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 Richmans' Trade and Taxes Blog

Geithner's job is to finance federal government expansion
Howard Richman, 7/26/2010

On a football team, each player has his own job to do. The quarterback's job is to throw the ball. The receiver's job is to catch it. The offensive line's job is to protect the quarterback and block for the running backs.

Each member of the Obama administration also appears to have his own job. On the July 25 Meet the Press, Treasury Secretary Geithner revealed his job. He was congratulating himself on keeping U.S. long-term interest rates low saying, "My job is to make sure we can borrow to finance."

Other things being equal, keeping long-term interest rates low would not only help with the administration's huge expansion of the U.S. government, it would also be good for the U.S. economy. After all, low interest rates usually encourage business investment. But that is only true when there are investment opportunities.

As my father, son and I demonstrated in our 2008 book (Trading Away Our Future), when low interest rates are produced by mercantilism, the same factor that produces the low interest rates also takes away investment opportunities.

In February 2009 Secretary of State Hillary Clinton visited China. Her job was to beg the Chinese government for loans. If the Chinese government would have let their people buy our products, we would have gotten investment opportunities. Instead they loaned us the dollars earned from trade, and we got low interest rates. Breitbart reported at the time:

US Secretary of State Hillary Clinton Sunday urged China to keep buying US debt as she wrapped up her first overseas trip, during which she agreed to work closely with Beijing on the financial crisis....

[S]he called on authorities in Beijing to continue buying US Treasuries, saying it would help jumpstart the flagging US economy and stimulate imports of Chinese goods....

Administration policy has not changed very much since then. On the Sunday July 25 talk shows, Geithner pretended that China's miniscule adjustment of less than 1% in the dollar-yuan exchange rate in late June and early July (from 6.83 yuan per dollar to 6.78) was a significant development. According to Reuters:

Geithner said it was encouraging China recently ended a peg between its yuan currency and the dollar, which should help correct a trade relationship that enables China to rack up huge surpluses while the United States and others record soaring trade deficits.

There is a growing disconnect between Obama administration rhetoric and their actual policy. While they claim to want to bring budgets toward balance, they ram through one deficit expanding program after another. While they claim to want the mercantilist countries to buy more American goods, they settle for more mercantilist loans.

Congress appears to be more anxious to boost the U.S. economy than the administration. If they were to adopt the scaled tariff to balance trade, the United States would get investment opportunities and economic growth. However, the higher interest rates that would result might make it harder for the administration to keep expanding the federal government. Geithner might have to find a new job.