Timothy Geithner, just days into the job of Treasury Secretary, is already moving US bond markets by saying the sort of things Henry Paulson would have dared to imply, but never said outright. As Bloomberg reports (our emphasis):
Jan. 22 (Bloomberg) — Timothy Geithner, President Barack Obama’s nominee for Treasury secretary, said the new U.S. administration believes China is “manipulating” its currency. Geithner also said, in written responses to questions from Senate Finance Committee members, that there are “no current plans” to request more financial bailout funds.
He played down any need to nationalize U.S. banks, without specifically ruling out the option. The remarks on China may presage a tougher American line with the nation that is the biggest foreign investor in U.S. government debt.
Former Treasury Secretary Henry Paulson preferred diplomacy over confrontation with China to resolve trade disputes and, in semiannual reports, refrained from labeling the country an illegal “manipulator” of its currency.“President Obama — backed by the conclusions of a broad range of economists — believes that China is manipulating its currency,” Geithner said in the remarks, which were posted on the Senate Finance Committee Web site today. “The new economic team will forge an integrated strategy on how best to achieve currency realignment in the current economic environment.” The finance panel is expected to hold a vote on Geithner’s confirmation today.
Of course, what interests us is the timing of the comments. Geithner has labelled China a manipulator (by that he means a devaluer) even despite the country’s continued support of the yuan. This follows growing speculation China would be encouraged to depreciate to counter negative economic data.
Nevertheless, with US Treasury debt prices turning negative on the comments, it seems the market believes China may even be encouraged to appreciate further.
Related links:
Carry on Henry Paulson in China – FT Alphaville
Could China be depreciating? – FT Alphaville