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Geithner Pledges Smaller Deficit as China Talks Start

Posted by WARREN MOSLER on July 28th, 2009


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Geithner Pledges Smaller Deficit as China Talks Start

By Rebecca Christie and Rob Delaney

July 27 (Bloomberg) — Treasury Secretary Timothy Geithner pledged the U.S. will shrink its budget deficit over the next four years and boost national savings,

Ah, ‘national savings,’ that gold standard measure that’s inapplicable with our non convertible dollar and floating fx policy.

Today it’s nothing more than another term for our trade balance.

‘National savings’ falls when the federal deficit rises and those funds thus created are held by non residents.
On a gold standard (or other fixed fx regime) that represented a gold outflow, as non residents were holding US currency that was convertible into gold on demand. And the gold supply was the national savings.

Anyone who uses that term in the context of non convertible currency is either ignorant or deliberately misleading.

and he called on China to maintain efforts to ease the impact of the global recession. “We are committed to taking measures to maintaining greater personal saving and to reducing the federal deficit to a sustainable level by 2013,” Geithner said in opening remarks for Strategic and Economic Dialogue meetings with Chinese officials in Washington.

Since total non government savings of financial assets equals federal deficit spending to the penny (it’s an accounting identity) cutting the deficit and increasing domestic savings can only be done by simultaneously reducing our trade deficit by exactly that much. That would likely mean importing a lot less from china.

So what his words are telling them is that the US is committed to buying less from them. That should give them a lot of comfort?

Geithner’s comments reinforced his efforts to reassure China, the largest foreign holder of American government debt, that this year’s record U.S. budget gap won’t pose a long-term danger. The shortfall is on course to reach $1.8 trillion in the year through September.

Geithner and Secretary of State Hillary Clinton are hosting Vice Premier Wang Qishan and Dai Bingguo, a state councilor, at the meetings today and tomorrow, the first such gathering since President Barack Obama took office.

Obama called for the two nations to deepen cooperation and work together to help the global economy. “As Americans save more and Chinese are able to spend more, we can put growth on a more sustainable foundation,” Obama said in his remarks. “Just as China has benefited from substantial investment and profitable exports, China can also be an enormous market for American goods.”

Wonderful, we work and produce goods and services for them to consume. That is called diminished real terms of trade and a reduced standard of living for the us.

Outside Investment

U.S. officials said last week they plan to raise concern
about China’s resistance to foreign investment at the talks,

China’s growing dollar reserves result mainly from foreign investment, where foreigners buy yuan with dollars so they spend the yuan in China on real investment (and maybe a bit of speculation).

while Chinese officials this year have highlighted their own worries about the value of their American investments.

Yes, and the play us for complete fools.

Geithner fielded a bevy of questions about the deficit during his June visit to Beijing. China’s holdings of U.S. Treasuries reached $801.5 billion in May, recording about a 100 percent increase on the level at the beginning of 2007, according to U.S. government figures.

“Recognizing that close cooperation between the United States and China is critical to the health of the global economy, we need to design a new framework to ensure sustainable and balanced global growth.”

No hint of what that ‘framework’ might actually be.

After seeing the ‘framework’ they’ve come up with for the US financial structure the odds of anything functionally constructive seem slim.

The Obama administration will take steps to put the U.S. on course for economic health, he said.

Like reducing the federal budget deficit when current steps have fallen far short of restoring aggregate demand?

Obama’s Goals

“The president also is committed to making the investments in clean energy, education and health care that will make our nation more productive and prosperous,” Geithner said. “Together these investments will ensure robust U.S. growth and a sustainable current account balance.”

Non look to add to aggregate demand in any meaningful way, especially with the associated tax increases.

And investement per se reduces standards of living. It’s only when that investment results in increased productivity for consumer goods and services is there an increase in our standard of living.

Geithner also repeated his call for China, which has posted record trade surpluses in recent years, to increase demand at home.

“China’s success in shifting the structure of the economy towards domestic-led growth, including a greater role for spending by China’s citizens, will be a huge contribution to more rapid, balanced, and sustained global growth,” Geithner said.

Just what we need, a billion non residents increasing their real consumption and competing with us for real resources.

In the talks today and tomorrow in Washington, U.S. officials said they plan to tell the Chinese the American rebound from a recession won’t be led as much by consumers as past recoveries.

That means our standard of living won’t be recovering even though GDP is recovering.

The American side also will urge China to rely more on household spending and less on exports for growth, an official told reporters in a July 23 press briefing in Washington.

Clearly the obama administration does not understand the monetary system and is working against actual public purpose.

The U.S. is concerned that there’s been a hardening of attitudes regarding China’s treatment of foreign investment, the official also said last week. China’s exchange-rate policy is another topic for discussion, the official said.

Total confusion on that front as well.

We push for a weak dollar/strong yuan policy so prices for China’s products at our department stores rise to the point we can’t afford to buy them.

Then we try to get them not to sell their dollar reserves because it might make the dollar go down.

From Mauer:

Hey, why don’t we all move to Latvia, where they do all of the stuff that Geithner advocates:

Latvia, which pegs its currency to the euro, now has a “strong”, stable currency. Good for them. They are sustaining this strong currency by crushing demand. Exports are down 28pc, but imports are down even more. The result of this Stone Age policy is economic contraction of 18pc this year, and 4pc in 2010.

But hey, you’ve got a “healthy” currency and a country which is pursuing a “sensible” fiscal policy with lots of belt tightening. And supposedly “building up national savings” as a consequence of these wonderful policies.

Where do we find these people?


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5 Responses to “Geithner Pledges Smaller Deficit as China Talks Start”

  1. Jim Baird Says:

    When I point out to the people who are moaning about the dangers of the trade deficit with China that their best-case scenario and worst-case scenario are in fact the same thing (a dollar freefall and imports getting more expensive), they look at me quizzically, as if I’m from Mars. I’m starting to think I am, and I’m wondering when I can catch the next shuttle back…

    Reply

  2. warren mosler Says:

    save me a seat!

    Reply

  3. Dissenting Comments Encouraged Says:

    Warren, you continue to do a disservice to yourself and your readers here and will alienate more and more people with it. It is VERY CLEAR that Obama is not working solely for the american j6p. He has a globalist background from and is promoting the globalist agenda. American shopping machine princess is going to be forced to cutback on her la vida loca lifestyle while chinese shopping machine princess is going to get to expand hers. Wether this is because of chinese influence on our government, or council of foreign relations members steering the world in this direction is not relevant – same outcome. That you continue to say it is “ignorance” guiding this process instead of calculated sheepleherding, makes me lose respect for you. This is nothing new Warren, during the 30′s there was a US congressman who had several assassination attempts on his life. He said the same thing back then, american citizens were being hurt under US policies to reduce thier standard of living so the standard of living could go up in other countries and help avert chaos in those places. He wanted the j6p of those days to rise up and vote out all the “globalist” thinking congressmen who only had a USA only myopic viewpoint.

    Why don’t you drop the myopic US viewpoint and look at all 7 billion as your brothers and sisters on this planet like Obama is doing? All the hate and envy that comes from a poor chinese rice field slave hearing about some rich shopping machine USA princess perhaps can be reduced with the policies the administration is taking. Yes, this reduces USA princesses standard of living, while china princess goes up. I think USA princess can stand a couple fewer louis vitton handbags to promote global peace, why don’t you? You are really starting to make yourself look silly in the international community Warren. Don’t do that. The days of blind patriotism and national pride while billions starve and die to support the USA way of life is not going to continue. That is the past, you can either be part of the future or die with the past – your choice.

    Reply

    Derek Peth Reply:

    You’re right, the US should start producing labor intensive goods that cost more than it does for china and sell them in china for more than they produce them there, plus we can stop buying them from China and buy our own products.

    Then, we would “buy” their “debt” because they buy our products now and we can clear the “debt” we owe them now. This way, the US residents get what is coming to them, the rascals, and would drop their standard of living until China and the US swapped places. This would power the world economy into the bright future of nonsense myself and Obama seem to be able to see.

    If only Disney would write a movie like that, then China could finally have its own Princess story.

    Reply

  4. Dissenting Comments Encouraged Says:

    You say the US should start producing labor intensive goods. Well let me school you friend, I am at siggraph right now, where all the new movies and 3d realities are made for the coming “matrix” simulated internet reality we are all going to in the future. Not only is USA princess too stupid to make anything LABOR intensive, like a car, or engineer a new quilt, because she has lost all her skill. But also stoopid USA princess is being left in the dust for higher order jobs in services or other things like graphic design, vr worlds, simulated realities, movies, games, etc etc. What good is it to have a USA with 300 million shopping machines that are perfect consumers, and 1 billion engineers in china who have all the skills and knowledge? Buffet told you, we are selling off the farm to keep the partay going la vida loca. Next generation we are going to wake up with a USA of even bigger idiots who know even less, many already can’t read a decent technical journal – then where is your comparative advantage then? I remember raul julia narrated a story once about this advanced society that brought in some monkeys to do all the work, eventually the monkeys replaced the societies individuals and thier children, because they got too stoopid to know how to do anything, you disagree? Go talk to the average USA party til you puke shopping machine princess – like the bush daughters – and then go talk to some smart asian girl in engineering and tell me which one has a future that is going to be useful and needed by this world? Wake up!!

    Reply

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