Geithner Reassures China that America Takes Financial Obligations Seriously

“You ain’t seen nothin’ yet!”

Actually, we’ve seen so much already that it’s hard to believe there’s more coming. But there’s sure to be more…and we have a feeling it will be worth the wait.

Yesterday, for example, GM filed for Chapter 11 bankruptcy protection. It couldn’t pay its bills. GM was once the strongest corporation on the planet. But it has been around for nearly 100 years. Heck, everything wears out eventually…even a ’55 Chevy.

“Obama Nationalizes GM,” says a triumphant headline in France’s La Tribune.


Yes, according to the papers, Obama may have been handed the keys to GM…but the old jalopy is worn out. The French say the whole US economic model is ready for the junkyard. More on the French…and the French model, in our other article….

First, let’s stick with the USA.

The Dow rose 221 points yesterday – to 8,821… Investors think the worst is over.

Everything is going up. Copper is up 65% so far this year. Oil is up 53%. Soybeans are up 22%. Stock markets are up about 30% worldwide. And gold is 12%. In this company gold is a laggard!

Copper has risen so much, say the papers, because China is buying all it can get. What it is doing with the stuff we don’t know; maybe it is stocking up at what it believes are low prices.

Maybe it is hedging its bets. China has the biggest pile of Treasury bonds in the world – $768 billion of them. That’s 768 billion reasons to worry. Because each T-bond is denominated in dollars…and while everything else is going up, dollars are going down. Yesterday, the dollar touched a new low against the euro for this year – at $1.42.

T-bonds are down too – minus 5% for the year. It would not be at all surprising for the Chinese to be stockpiling oil, gold, copper and all the other inflation hedges they can get. Their dollar-denominated bonds may go down…but their commodities and gold would go up. Overall, they’d come out even. You can also hedge your own nest egg with commodities.

Yet this week, Mr. Tim Geithner – the big banks’ main man in Washington – is in China trying to reassure the Chinese that America takes its financial obligations seriously. That’s something we never expected to see either. America may have the strongest economy on earth. But if the commies stop financing it, we’re out of business.

So Geithner is in China, hat in hand, like a major debtor called into the bank president’s office. Geithner, of course, has no choice. He has to go…and say what he has to say. He will use all the right words. He will show the appropriate seriousness…he will smile when it is called for…and put on a grave face when he needs to.

The trouble is, there’s little he can do to help the Chinese. They want him to protect the dollar and the bond market. That’s something he can’t do.

“It will be helpful if Mr. Geithner can show us some arithmetic,” said Yu Yongding, a former advisor to the Chinese central bank.

Yes, we’d like to see that arithmetic too. How do you add $1.75 trillion in deficits…pay for it with funny money from the Fed…and still come out even on the value of the dollar? There’s no arithmetic we know of that works in the Chinese favor. Right now, the numbers…and the logic of the situation…are telling us that feds aim to create inflation. Instead of trying to keep prices under control…they’re trying to get them to go up. That’s yet another thing we didn’t expect to see!

The US government is less concerned with protecting foreign lenders than it is with getting the US economy back to its old E-Z money ways. Cheap money is what people want. Cheap money is what the feds are trying to give them.

Today – will wonders never cease! – the US is pushing its phony money all over the world. The Chinese, meanwhile, are champions of financial integrity. Just wait until they give up on US bonds…then, we’ll really see something we ain’t seen yet!

Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail Markets and Money.

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