Last week, controversial US Treasury Secretary Timothy Geithner repeated Pres. Obama's campaign assertion that China is manipulating it's currency (which it is, but that's not the point). On Wednesday, China's Premier Wen Jiabao fired back, and Russia's Prime Minister Vladimir Putin piled on, for good measure, at the World Economic Forum in Davos, Switzerland. Here are some excerpts from the WSJ's coverage: (link)
Speaking on the opening day of the World Economic Forum in Davos, Switzerland, they both urged more international cooperation to escape the downturn. They also talked up the abilities of their own economies to ride out the recession. Mr. Wen said he was "confident" China would hit its 8% growth target for this year even though that was "a tall order." (See text PDF)
The Russian and Chinese leaders also called for cooperation with U.S. President Barack Obama, but it was a chilly reception for the new administration that reflected growing anger in economies that are now getting hit hard by a financial crisis that began with subprime mortgages sold in the U.S.
Mr. Putin was characteristically blunt. He called for the development of multiple, regional reserve currencies in addition to the dollar. "Excessive dependence on a single reserve currency is dangerous for the global economy," Mr. Putin said. (See full text)
The Russian leader mocked U.S. businessmen who he said had boasted at last year's Davos meeting of the U.S. economy's fundamental strength and "cloudless" prospects. "Today, investment banks, the pride of Wall Street, have virtually ceased to exist," he said.
Earlier, Mr. Wen called for an expansion of regulatory "coverage of the international financial system, with particular emphasis on strengthening the supervision on major reserve currencies."
While Mr. Wen never named the U.S., his critique of its failings was as sweeping as Mr. Putin's. The financial crisis, he said, was "attributable to inappropriate macroeconomic policies of some economies and their unsustainable model of development characterized by prolonged low savings and high consumption; excessive expansion of financial institutions in blind pursuit of profit" -- and other excesses.
"The entire economic growth system, where one regional center prints money without respite and consumes material wealth, while another regional centre manufactures inexpensive goods ... has suffered a major setback," Mr. Putin said.
(In response to Secretary Geithner), The Chinese premier gently, but firmly warned that if Washington and Beijing chose confrontation, both would be losers.
But the different tones of the two speeches, and the fact that Mr. Wen didn't call for replacing the dollar's role as the world's reserve currency but regulating it, reflect crucial differences in the important emerging economies.
A spokeswoman for the U.S. Treasury Department declined to comment on the remarks in the speeches. The White House did not respond to requests for comment.
...The rapid collapse of oil and commodities prices has hit Russia hard on top of the ripples of the financial crisis. The government now forecasts the economy will shrink for the first time in a decade this year, after growing 6% last year.
"In a very real sense Russia has been kicked to the margins, while China has become pivotal to any resolution of the financial crisis," says Bob Lo, Director of the Russia and China programs at the Center for European Reform in London.
...Russia also has negligible trade with the U.S., while Chinese exports are heavily dependent on U.S. consumers and Beijing holds $2 trillion in U.S. debt, prompting a much more cautious approach towards Washington and the dollar in Beijing.
The net effect of falling oil prices and the downturn, however, has been to make Russia more vulnerable and the Kremlin weaker, analysts say. Russian officials have begun to send out more conciliatory signals to the new U.S. administration.
"We wish the new team success," Mr Putin said Wednesday, calling on it to cooperate.
China, too, is suffering from the downturn. Many independent economists, including economists at the International Monetary Fund, question whether Beijing will be able to meet its 8% growth target this year.
...Some economists believe China could grow by as little as 5% this year, too little to provide jobs for the graduates flooding into the labor market from Chinese universities and schools each year and a further drag on the global economy.
Less noticed in Mr. Geithner's repetition of Mr. Obama's campaign-trail assertion that China "manipulates" its currency last week was his argument that the long U.S.-Chinese dispute over currency didn't matter as much as getting China to do more to boost its economic growth.
"Given the crisis the immediate focus needs to be on the broader issue of stabilizing domestic demand in China and the U.S.," Mr. Geithner said in his written response to questions during his Senate confirmation process. "A further slowdown in China would lead to a substantial fall in world growth (and demand for U.S. exports) and delay recovery from the crisis."
The US's dependency on China has come back to bite us in the ass. I am not an economist, but I commented somewhere that China's growth rate was unsustainable, at least a year ago. China sees it as our fault, for not buying enough of their products. What has happened is a global "shrinking" of the money supply, as the value of real estate plummets, worldwide. There are other factors than these, but it explains why Pres. Obama is encouraging "printing more money."
Maybe it also explains why NY Governor David Patterson was scheduled to attend this forum, until "domestic economic matters" took precedence (he was "shamed" out of attending by the NY Post). Obama doesn't need to hear this crap, but Geithner's comment was ill-timed. The fact is that China has as much responsibility for "buying into" capitalism as the US has for buying all those cheap Chinese products.
As for Russia, I would be more sympathetic to their plight if Putin didn't kill his political opponents, and journalists who are critical of their government. In a sign that "change" is coming to Russia, three Bolshevik protesters invaded an office of Putin's party: (link)
Two members of the banned National Bolshevik Party handcuffed themselves to a radiator while another set off fireworks, closing a United Russia office in Russia's second city for 30 minutes, a party official said.
The protesters demanded the government stop spending billions of dollars to bail out "banks and oligarchs" and instead freeze tariffs for electricity and public transport, National Bolshevik official Andrei Dmitriyev said.
...Police detained all three protesters.
OUCH! I hope they're not "mistreated," under Bolshevik standards. It's interesting that so many Americans also want fewer bailouts, and lower taxes. Maybe we should go protest in political offices, but without the fireworks, or we might get treated like the Bolsheviks. But I digress...
Secretary Geithner's comment about China wasn't wrong, and perhaps Russia and China would've blasted us anyway. The point is that he has become the "point man" of an aspect of US policy that is coming under harsh criticism by world leaders, in his first week in office. Don't feel sorry for him, though. As head of the NY Fed, he was probably more informed about the policies in effect before this recession than he was about how to use Turbotax.
"HOPE AND CHANGE!"