Posted by WARREN MOSLER on July 28th, 2009
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. â€œWe are committed to taking measures to maintaining greater personal saving and to reducing the federal deficit to a sustainable level by 2013,â€ 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?
Geithnerâ€™s comments reinforced his efforts to reassure China, the largest foreign holder of American government debt, that this yearâ€™s record U.S. budget gap wonâ€™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. â€œAs Americans save more and Chinese are able to spend more, we can put growth on a more sustainable foundation,â€ Obama said in his remarks. â€œJust as China has benefited from substantial investment and profitable exports, China can also be an enormous market for American goods.â€
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.
U.S. officials said last week they plan to raise concern
about Chinaâ€™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. Chinaâ€™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.
â€œRecognizing 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.â€
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?
â€œThe president also is committed to making the investments in clean energy, education and health care that will make our nation more productive and prosperous,â€ Geithner said. â€œTogether these investments will ensure robust U.S. growth and a sustainable current account balance.â€
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.
â€œChinaâ€™s success in shifting the structure of the economy towards domestic-led growth, including a greater role for spending by Chinaâ€™s citizens, will be a huge contribution to more rapid, balanced, and sustained global growth,â€ 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 wonâ€™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 thereâ€™s been a hardening of attitudes regarding Chinaâ€™s treatment of foreign investment, the official also said last week. Chinaâ€™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.
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?