Geithner: China Will Keep Funding Us, And We're NOT Monetizing The Debt
Joe Weisenthal|Jun. 2, 2009, 6:09 AM|2
Those kids who laughed at Geithner not withstanding, the Treasury Secretary claims it remains strong and that the Chinese have strong confidence in the resilience and dynamics of our economy (though they're obviously not that confidence, since they're constantly jawboning and shifting more and more of their purchases to the short end of the curve).
He also made comments about so-called monetization of the debt (the Fed buying US debt that the rest of the world doesn't want, which would be inflationary) and overall concerns about inflation. He says it's not an issue (of course), and that the Fed is buying debt to stabilize markets, not to fill in demand where there is none
Overall, no howlers in the interview, and as for the trip, we're guessing Tim probably won us some more time.
The whole transcript is below, and we've highlighted some of the more interesting parts.
LIESMAN: So, let me cut to the chase on what everybody thinks is the big issue here. How much concern are you hearing about the size of the U.S. deficit and the value of the dollar?
GEITHNER: You know what? I'm actually hearing quite a lot of confidence in not just the long term strength, resilience, dynamism of the U.S. economy-- as you would expect. I think that confidence is justified. ...
LIESMAN: How critical is it that China keeps or continues to buy and hold U.S. Treasuries?
GEITHNER: You know, the-- the really important thing is that we do what is necessary in the United States to make sure that American investors, investors around the world-- continue to have confidence in the basic policy framework of the United States. That we're doing what is necessary, again, not just to address the immediate crisis, but as we do that, we're laying a foundation for a more productive economy-- recovery that's more balanced, more sustainable. So that we can bring these fiscal deficits down over time.
I wonder if the investors (especially GM and Chrysler) feel confident in the Obama administrations policies?
LIESMAN: Let me just do one more on the currency here, which is-- in the campaign, the-- which sort of led to this issue that you had with-- labeling China a manipulator. The President seemed, on the campaign, to talk about China as a currency manipulator. Given the chance, though, in your report to Congress, you said-- decided China was not a currency manipulator. Has the President changed his mind on this issue?
GEITHNER: Look-- you know, we're going through an exceptionally challenging period globally. And things have changed in China, as well, over that period of time. Not just globally. And you see China now acting in a very constructive role internationally. This very aggressive program to strengthen the (UNINTEL) demand. And they have committed publicly to continue to move over time towards a more flexible exchange rate system. 'Cause I think they recognize that that is essential to their broader strategy of rebalancing sources of growth.
You know, they want to build an economy that has stronger domestic demands. So that they are less vulnerable to future fluctuations in global demand. That's a rational thing for China to want to do, and I think it's in the interest of the world economy as a whole.
I wonder how much stuff they will buy from the U.S.? Maybe just inflation proof assets?
LIESMAN: Make the bridge from our discussion on China to the discussion of domestic policy. And I think one good way to do that is talk about interest rates and commodity prices. Interest rates have been on the rise. Commodity prices have been surging. Some people say that's a sign of overall inflation concern. Which-- how do you look at those indicators?
GEITHNER: You know, Steve, I'm-- I'm very careful-- not to talk about-- financial market sales and financial markets. That's-- not appropriate for a Secretary of the Treasury to do. But I would just say that I think the main thing you're seeing around the world now. You're seeing this reflected in markets is somewhat diminished fear of deflation. A recession that's losing some of its force. Early signs of stabilization in economic activity and demand around the world. Broader improvement in financial market confidence. Broader improvement in risk premia (PH) and credit spreads.
In the real world, does this mean an increased fear of inflation?
LIESMAN: Do you have any concerns, though, that rates could go too high and then sort of curtail the-- whatever rebound we have? Especially when it comes to the mortgage rate, which-- now seems to be pushing above five percent?
GEITHNER: I'm very confident in the Fed's ability to keep inflation low and stable over time. Reduce the risk of inflation expectations rise significantly over time. And I am very confident in the President's commitment and the awareness in Congress of the importance of getting our fiscal position back to a sustainable path, as soon as we see the conditions for a durable recovery permanently established.
LIESMAN: Treasury is issuing over time and not so much time trillions of dollars of debt. The Fed is buying $300 billion of treasuries (UNINTEL). Why is this not the dreaded concept of monetizing the debt which so many economists would warn against?
GEITHNER: There's no risk of that in the United States. Because again, we have a strong industry central bank, who's obligation under the law is not just to achieve maximum (UNINTEL) growth but to keep inflation low and stable over time. And I know the Chairman is completely committed to that. And-- he is-- has the ability to make sure that as recovery takes hold, the Fed unwinds, as we will unwind. These exceptional measures we've had to take to help address this crisis.
How? Why?
LIESMAN: Why are you saying-- I mean, you're saying that buying $300 billion of debt by the Fed is not monetizing?
GEITHNER: Absolutely not. Again-- the-- no conflict between the Fed's responsibilities for a financial stability, the measures they've taken to help make sure that there's liquidity for markets. We're (UNINTEL) this process of adjustment in the financial system and their long term obligation to help-- help keep inflation low and stable. And I'm completely confident in their ability to do that.
LIESMAN: Substantial amounts of money coming back in. What are you gonna do with the money?
GEITHNER: Well, the way the law is written, when the money comes back, it goes into the general fund, helps reduce the debt. But it does give us the flexibility, for every dollar that comes back-- to use those resources to help reinforce these programs. And we're gonna use that flexibility carefully and appropriately. Where we think there's a need for additional reinforcement to help improve credit markets. Help address the housing crisis. Help get lending to small business flowing again. We'll use that-- because again, we want this economy to emerge as quickly as possible-- to a stronger-- foundation for growth.
How are you reducing the debt if you spending the money again? Aren't we still paying interest? Paying money to 'service the debt' whatever that means in the real world?
LIESMAN: You feel confident taxpayers are gonna get paid back?
GEITHNER: I feel-- I think we have a reasonable prospect that the taxpayer's gonna see a reasonable return on these investments. But, you know, we did this because we thought it was in the interest of the economy overall to help facilitate and restructure. And because of the importance of this industry-- to the overall U.S. economy.
In my mind, 'reasonable return' means taxpayers will get may $.05 on the dollar of debt, no interest, and they will feel safer that the other $.95 is helping foreigners and encouraging more illegal aliens to come to this country because our politicians do such a good job of sharing our prosperity.
'reasonable return' will mean more debt and the enslavement of many more generations of Americans.read the whole thing here -
http://www.businessinsider.com/geithner-china-will-keep-funding-us-and-were-not-monetizing-the-debt-2009-6
