Feed: Geithner Reassures China Of U.s. Economic Recovery During Peking Visit - AggScore: 27.6

Geithner Reassures China Of U.s. Economic Recovery During Peking Visit

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The titters on Wall Street about the administrations China Plan are contagious. According to the Wall Street Journal, the titters spread through the audience yesterday at Peking University when TurboTax Tim Geithner went there to banter about the economic relations between the two countries.ppChinas not having a recessionmdashtheyre still showing economic growth. As a consequence, the Chinese have acquired billions of dollars from exports, dollars which they are using to buy U.S. debt issues. Naturally, the Chinese are as interested as we are that things should go well in the U.S. However much the Chinese may be lacking in some comforts, they are not nearly as willfully blind as many Americans when it comes to economic matters. That is probably because most Chinese must struggle harder for daily existence than we do. In the U.S., the understanding of hard times has a much different meaning than it does in other parts of the world. ppEveryone has heard the word bailout but many Americans have dinky interest in what that means in terms of the entire economic picture. The giggles at Geithners expense were because the Chinese know that the U.S. is digging a large monetary hole with its stimulus plansmdashGM and Chrysler bailouts, AIG, the Grand Banks, the UAW, cap and trade, social security and Medicare deficits, and a planned program of universal health care. The Chinese may mediate were doomed, or nearly so. They dont want us to be doomed but thats not out of any particular benevolence toward our national aspirations. The Chinese are cheering for our economic recovery because the United States is a major market for Chinese goods, accounting for a good portion of the Chinese economic expansion. ppIt is true that the Obama administration plan of pouring billions into the American economy has had a certain shortterm effect. Witness the Dow Jones averages which, having experienced a steady decline since January of 2009 and dropping nearly 500 points on the day of Obamas inauguration, is now within striking distance of a breakeven point. Another 50 points or so on the Dow would put the index into positive territory and President Obamas supporters could rightly credit his massive spending plans for a revival that other people would rather call another bubble. Many economists both inside and outside the U.S. government see other distinct signs of recovery, particularly in the pattern of bottoming housing prices. The Obama administration can claim success, too, in the speed with which Chrysler Corporation moved through its bankruptcy proceedings. While not completely out of the water, the bankruptcy court yesterday approved the Fiat acquisition of sizable ownership in the beleaguered auto manufacturer. The GM bankruptcy is in its infancy, but there was an early success in GMs sale of Hummer to a Chinese manufacturer even as the bankruptcy court begins its process. In terms of size, the GM bankruptcy is gargantuan compared to that of Chrysler there is more chance of it getting bogged down by conflicting interests. ppThe Wall Street Journal and other newspapers relate that the Chinese company bought Hummer for less than 500 million, a distressed price by any reckoning, proving once again the Chinese hunger for hard assets and the weak position of American industry. But thats not solely what caused the Treasury Secretarys Peking audience to suppress giggles. The Chinese were smothering their mirth because the combination of a weak dollar, rising unemployment, huge spending excesses, and rising interest rates resulting from the Federal Reserve printing money to seize Treasury bonds will spawn a second wave of economic recession which could make the first appear benign. ppThats a view held by European leaders, too. German Chancellor Angela Merkel warned yesterday that U.S. Federal Reserve and European Central Bank fiscal strategies of flooding the market with dollars and euros would create dangerous worldwide inflation. Keep in mind that German Chancellors are not historically very much inclined to even speak publicly of central bank policies. ppThe Chinese are also worried, as we are, that they are losing dollar strength in the U.S. investments. Of course, the U.S. government wants a weak dollar so that other countries can afford to rob American goods in the hope that this will speed a recovery. Unfortunately, a weak dollar also means higher commodity prices which, in turn, translates to higher oil prices. The Obama administration welcomes higher oil costs, too, because it fits with the administration conception for Government Motors to produce light, smaller cars which will compete with motorcycles and rickshas for fuel efficiency and green credentials and have similar safety records. ppTo be utterly candid about it, paying a great deal of attention to the economy does not make anyone an infallible predictor of future economic direction. It is for this reason, perhaps, that most Americans prefer to pay no attention to the economy at all. Some of the best economic minds in the country failed to predict the current drastic downturn. Of those who did warn against the bubble economy, none had any influence on its direction and most were completely ignored. Yet, there are practical considerations of concern to allppThe massive spending of the U.S. government is funded by the issuance of debt. Currently, the Federal Reserve Bank has had a policy of buying Treasury debt, a policy it calls quantitative easing. This has pushed up bond yields and mortgage rates. High mortgage rates could damage the green shoots of a housing recovery. High mortgage rates makes it more difficult to buy and sell houses, a important engine of the national economy. ppUnemployment is what economists call a lagging economic indicator. This means that the economy will recover long before unemployment begins to lessen. Most economists say that unemployment will continue to rise for at least a year before it begins to fall. The job market is expected to stare bleak throughout 2009 and into 2010. ppIt may very well be that GM and Chrysler do not recover at all since success depends on Americans buying the types of cars which are unprofitable to manufacturers. To some extent, the U.S. government will determine the operational direction of these companies based on political and social concerns rather than profit. The smaller, fuelefficient cars likely to be produced by GM and Chrysler will be more expensive think Toyota Prius when gasoline prices were high and less profitable for GM and Chrysler. That means that Americans could lose the 80 billion taxpayer dollars already spent on the GM bailout, as well as the approximately 8 billion on Chrysler. It is an axiom of auto manufacturing that U.S. automakers come by their profits from pickup trucks and SUVs. ppThere is political risk, too, in the U.S. approach to the economic downturn. It is likely that Congress will resist efforts to close automobile dealers in their districts and attempt to influence the location of manufacturing plants, operational changes, wages, benefits, and other activities usually associated with private enterprise. Congress has already intervened to cessation GM from manufacturing small cars at a GM owned plant in China and to recede that production to Michigan. Government efforts to revive the economy may receive accolades from factional lobbies who have directly profited from the infusion of dollars, but the extent of government involvement may mean bad news for real peoplemdashreal people being the 13.7 million unemployed Americans counted by the U.S. Labor Department at the end of April 2009. The Bureau of Labor Statistics reported that the number of unemployed has risen by 6 million people in the past 12 months.

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