by Raúl Ilargi Meijer
On January 25, Timothy Geithner will step down as US Treasury Secretary. A lot of people will say and write a lot of things about him at that point, and it sounds like a good idea to be ahead of the game and provide some perspective.
There are voices claiming (there will be many more, promise) that Geithner pulled us out of the recession and the crisis, and saved the economy. That seems presumptuous. It may just as well be true that Geithner has fooled us into thinking that. Just because the stock markets are pulling through so far doesn’t mean, let alone prove, that the economy has recovered or been saved. You would need something better, more substantial than that. While acknowledging that relatively strong stock market numbers are at least in potential a great way indeed to fool people about the economy.
And going forward we can wax nostalgically about everything Tim has done, and about where the economy is now compared to 4 years ago, but when all else is said and done, there is still just one question that counts: what happened to the debt? What has Geithner done when it comes to debt? As long as you don’t know what happened to the debt, you won’t know the true state of the economy.
Well, Americans still have higher personal debt levels than they ever had before (in fact, the best anti-gun law would be to ban paying for them with credit) and government debt has grown exponentially. Those things at least we know to an extent; when it comes to bank debt, we don’t know much of anything. Tim has made sure of that. He’s handed trillions of dollars in our money to Wall Street and we haven’t received anything in return. Well, yes, we have the semblance of a somewhat stable stock market, but is that worth all that extra debt? Moreover, we still don’t know what happened to the debt that caused the crisis in the first place, because Tim made sure it has been kept hidden from view. And how’s that a good thing again?
Look, you can save banks that are in deep debt trouble, and perhaps that’s not necessarily such a bad thing, since letting them fail outright would have been a risky proposition. But you can’t make the choice to save banks and not at the same time restructure those debts and expose and prosecute the bankers who put their firms into a situation that necessitated saving them in the first place, and were paid big bonuses for doing it. That is not alright by any stretch of the imagination, either ethically or economically. Because the money used to save them comes from outside of the financial system; it comes from the taxes that everybody pays. And that means it has to be accounted for. But it never was.
The only reason the policy – if you can call it that – of handing banks trillions in cheap credit appears to work is because its consequences cannot be felt immediately, but are pushed forward into the future. That doesn’t absolve us from having to ask what happened to the debt, though, but we still have no answer to that question, and Tim Geithner carries a substantial part of the blame for that.
If you’re interested only in yourself, and you’re just looking to make a quick buck, sure, things may look good. And if you think you can best achieve your goals by things staying the same, by keeping the system going as it is, yeah, you’re likely to think that Tim Geithner has done a swell job, because from that point of view he has saved you.
But if you care about anything that goes beyond just today, and beyond the few square miles that make up your world, if you care about your family, your friends, your kids and their future, Tim Geithner is not your man. He set up the system so it would continue to provide fast money for the horses with blinders, but he’s done it with money that everyone else is on the hook for. Just not today, not right away.
And that plays perfectly to our proverbial human short – term – attention span: Hey, look at the markets, they’re doing fine. We’re in recovery. We left the crisis behind. We made it.
But what’s that bulge under the carpet there in the corner? Is that perhaps what happened to the debt? We tell ourselves we love our children. That what we need to do is put aside money for their education. That what they need for their futures is money. And that’s it. It’s not about the world we leave for them. It’s not about the debt we leave for them. But it should be. The education we buy for our kids today will mean very little if and when they will be forced to pay back all our debts. We should face up to the responsibility for it ourselves. We don’t. We prefer the cloud cuckoo land illusion that Tim Geithner has spun before our eyes. We prefer to let our kids deal with reality.
The main problem from a purely technical point of view with the way Geithner has gone about business is that it’s to a large extent zombie money that drives markets today, money that would not have existed if debts had been properly restructured. If anytime in the future, either driven by markets or governments, banks are forced to restructure their debt after all, this poses a gargantuan risk to both the financial system and the overall economy. And we’ll have Geithner to thank for that. Not only him, there’s Ben Bernanke, Alan Greenspan, Hank Paulson and many more. Still, Geithner has had the option and the power to do the right thing, for four long years, and declined.
Obama said this about Tim Geithner recently: “When the history books are written, Tim Geithner is going to go down as one of our finest Secretaries of the Treasury…” And that the “unofficial” saying at the Treasury is “no peacocks, no jerks, no whiners” and “Few embody that ideal better than Tim Geithner.”.
That says much more about Obama than it does about Geithner. The reality is that Obama will go down as one of the worst American presidents in history. Because four more years of the above will sink the US economy to levels not even imagined today, and Obama will be seen as an accomplice if not the main perpetrator of a whole series of – financial – crimes against the people. The president that brought the country to its knees.
That is inevitable precisely because Geithner and Obama have done nothing at all for four years to restructure bank debt. All they’ve done in that time is keep the existing financial system, which was then and is now as bankrupt as any industry has ever been, standing upright. Or more correctly: appear to be standing upright. What the president and his Treasurer have done is feed zombies. With – future – human flesh. With the future prospects of our children. Obama has said that what Wall Street did was unethical but not illegal, but that is up to the courts to decide, not the president, and not Congress.
If you leave the decision making in a time of crisis to those who stand to profit most from keeping things as they are, it would perhaps be foolish to expect them to not try and do just that. Thing is, they can do so only by throwing others under the bus. And since this crisis is the biggest, the most widespread and the worst we’ve ever seen, it means just about everyone else will end up under that bus. Even the majority of those who think they would be better off keeping the system going: be careful what you wish for.
Timothy Geithner is a Robert Rubin protégé. Under Bill Clinton, then Treasury Secretary and Citigroup made man Rubin, assisted by Greenspan and Larry Summers, set the terms for US government (non) policy for derivatives that stands to this day.
Geithner certainly never touched it after he and Summers took over the Obama finance team. And now he will be succeeded by Jack Lew, who was director of the White House Office of Management and Budget when Rubin and Summers were there. Lew isn’t just a revolving door man, he does you one better: he went from K Street lobbyist to Citigroup director to the White House, rinse and repeat, pocketing a million dollar bonus from Citi three months after it received billions in taxpayer bailouts.
Once again, if we let them, it would perhaps be foolish to expect them to not try and do these things. Jack Lew’s nomination tells us all we need to know about Barack Obama’s intentions. Which are to let the bankers and their shareholders continue to hide their debts, and continue to use the zombie money they thus seem to have to make leveraged wagers whose profits they can pocket and whose losses they can pass on to you.
And you can continue to play the game as well as long as it lasts. So you can, if you’re lucky, hold on to your job and your home and use your money to pay for your children’s education. If you do, it might be a good idea to take a look at what it is they learn. Make sure they’re never tempted to look under the carpet. Or they may turn against you.
- Geithner Says Debt Limit Steps May Run Out by Mid-February – Bloomberg (bloomberg.com)
- Geithner warns clock is ticking on debt (upi.com)
- Geithner leaving Treasury post: Trouble for Obama? (capitolhillblue.com)
- Geithner gives Congress notice: Four to six weeks until default (dailykos.com)
If you can take your eyes off the primary election coverage, watch Geithner. The US is engaged in a love trapezoid. The four corners are Beijing, Tehran, Tokyo, and Washington. Treasury Secretary Geithner is the Obama Administration’s front person. Track the news for the names of the other agents.
This is a very serious time. The pieces are linked. Some bullets as you watch the news flow.
1. The US faces the pressure of follow-through on Iran sanctions. Iran is an exporter of oil to Asia. Japan is dependent on imported oil. China is not self-sufficient. One part of this trapezoidal geometry is about oil.
2. Iran is feeling the heat from sanctions. The US wants to tighten them. It cannot do so without help from Asian “friends.”
3. China and Japan are each buyers of US Treasury securities. They each help finance the American fiscal deficit and the ongoing current-account deficits. They each want to diversify their reserves. They are not sellers, but they are reluctant additional buyers. This is truer for China than for Japan, but it is true in both cases.
4. China is glacially proceeding toward world reserve-currency status. It gradually allows its currency to strengthen against the dollar. It follows a policy that is fully rational for the Beijing oligarchs. It shrugs off political threats from Washington politicians (Schumer, Graham) who love to bash China while talking to their American constituents. China understands our political processes and our weaknesses. However, China also understands “realpolitik” and uses it. They learned US use of realpolitik from Nixon and Kissinger. Expect them to smile publicly but put some very intense private heat on Geithner.
5. Japan faces enormous economic pressure and sees the yen strength as now threatening. In order to weaken the yen, it must acquire other currency holdings in large quantity. (See the Cumberland website, www.cumber.com, for G4 central bank charts, and flip to those on the Bank of Japan. You will be able to observe how Japan expanded its balance sheet several years ago and subsequently contracted it. We expect them to expand it in 2012 as they seek to arrest yen strength.)
6. Japan is negotiating with China so that it may acquire reserve debt instruments denominated in Chinese currency. Beijing likes this because it is a step toward achieving world reserve-currency status. Geithner now worries, because the trend points toward a gradual and long-term weakening of the US position, as the world’s second (China) and third (Japan) largest economies maneuver their global positions.
7. Our Asian friends know that the US election cycle creates maximum vulnerability for the United States. That also makes circumstances more dangerous and raises risk profiles. Europe is of no help to us, given its internal crises.
We recall that a three-legged stool is a stable form. A four-legged stool is less stable. A four-legged stool with a trapezoidal top is least stable. Especially when one of the legs is Iran.
Watch Geithner in Asia and the news flow. Read between the lines, since the public statements will all be scripted and self-serving. Risk is high. Also, stay overweight energy. We are.
Read more: BI
- Forget The Election News: Keep Your Eye On Tim Geithner And The Love Trapezoid (businessinsider.com)
- The Chinese Yuan May Become A World Currency (mb50.wordpress.com)
- Tim Geithner Glitch In The Matrix Special: Will America Become Greece In Two Years – “No Risk Of That” (zerohedge.com)
- U.S. politics clash with reality over China currency (promoteliberty.wordpress.com)
- Wen calls for focus on common interests (upi.com)
BY JOHN LOURENZE POQUIZ
Energy Undersecretary Jose Layug said that the DOE is looking at mechanism where the government would ration fuel consumption in the event supplies become tight.
“We are reviewing our contingency plan. Part of that is cutting down consumption,” Layug told Malaya Business Insight.
“We would have a mechanism where people would be given allocations on the oil they consume. It’s a form of rationing,” he added.
Layug said that the Philippines sources only less than 1 percent of its requirements from Iran.
He said, however, local fuel supply would be threatened if the Strait of Hormuz, which is adjacent to Iran, would be blocked.
The strait is the only passage for ships carrying petroleum from major oil-exporting countries on the Arabian peninsula.
Layug said that because of the supply threats, world oil prices have been going up in past weeks, influencing local pump prices.
“In terms of Iran, (we source a) very small (amount). Less than 1 percent. But more importantly, ever since Iran test-fired its missiles (last week), the international market has gone up,” he said.
“In fact, for the past few weeks, the major reason for the price hikes is Iran. Prices in the international market have gone up,” he added.
Last week, oil firms raised the prices of their unleaded and premium gasoline products by P0.90 per liter. The price of regular gasoline went up P0.60 per liter, while diesel rose P0.30 per liter.
The sanctions approved by President Barack Obama on New Year’s Eve have highlighted the importance of Iranian oil supplies to East Asia’s energy-hungry economies. They have led to a clash of interests between Washington and key commercial and strategic partners over efforts to stop Iran’s nuclear program.
China, the biggest buyer of Iran’s oil, has publicly rejected US sanctions aimed at Tehran’s energy industry, while American allies Japan and South Korea are scrambling to find a compromise to keep critical supplies flowing.
Beijing is buying less Iranian crude this month, but analysts say China is unlikely to support an oil embargo. Instead, they say, the smaller purchases might be a tactic aimed at obtaining lower prices as the West squeezes Tehran.
A South Korean foreign ministry spokesman said this week Seoul is in talks with Washington aimed at “minimizing the negative impacts” of sanctions. South Korea imports 97 percent of its oil and depends on Iran for up to 10 percent of its supplies.
China’s foreign ministry rejected the sanctions this week and called for negotiations, leaving unclear whether Beijing might defy Washington, straining relations between the world’s biggest and second-biggest economies.
“Sanctioning is not the correct approach to easing tensions,” said a ministry spokesman, Hong Lei. “China opposes the placing of one’s domestic law above international law and imposing unilateral sanctions on other countries.”
- Iran plans more war games in strait as sanctions bite (mb50.wordpress.com)
- Geithner to pressure China and Japan to back economic sanctions against Iran (mb50.wordpress.com)
- Asian Economies Look to Keep Iranian Oil Flowing (foxnews.com)
By Abhijit Neogy and Glenn Somerville
(Reuters) – Proposals to double the size of the IMF as part of a broader international response to Europe’s debt crisis immediately ran into resistance from the United States and others, burying the idea for now and firmly putting the onus back on Europe.
The outlines of the plan, that had the backing of several developing economies, emerged as G20 finance ministers and central bankers began meeting in Paris to discuss a world economy under threat from European nations mired in debt.
One G20 source said some policymakers backed injecting some $350 billion into the International Monetary Fund. Other options under consideration included loans, special purpose vehicles and note purchase agreements.
Treasury Secretary Timothy Geithner wasted no time in shooting the idea down. The IMF’s dominant shareholders, including the United States, Japan, Germany and China, are content that the fund’s $380 billion worth of resources is enough. Canada and Australia also voiced opposition.
“They (the IMF) have very substantial resources that are uncommitted,” Geithner said.
The United States is among countries keen to keep pressure on the Europeans to act more decisively to end the two-year-old debt crisis that began in Greece but has since spread to Ireland and Portugal and is lapping at Spain and Italy.
“The first priority here is for Europeans to put their own house in order,” Australian Finance Minister Wayne Swan said.
The finance ministers of France and Germany, under pressure from the rest of the world to act in concert, made a fresh commitment to have a plan for the euro zone in place before a summit of G20 leaders in Cannes on Nov 3/4.
Speaking after a lunch meeting with President Nicolas Sarkozy, French Finance Minister Francois Baroin said: “We will continue our discussions in the coming days but we have already come to some agreements that will be very important.”
Standard and Poor’s cut Spain’s long-term credit rating, citing the country’s high unemployment, tightening credit and high private sector debt.
French and German officials are trying to put flesh on the bones of a crisis resolution plan in time for a European Union summit on October 23. Fears about the damage a default by Greece — and possibly others — could inflict on the financial system have driven a confidence-sapping bout of market volatility since late July, with global stocks falling 17 percent from their 2011 high in May.
Unlike in 2009 when the G20 launched coordinated stimulus to pull the world out of crisis, the rest of the world is chafing at Europe’s slow response while Washington and Beijing are sparring over the yuan currency.
The Franco-German crisis plan is likely to ask banks to accept bigger losses on their Greek debt than the 21 percent spelled out in a July plan for a second bailout of Athens, which now looks insufficient.
“It will be more, that’s more or less certain,” French Finance Minister Francois Baroin said.
It should also lay out a system for recapitalizing banks and plans to leverage the euro zone’s European Financial Stability Facility to give it more punch.
Japanese Finance Minister Jun Azumi said he would share with his G20 counterparts Japan’s “bitter experience” of failing to contain its 1990s banking crisis by doing too little, too late.
Whilst the EFSF has the resources to cope with bailouts for Greece, Portugal and Ireland, it would be overwhelmed by the need to rescue a bigger economy such as Italy or Spain.
“We see heightened risks to Spain’s growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain’s main trading partners,” S&P said.
The most effective method would be to turn the EFSF into a bank so it could draw on European Central Bank resources. Both Germany and the ECB are opposed to that.
The G20 may refer to the euro crisis in its communiqué and in closing news conferences on Saturday evening, but little else of substance is likely to be inked in with a EU summit in nine day’s time the make-or-break moment.
ROLE OF IMF
G20 sources said most BRICS economies were in favor of bolstering the IMF’s capital as a crisis-fighting tool.
“We have said this before and have conveyed this again, that if emerging economies and the BRICS are called upon to contribute, we can do it via the International Monetary Fund,” one of the sources said. “India is open to it, China and Brazil are also okay with the idea.”
Another G20 source said the IMF would present a plan which had broad support to its executive board to make short-term credit lines available to fundamentally healthy countries hit by liquidity crises. It could aid euro zone countries hit by the current crisis of confidence in the bloc’s sovereign debt.
The Paris meeting may give the green light to regulators for new rules on banks deemed ‘too big to fail’, including capital surcharges, due to be officially approved in Cannes.
Any real progress on bigger goals such as setting parameters to measure global imbalances and reining in speculative capital flows is unlikely to come before a November 3-4 summit in Cannes, where France passes the G20 baton to Mexico.
A French finance ministry source said that for Cannes, France hoped to have two or three measures agreed for countries showing imbalances: consolidation measures for those with high deficits and stimulus measures for those with surpluses.
“We are going to try to make some progress and obtain, perhaps not tomorrow or Saturday but by Cannes, a list of measures country by country,” he said. “These must be measures which will have an impact on the real economy.”
A separate G20 source said after preparatory talks late on Thursday that China would commit in Paris to boost its consumption through a five-year plan, via households and companies as well as infrastructure.
The G20 countries make up 85 percent of global output.
An April G20 meeting placed seven large economies under review — the debt-burdened United States, export driven China and the economies of France, Britain, Germany, Japan and India. Officials have said privately the aim was to get Beijing to discuss the yuan, and China’s cooperation is essential to the success of the process.
China and the United States sparred this week over a U.S. Senate bill to press Beijing to raise the yuan’s value, and the issue is likely to create a sideshow at the G20 talks, even if the euro zone crisis pushes it off center stage.
- G-20 kicks off crucial weeks for euro crisis (marketwatch.com)
- G20: Geithner To Continue Demand For EZ Action On Crisis – 1 (forexlive.com)
- US rejects plan to strengthen IMF in euro zone crisis – Reuters (news.google.com)
WASHINGTON | Sat Apr 16, 2011 12:56pm EDT
(Reuters) – World finance leaders on Saturday chastised the United States for not doing enough to shrink its massive budget deficit and warned that fiscal strains in rich nations threaten the global recovery.
Although global tensions over the possibility of currency wars and Europe’s growing debt crisis continue to simmer, finance ministers in Washington for semi-annual talks also took sharp aim at the United States’ $14 trillion debt.
While most of the criticism came from emerging market economies, some rich nations also joined the chorus.
“The fiscal situation in the advanced economies gives us great concern, and it is in this area that we see the major risks to the global economy,” Russian Finance Minister Alexei Kudrin told the International Monetary Fund‘s advisory panel.
The IMF this week noted that the U.S. budget deficit was on course to hit 10.8 percent of nation’s economic output this year, tying Ireland for the highest deficit-to-GDP ratio among advanced economies. It urged Washington to move quickly to put a credible plan in place to tighten its belt.
The Obama administration and the U.S. Congress have engaged in a big battle over how best to reduce the red ink. Republicans have sought to use the need to raise the nation’s $14.3 trillion debt limit to avoid a default as a lever to extract deep spending cuts.
The Republican-led House of Representatives on Friday approved a plan to slash spending by nearly $6 trillion over a decade and cut benefits for the elderly and poor.
President Barack Obama, who has offered a competing vision to curb deficits by $4 trillion over 12 years, said on Thursday the Republican plan would create “a nation of potholes.”
The White House has been wary about withdrawing fiscal support for the economy too quickly, and Treasury Secretary Timothy Geithner told fellow finance ministers on Saturday caution was needed.
“We are committed to fiscal reforms that will restrain spending and reduce deficits while not threatening the economic recovery,” he said.
But even as Geithner said the United States recognizes the need to address its budget deficit, he was quick to say that others whose practices contribute to global imbalances must also change.
“However, others, especially those whose fundamentals call for greater exchange rate flexibility, must also contribute,” Geithner said.
The United States has repeatedly called for China to relax its limits on the yuan currency.
Dutch Finance Minister Jan Kees de Jager warned that if the United States and other advanced nations move too slowly it could undermine confidence in the global economy.
“Insufficient budgetary consolidation may spark off further escalation of debt sustainability issues, with repercussions on confidence and the still fragile financial sector,” de Jager said. “Debt dynamics in other advanced economies, including the United States, are of concern.”
Yi Gang, a deputy governor of China’s central bank, called for “more rigorous” efforts by advanced economies to tighten budgets and said the IMF needs to strengthen its monitoring of these rich nations.
Kudrin, in remarks clearly targeted at the U.S. Federal Reserve, said central banks that have purchased government debt to keep interest rates low were abetting fiscal profligacy.
The Fed is on course to complete the purchase of $600 billion in U.S. government debt by the end of June, which would take its total purchases of mortgage-related and government debt since December 2008 to near $2.3 trillion.
Echoing some Fed officials and Republican lawmakers in Washington, Kudrin said those purchases blurred the line between monetary and fiscal policy in a way that could jeopardize a central bank’s independence.
“We observe this process with some wonderment, since it amounts to the monetization of those countries’ budget deficits,” Kudrin said.
( Original Article )