd of furious Americans, who had been taking our cues for several innings now, immediately erupted into a "YEAH!!!", then began to chant: "COM-MIE!! COM-MIE!! COM-MIE!!" Dodger Dog wrappers went zipping by my ear in the general direction of the offender. Confronted with a potentially violent mob of Angeleno nationalists, the alarmed fan fled the facility, ushering his two young kids to safety.

My friend was psyched. I, in the words of Bob Dylan, "became withdrawn." Harnessing (or having the illusion of harnessing) a crowd of thousands turned out to be much more frightening than fun. Going plum loco over an exhibition baseball game felt, well, loco. And taking the side of a snarling overdog against a hapless and vastly outnumbered minority suddenly felt like the opposite of how I ever again wanted to approach either social dynamics or political thought.

The ride home with my friend's dad was totally silent, as if we were keeping our lips sealed about some terrible crime. In the following days, I noticed everything began to look different. The crowd-whipping antics of Wally George were no longer funny. Republican politics in general, particularly the flag-waving, lefty-baiting strain, became revolting overnight. So did knee-jerk, anti-Ronnie Ray-gun rhetoric. Religious settings of all varieties—Southern California was then going through a big fundamentalist revival—became intolerable exercises in peer-and-God pressure. People who I had internally dismissed as outcasts at school I now externally sought after as friends. People whose approval I once craved were suddenly ridiculous to me. I started gravitating toward any book that challenged the accepted wisdom of a topic I thought I knew, starting with baseball. And any time I found myself in an overwhelming majority, my first question became, "What if we're wrong?"

None of this made me a better person, obviously, and undergoing a change of heart at age 16 is about as rare and interesting as the sun rising in the east, but I feel better having confessed.

Oh, BTW, Welch did reply to my email, with a note "Makes it all worthwhile ... almost!"
Indeed!

20 percent unemployment, but gas prices rise?

Two months ago, I blogged about the real unemployment rate at 15.6 percent. This is the overall rate of unemployment, also referred to as the U-6 measure. One of my favorite urban researchers/blogger, Richard Florida, writes that it is now at 16.4 percent.
(U-6 is total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.)

So, let us do some crude math. The national unemployment rate is at 9.4 percent, but the U-6 measure is at 16.4 percent.
In Oregon, unemployment is at 12 percent. Which means, it is not unreasonably to think of Oregon's U-6 measure to be at 20 percent. This is some Great Recession!

But, here is what I don't get: why are oil prices increasing this rapidly then? For crying out loud, it oil prices broke the $70 mark for the first time since the phenomenal plunge last year. The more I think about it, the more I am convinced that the jump in oil prices is not because of an anticipated fast global economic growth. Instead, it is because (a) investors are betting on it, as much as they bet on share prices, and (b) the dollar is losing value, and oil exporters always raise prices to factor in the loss in the greenback's worth.

On March 4th, I euro got 1.2555 dollars. The latest? 1 euro = 1.4177 dollars. That is 16 percent in three months. No wonder then that Geithner is on a mission to convince the Chinese that the dollar is ok. And Bernanke is worried about the deficits. Hey guys, talk up the dollar.

Geithner explains the bank stress test results

So, it was really a surprise that by and large banks passed the test?
Robert Reich was concerned about the tests even before the results came out:

[Banks] needing extra capital will get it from the Treasury. But where will the money come from, now that the TARP fund is almost exhausted and Congress is dead set against providing more bank bailout money? The Treasury will simply swap debt for equity – turning what the banks owe the government into shares of stock in the banks. Presto. Ailing banks will get more capital, and Tim Geithner won’t have to go back to Congress to ask for it.

But by this sleight-of-hand, the public takes on more risk. Much of the money we originally gave Wall Street took the form of senior debt. We were preferred creditors, meaning that in the event of bankruptcy (or some form of it) we’d get repaid first. But as shareholders, we’d get nothing. As we’ve seen time and again during this economic crisis, shareholders lose big.

But, on with the test results, you say? Sure. Here is the treasury sec. explaining the test results:



thanks to GM for the tip

If only sex hadn't distracted him!

I was sure that he would be the first Jewish president of the US. In fact, if everything had been going well, I think he would have made a fine deputy to Obama--a much better choice than Joe "foot in the mouth" Biden. Unfortunately, he turned out to be a mortal, after all.

No, I am not referring to John "I had an affair while my wife was battling cancer" Edwards.

It is Eliot Spitzer I am referring to. He, too, will be rehabilitated in the public sphere, but in a much lesser capacity. His tough-guy approach, with white collar criminals, and his sharp thinking comes across clearly in his latest column in Slate, where he looks at the role of the NY Fed. Spitzer writes:

The composition of the New York Fed's board, which supervises the organization and current Chairman Friedman, is equally troubling. The board consists of nine individuals, three chosen by the N.Y. Fed member banks as their own representatives, three chosen by the member banks to represent the public, and three chosen by the national Fed Board of Governors to represent the public. In theory this sounds great: Six board members are "public" representatives.

So whom have the banks chosen to be the public representatives on the board during the past decade, as the crisis developed and unfolded? Dick Fuld, the former chairman of Lehman; Jeff Immelt, the chairman of GE; Gene McGrath, the chairman of Con Edison; Ronay Menschel, the chairwoman of Phipps Houses and also, not insignificantly, the wife of Richard Menschel, a former senior partner at Goldman. Whom did the Board of Governors choose as its public representatives? Steve Friedman, the former chairman of Goldman; Pete Peterson; Jerry Speyer, CEO of real estate giant Tishman Speyer; and Jerry Levin, the former chairman of Time Warner. These were the people who were supposedly representing our interests!

It is almost like it was Ralph Nader who authored this piece. The downfall triggered by yielding to the flesh--Spitzer was not the first, nor will be the last!
Spitzer then adds:

So is it any wonder that the N.Y. Fed has been complicit in the single greatest bailout of poorly managed banks in history? Any wonder that it has given—with virtually no strings attached—practically the entire contents of the Treasury to the very banks whose inability to manage risk has brought our economy to its knees? Any wonder that not a single CEO or senior executive of a major bank has been removed as a condition of hundreds of billions of direct cash and guarantees? Any wonder that, despite its fundamental responsibility to preserve the integrity of the banking system, it sat quietly on the sidelines as the leverage beneath the banks exploded and the capital underlying their investments shrank?

I do not mean to suggest that any of these board members intentionally discharged their duties with the specific goal of benefitting themselves. Rather, what we have seen is disastrous groupthink, a way of looking at the world from the perspective of Wall Street and Wall Street alone.

Stock markets will be down on Monday, Tuesday, ...

I will be surprised if they don't--after strong opinions like this:

John McCain and Richard Shelby, two high-profile Republican senators, said on Sunday that the government should allow a number of the biggest American banks to fail.

“Close them down, get them out of business,” Mr. Shelby, the senior Republican on the Banking Committee, told ABC’s “This Week With George Stephanopoulos.” “If they’re dead, they ought to be buried.”

While the Alabama senator did not say which banks to shutter, he suggested that Citigroup might be on that list, saying the bank has “always been a problem child.”

Mr. McCain, appearing on “Fox News Sunday,” echoed that sentiment without identifying any banks. Mr. McCain, who lost the presidential election last November, also accused the Treasury Department of avoiding the “hard decision” to let “these banks fail.”

And how about this one:

Republican Sens. John McCain of Arizona and Richard Shelby of Alabama said they want the automaker to seek bankruptcy protection, which would allow for reorganization.

"I think the best thing that could probably happen to General Motors, in my view, is they go into Chapter 11, they reorganize, they renegotiate their — the union management contracts and come out of it a stronger, better, leaner and more competitive automotive industry," McCain said on "Fox News Sunday."

Shelby, appearing on ABC's "This Week," said Chrysler and Ford as well as GM belong in Chapter 11 and then could get federal money as part of the process of reorganization.

Meanwhile, the treasury secretary, .... well, read this:

Henry Blodget thinks it is time for Timothy Geithner to go. So far, Geithner's performance has been shockingly unimpressive. It's not as if he's walking into the crisis anew; he's been the head of the New York Fed for years, and dealing with these issues from the very beginning. Yet on the really crucial problem of what to do about the banking system, he's been very nearly silent, going to Congress with a non-plan-plan that terrified the very markets it was supposed to reassure. Blodget also has a point when he says that Geithner has been mysteriously stuck on his original ideas. I would add that he seems mysteriously stuck on them, but not willing to pay the political cost of executing them, which is the worst of both worlds.

On the other hand, though I've so far been underwhelmed by his performance, we can hardly fire him, because who on earth would replace him?

Sino-American tensions .... continued

Commentators are all over the place ever since Tim Geithner referred to China's currency manipulation. Charles Wallace has an interesting point, which I have not seen elsewhere:

An anomaly of Geithner's remarks to the Senate finance committee last week was his comments on the dollar. After accusing China of manipulating its currency, he declared that "a strong dollar is in America's best interests" (the same thing that Paulson used to say repeatedly). The Chinese must be scratching their heads over that comment: Do the Americans want a strong dollar or a strong yuan? As the new overseer of U.S. currency policy, Timothy Geithner is not making much sense.