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Can Timmy Tackle China?
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They're America's biggest investor and our best chance at quelling Kim Jong Il. Why Secretary Geithner's trip to China could define our place in an increasingly tight global economy.
Even on a weekend largely devoid of news, save for the trials of Judge Sonia Sotomayor and pretend war dances on the Korean peninsula, the story that will largely determine the fate of the American and global economies goes strikingly unattended: Treasury Secretary Timothy Geithner is in China. He’s there to meet with its leaders to begin figuring out policy puzzles whose resolution will shape the future far more than the mesmerizing crises of Korea, Afghanistan, Pakistan, Iraq, and Iran. He’s there to talk about the value of the dollar and the yuan, trade and investment decisions, and how best to pump life into a listless world economy. By these eye-crossing threads does our future hang. And don't be surprised to hear reports of Geither talking up the American economy. The reports are true, and the tactic is necessary. Otherwise, he'd have to listen to long Chinese lectures about Wall St. profligacy and play the weaker hand.
Once deadly Cold War enemies, the economies of China and America have become inseparable. The United States is China’s biggest export market by far. China is America’s biggest investor by far. If one sneezes, the other catches a cold. Their markets are so intertwined that if one side tries to gain advantage over the other, it hurts itself as well. The United States remains the biggest economy in the world by far, and China has been the fastest-growing one by far for decades now. One of America’s leading international economists, C. Fred Bergsten, recently called for downplaying the G-20 group of industrial powers and focusing instead on what he termed the “G-2,” namely China and the United States.
Once deadly Cold War enemies, the economies of China and America have become inseparable.
Here’s the agenda for the Geithner talks, the policy puzzles, and the stakes.
On economic stimulus, both countries are basically on the same page and accepting of their responsibilities for the global economy. Depending on how it’s counted, the U.S. stimulus and salvation package ranges somewhere around $2 trillion. China’s reaches almost $600 billion. But for this, Beijing gets much more bang for its buck. The Chinese, for example, have more infrastructure projects under way in Beijing than the Obama administration does in all of the United States. Low labor costs give Beijing a tremendous advantage here, which will continue to give it a big competitive advantage.
Nonetheless, the Obama team wants Beijing to spend much more to stimulate its own internal economy. The Chinese economic miracle has been built mainly on exports, especially to America. This has resulted in enormous trade surpluses for China and deficits for the United States. Washington wants to export more to China, far more than its already upward trend in recent years. But that’s a hard decision for Beijing. To begin with, the Chinese people are savers, including for things like medical costs that are scanted by the Chinese government. Also, that conservative-minded government is loathe to pump out yuan even to its own economy if the result is deficit spending.
The trade relationship hangs in good part on the relative value of the dollar against China’s reminbi or yuan. Washington has long accused Beijing of keeping the value of the yuan artificially low against the dollar in order to make its exports cheaper to the United States. Beijing says the situation is more complicated than that. In any event, if Beijing were to let the yuan fall against the dollar by about one-third, the figure often bandied about in Washington, its losses would be catastrophic. China holds about $1.5 trillion in Treasury bonds, equities and the like. A one-third decline would mean the loss of $500 billion.
On the other hand (and there’s always another hand in these subjects), Washington can’t afford to let the value of the dollar drop in America’s interests. In the first place, if its value falls, American securities will become less attractive to investors, especially foreign ones, especially China, which already has such large investments. And without those foreign investments, especially from China, the Obama administration has no hope of financing its vast deficit-spending stimulus package. Less investment money from China, more printing of depreciated money in America, more inflation, and more undercutting of Obama’s stimulus package.
Declining investments from China would also mean a jump in interest rates in America in order to attract more Chinese and other foreign investors. But the higher the interest rates, the slower the economic recovery in America because more expensive loans would further slow growth as well. Mortgages for the housing markets, in particular, would fly skyward and grind down the recovery of the housing market. And of course if all these bad things came to pass, China itself would be the second biggest loser after America, given its investment in dollars.
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Can Trembling Timmy Tackle China?
I dunno... it depends on his daily instructions from Goldman Sachs.
Once America was the sleeping dragon.
No more.
Maybe two dragons are better than one, hmmm?
It is certain, however, that American interests are inextricably intertwined with China's.
Let's hope the newer, younger Chinese folk are more amenable to growth and change.
Otherwise, China will eat us for breakfast and ask, what's for lunch.
Geithner should be fine as long as the Chinese don't ask him to stop cheating on his income taxes.
Oh, I love this! When Gao Xiquing, the president of the China Investment Corporation was asked about Wall Street jobs, and wealth in the American banking/investment sector, he stated, "I have to say it: you have to do something about pay in the financial system. People in this field have way too much money. And this is not right."
That was a quote from an article by James Fallows in the December 2008 issue of The Atlantic. It goes on to explain that this fellow, Gao, is a graduate of Duke, and has great depth of understanding of American culture as well, of course, of China.
He, and the other Chinese leaders are tough men of great character, and by exposing little Timmy to them, perhaps he will come back with a bit of humility to share with his brethern at Goldman Sachs, as they continue to rule our country's financial system.
Sad when our financial market has to take instruction from the Chinese. They own us for sure. I hope the financial market will self regulate and not necessitate government intervention because that would not be right.
That is indeed.. downright funny is a sorta sad way. We always think we do it the best... perhaps we need a little humble pie more often.
I wonder if Timmy G. is going to tell the Chinese that he and Sheila Bair of the FDIC are now going to force JP Morgan's CEO Jamie Dimon to finally come up with the cash to do the long overdue buyout of the WaMu Holding Company? After all these months, it's time for the WaMu Shareholders like the Chinese, Texas Pacific Group and the rest of us to finally get compensated Book Value from this wrongful bank heist, opps, I mean seizure. It's funny how the facts of this are all starting to hit the media in waves now? Like how JP Morgan has now said that is will re-access $29 Billion in WaMu Loans upward in value now! Stay tuned ... it's just going to get better. LOL!
Yeah and I smell more printed cash in the works!
Check out this Investors Hub Post about the Chinese, TPG and WaMu Shareholders ...
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=38271735
TPG is a pretty savy investment firm and has contacts all over the world. They do like to ATTRACT foreign investments for their deals and consider RISK part of the strategy for bigger payouts. i found this tidbit of info and thought you might like it.
China forex watchdog wiser after WaMu collapse ...
http://economictimes.indiatimes.com/News/International_Business/China_fo rex_watchdog_wiser_after_WaMu_collapse/articleshow/3915550.cms
HONG KONG: China's foreign exchange (forex) watchdog, the State Administration of Foreign Exchange (SAFE), will cut back on overseas equity buys next year after suffering major losses on the collapse of US lender Washington Mutual (WaMu), according to sources.
Earlier this year, SAFE, which controls around $2 trillion of China's foreign reserves, agreed to invest up to $2.5 billion in the fund of US private equity (PE) giant TPG. In April, TPG, one of the world's largest PE firms, led a $7 billion investment in WaMu to help the troubled lender boost its capital. TPG put money into WaMu through several of its funds, including one SAFE invested in.
Just five months later, WaMu was closed by the US government, making it one of the largest US bank failures in history. Its banking assets were sold to JPMorgan for $1.9 billion, wiping out about $1.35 billion that TPG and its institutional investors, known as "Limited Partners" had invested.
"At that time, SAFE was certainly shocked by the news that the US government decided to take over WaMu and there was almost nothing that SAFE could do to save its investment," said one of the sources. "It's a good lesson for SAFE and you can imagine how unhappy it was, just like every other LP of TPG for the deal," he said.
TPG's losses from the WaMu deal are publicly known but the names and investment contributions of limited partners of private equity firms usually remain under wraps. It is still unclear how much in total SAFE lost from its bet on TPG and WaMu. One source said SAFE agreed with TPG's plan to rescue WaMu, contributing at least 10% of TPG's initial $2 billion investment in WaMu. Other sources confirmed TPG informed SAFE of its plan to invest in WaMu before it took the action and SAFE supported TPG's plan. SAFE was not the first choice of TPG as a partner to rescue WaMu.
In China, the PE firm is well known for its landmark investment in Shenzhen Development Bank in 2004, making it the first foreign investor to own a controlling stake in a Chinese lender. Sources said TPG initially approached China Investment (CIC) to become a major limited partner of its new PE fund. CIC, which was set up by the Communist government last year to earn higher returns on a $200-billion portfolio of its forex reserves, declined the offer mainly due to concerns about investment risks and poor prospects of US markets. Instead, TPG's dealmakers contacted SAFE and the foreign exchange regulator agreed on condition that TPG would also jointly invest some of its own money in the WaMu deal, the sources said.
The big losses by SAFE in the WaMu deal through its investment in the TPG fund have drawn attention from top government leaders in Beijing, who have urged both CIC and SAFE to be more cautious on its overseas investments next year.
CIC has already attracted massive criticism at home over its deals in US firms, which have been battered by the credit crisis, with its stakes in private equity house Blackstone Group and Morgan Stanley diving in value. One of the sources said both CIC and SAFE would focus more on overseas investments in fixed income areas rather than equities deals in 2009.
P.S. ...
Timmy G. has to work fast to restore some credibility to the U.S. Financial System. He also has to restore faith in Shareholders that their wealth, by way of Common and Preferred Shares, in U.S. Financial Institutions won't be arbitrarily seized and "gifted" to someone like JP Morgan's CEO Jamie Dimon.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=38277999
Check out this Investors Hub Post about the Chinese, TPG and WaMu Shareholders ...
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=38271735< br /> TPG is a pretty savy investment firm and has contacts all over the world. They do like to ATTRACT foreign investments for their deals and consider RISK part of the strategy for bigger payouts. i found this tidbit of info and thought you might like it.
China forex watchdog wiser after WaMu collapse ...
http://economictimes.indiatimes.com/News/International_Business/China_f orex_watchdog_wiser_after_WaMu_collapse/articleshow/3915550.cms
HONG KONG: China's foreign exchange (forex) watchdog, the State Administration of Foreign Exchange (SAFE), will cut back on overseas equity buys next year after suffering major losses on the collapse of US lender Washington Mutual (WaMu), according to sources.
Earlier this year, SAFE, which controls around $2 trillion of China's foreign reserves, agreed to invest up to $2.5 billion in the fund of US private equity (PE) giant TPG. In April, TPG, one of the world's largest PE firms, led a $7 billion investment in WaMu to help the troubled lender boost its capital. TPG put money into WaMu through several of its funds, including one SAFE invested in.
Just five months later, WaMu was closed by the US government, making it one of the largest US bank failures in history. Its banking assets were sold to JPMorgan for $1.9 billion, wiping out about $1.35 billion that TPG and its institutional investors, known as "Limited Partners" had invested.
"At that time, SAFE was certainly shocked by the news that the US government decided to take over WaMu and there was almost nothing that SAFE could do to save its investment," said one of the sources. "It's a good lesson for SAFE and you can imagine how unhappy it was, just like every other LP of TPG for the deal," he said.
TPG's losses from the WaMu deal are publicly known but the names and investment contributions of limited partners of private equity firms usually remain under wraps. It is still unclear how much in total SAFE lost from its bet on TPG and WaMu. One source said SAFE agreed with TPG's plan to rescue WaMu, contributing at least 10% of TPG's initial $2 billion investment in WaMu. Other sources confirmed TPG informed SAFE of its plan to invest in WaMu before it took the action and SAFE supported TPG's plan. SAFE was not the first choice of TPG as a partner to rescue WaMu.
In China, the PE firm is well known for its landmark investment in Shenzhen Development Bank in 2004, making it the first foreign investor to own a controlling stake in a Chinese lender. Sources said TPG initially approached China Investment (CIC) to become a major limited partner of its new PE fund. CIC, which was set up by the Communist government last year to earn higher returns on a $200-billion portfolio of its forex reserves, declined the offer mainly due to concerns about investment risks and poor prospects of US markets. Instead, TPG's dealmakers contacted SAFE and the foreign exchange regulator agreed on condition that TPG would also jointly invest some of its own money in the WaMu deal, the sources said.
The big losses by SAFE in the WaMu deal through its investment in the TPG fund have drawn attention from top government leaders in Beijing, who have urged both CIC and SAFE to be more cautious on its overseas investments next year.
CIC has already attracted massive criticism at home over its deals in US firms, which have been battered by the credit crisis, with its stakes in private equity house Blackstone Group and Morgan Stanley diving in value. One of the sources said both CIC and SAFE would focus more on overseas investments in fixed income areas rather than equities deals in 2009.
P.S. ...
Timmy G. has to work fast to restore some credibility to the U.S. Financial System. He also has to restore faith in Shareholders that their wealth, by way of Common and Preferred Shares, in U.S. Financial Institutions won't be arbitrarily seized and "gifted" to someone like JP Morgan's CEO Jamie Dimon.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=38277999
"Timmy"? Could you be more patronizing and insulting?
If Geithner is "too smart" to fail, how come
he couldn't figure out his own taxes?
Yet, he'll figure out China?
Are all those products coming from China
really imports if they are made in American
Factories (based in China)?
If Americans shut down all their factories
(based in China), would China still "own" us?
"If Americans shut down all their factories (based in China), would China still "own" us?"
Good point.. one I've brought up before... and never found a person with the knowledge to answer.
Based on my limited knowledge.. I would say that we are so interlinked... that from an economic perspective it really is one economy. It is a ying and yang relationship. They buy our debt, we buy their products. We can buy their products because they buy our debt. They can make those products because we put our factories there.
We will never get into a real fight on military terms because it would be like trying to cut off your own arm or leg. So in a way.. maybe it isn't all bad.
Geithner got away with cheating the IRS--
Surely he's the man to convince China to lend the US more money
Wamu TRUTH...Please Help...Wamu TRUTH...
Jamie Dimon planted "moles" in Wamu...???
http://www.kccllc.net/documents/0812229/0812229090501000000000002.pdf
http://wamustory.com/
http://wamuqd.com/
http://www.wamu-shareholders-resources.com/wamued.html
http://wamuequity.org/history.html
Wamu TRUTH...Please Help...Wamu TRUTH...
Jamie Dimon planted "moles" in Wamu??? JPMorgan committed corporate fraud???
http://www.kccllc.net/documents/0812229/0812229090501000000000002.pdf
http://wamustory.com/
http://wamuqd.com/
http://www.wamu-shareholders-resources.com/wamued.html
http://wamuequity.org/history.html
After the Bush administatration pissed away the budget surplus through nothing but irresponsible tax cuts Obama's strategy of borrowing and investing it back on our infrustructure seem like our last ditch effort to save this country from financial ruin.
Thank you.
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