The Geithner Effect
Last September, a couple of days after the Lehman debacle (Geithner’s fault?), the NY Post lavished praise on Tim Geithner. Among other things, he “was Uncle Sam’s golden-boy emissary sent into the stormy center of what was then the world’s worst financial crisis — the Asian economic meltdown.” Former Australian Labour Prime Minister Paul Keating has another view, that Geithner himself started the chain of events that has become the current global crisis. SMH:
Paul Keating gave a starkly different account of Geithner’s record in handling the Asian crisis…Geithner, through his influence on the IMF, imposed the same cure the IMF had imposed on Latin America and Mexico. It was the wrong cure. Indeed, it only aggravated the problem…
“Soeharto’s government delivered 21 years of 7 per cent compound growth. It takes a gigantic fool to mess that up. But the IMF messed it up. The end result was the biggest fall in GDP in the 20th century. That dubious distinction went to Indonesia. And, of course, Soeharto lost power.” Exactly who was the “gigantic fool”? It was, obviously, the man who wrote the program, Geithner…
China…decided that it would never allow itself to be dependent on the IMF…”This has all been noted inside the State Council of China and by the Politburo. And it’s one of the reasons, perhaps the principal reason, why convertibility of the renminbi remains off the agenda for China, and it’s why through a series of exchange-rate interventions each day that they’ve built these massive reserves.“These reserves are so large at $US2 trillion as to equal $US2000 for every Chinese person, and when your consider that the average income of Chinese people is $US4000 to $US5000, it’s 50 per cent of their annual income. It’s a huge thing for a developing country to not spend its wealth on its own development.”…
Keating went on to argue that, by frightening the Chinese into building their vast $US2 trillion foreign reserves, Geithner was responsible for the build-up of tremendous imbalance in the world financial system. This imbalance, in turn, according to Keating, contributed to the global financial crisis which has since devastated the world economy.
China invested most of its reserves in US debt markets. Keating again: “So we have this massive recycling of funds into the system by Greenspan’s monetary policy so even if you are greedy Dick Fuld or you are hopeless Charles Prince at Citibank, you’re being told there’s an endless supply of money at a low interest rate and no inflation. So of course the system geared up to spend it. “That is the fundamental cause of the problem — the imbalance is the fundamental cause.”
Interesting analysis. In other news, “The person Treasury Secretary Timothy Geithner wanted as his chief deputy has withdrawn from consideration…Geithner’s choice for undersecretary of international affairs, Caroline Atkinson, also withdrew from consideration”. There’s trouble in River City. (HT: Belmont Club)