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Tim Geithner Has Allowed Zombie Money To Drive The Markets, And This Poses Gargantuan Risk

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.

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It’s Not a “Fiscal Cliff” … It’s the Descent Into Lawlessness

http://griid.files.wordpress.com/2012/07/obama_loves_banksters.jpg

by George Washington
12/24/2012

The “fiscal cliff” is a myth.

Instead, what we are facing is a descent into lawlessness.

Wikipedia notes:

In many situations, austerity programs are imposed on countries that were previously under dictatorial regimes, leading to criticism that populations are forced to repay the debts of their oppressors.

Indeed, the IMF has already performed a complete audit of the whole US financial system, something which they have only previously done to broke third world nations.

Economist Marc Faber calls the U.S. a “failed state“.   Indeed, we no longer have a free market economy … we have fascism, communist style socialism, kleptocracy, oligarchy or banana republic style corruption.

Let’s look at some specific examples of our descent into lawlessness.

Lawless Looting and Redistribution of Wealth

The central banks’ central bank – the Bank for International Settlementswarned in 2008 that bailouts of the big banks would create sovereign debt crises … which could bankrupt nations.

That is exactly what has happened.

The big banks went bust, and so did the debtors.  But the government chose to save the big banks instead of the little guy, thus allowing the banks to continue to try to wring every penny of debt out of debtors.

Treasury Secretary Paulson shoved bailouts down Congress’ throat by threatening martial law if the bailouts weren’t passed. And the bailouts are now perpetual.

Moreover:

The bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:

  • A lot of the bailout money is going to the failing companies’ shareholders
  • Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”

And as the New York Times notes, “Tens of billions of [bailout] dollars have merely passed through A.I.G. to its derivatives trading partners”.

***

In other words, through a little game-playing by the Fed, taxpayer money is going straight into the pockets of investors in AIG’s credit default swaps and is not even really stabilizing AIG.

Moreover, a large percentage of the bailouts went to foreign banks (and see this). And so did a huge portion of the money from quantitative easing.  Indeed, the Fed bailed out Gaddafi’s Bank of Libya), hedge fund billionaires, and big companies, but turned its back on the little guy.

A study of 124 banking crises by the International Monetary Fund found that propping up banks which are only pretending to be solvent often leads to austerity:

Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.

Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.

***

All too often, central banks privilege stability over cost in the heat of the containment phase: if so, they may too liberally extend loans to an illiquid bank which is almost certain to prove insolvent anyway. Also, closure of a nonviable bank is often delayed for too long, even when there are clear signs of insolvency (Lindgren, 2003). Since bank closures face many obstacles, there is a tendency to rely instead on blanket government guarantees which, if the government’s fiscal and political position makes them credible, can work albeit at the cost of placing the burden on the budget, typically squeezing future provision of needed public services.

In other words, the “stimulus” to the banks blows up the budget, “squeezing” public services through austerity.

Numerous top economists say that the bank bailouts are the largest robbery and redistribution of wealth in history.

Why was this illegal?   Well, the top white collar fraud expert in the country says that the Bush and Obama administrations broke the law by failing to break up insolvent banks … instead of propping them up by bailing them out.

And the Special Inspector General of the Tarp bailout program said that the Treasury Secretary lied to Congress regarding some fundamental aspects of Tarp – like pretending that the banks were healthy, when they were totally insolvent.  The Secretary also falsely told Congress that the bailouts would be used to dispose of toxic assets … but then used the money for something else entirely.  Making false statements to a federal official is illegal, pursuant to 18 United States Code Section 1001.

So breaking the rules to bail out the big, insolvent banks, is destroying our prosperity.

Lawless Justice System

A strong rule of law is essential for a prosperous and stable economy, yet the government made it official policy not to prosecute fraud, even though criminal fraud is the main business model adopted by the giant banks.

The perpetrators of the biggest financial crime in world history, the largest insider trading scandal of all time, illegal raiding of customer accounts and blatant financing of drug cartels and terrorists have all gotten away scot-free without any jail time.

There are two systems of justice in America … one for the big banks and other fatcats, and one for everyone else.

While Iceland prosecuted its top criminal bankers, and thus quickly got through its financial problems and now has a vibrant economy, the American government has done everything it can to cover up fraud, and has been actively encouraging criminal fraud and attacking those trying to blow the whistle.

The rule of law is now as weak in the U.S. and UK as many countries which we would consider “rogue nations”.    See this, this, this, this, this, this, this, this, this, this and this.

This is a sudden change.  As famed Peruvian economist Hernando de Soto notes:

In a few short decades the West undercut 150 years of legal reforms that made the global economy possible.

Moreover, U.S. government personnel are on the take.  They have become so corrupt that regulators are literally sleeping with industry prostitutes … while they pimp out the American people.

The corruption of government officials is staggering, and the system of government-sponsored rating agencies had at its core a model of bribery.

We’ve gone from a nation of laws to a nation of powerful men making one-sided laws to protect their own interestsin secret. Government folks are using laws to crush dissent. It’s gotten so bad that even U.S. Supreme Court justices are saying that we are descending into tyranny.

It’s not a “fiscal cliff” … it’s an attempt to rape America … just like Greece and Ireland have been plundered.

Economics professor Randall Wray writes:

Thieves … took over the whole economy and the political system lock, stock, and barrel. They didn’t just blow up finance, they oversaw the swiftest transfer of wealth to the very top the world has ever seen. They screwed workers out of their jobs, they screwed homeowners out of their houses, they screwed retirees out of their pensions, and they screwed municipalities out of their revenues and assets.

Financiers are forcing schools, parks, pools, fire departments, senior citizen centers, and libraries to shut down. They are forcing national governments to auction off their cultural heritage to the highest bidder. Everything must go in firesales at prices rigged by twenty-something traders at the biggest and most corrupt institutions the world has ever known.

Economics professor Michael Hudson agrees … saying that the banks are trying to roll back all modern laws and make us all serfs.

Professor Hudson explained in 2008:

You have to realize that what they’re trying to do is to roll back the Enlightenment, roll back the moral philosophy and social values of classical political economy and its culmination in Progressive Era legislation, as well as the New Deal institutions. They’re not trying to make the economy more equal, and they’re not trying to share power. Their greed is (as Aristotle noted) infinite. So what you find to be a violation of traditional values is a re-assertion of pre-industrial, feudal values. The economy is being set back on the road to debt peonage. The Road to Serfdom is not government sponsorship of economic progress and rising living standards, it’s the dismantling of government, the dissolution of regulatory agencies, to create a new feudal-type elite.

Indeed:

Foreign Policy magazine ran an article entitled “The Next Big Thing: Neomedievalism“, arguing that the power of nations is declining, and being replaced by corporations, wealthy individuals, the sovereign wealth funds of monarchs, and city-regions.

Indeed, this isn’t the “Great Recession”, it’s the Great Bank Robbery. The big banks have pillaged and looted the rest of the world.

A lawless justice system is ruining the economy.

Lawless Central Bank

The non-partisan Government Accountability Office calls the Fed corrupt and riddled with conflicts of interest.   Nobel prize winning economist Joseph Stiglitz agrees, saying that the World Bank would view any country which had a banking structure like the Fed as being corrupt and untrustworthy. The former vice president at the Federal Reserve Bank of Dallas said said he worried that the failure of the government to provide more information about its rescue spending could signal corruption. “Nontransparency in government programs is always associated with corruption in other countries, so I don’t see why it wouldn’t be here,” he said.

Moreover, the Fed has broken the law by withholding information from Congress, letting unemployment rise in order to keep inflation low, and otherwise exceeding its authority under the Federal Reserve Act.

Acting in a lawless and unaccountable fashion is hurting the economy.

Lawless Attack on Democracy

The ability of the people to participate in their government’s decision-making is vital for a nation’s prosperity. But we no longer have democracy or a republican form of government in America.

The big banks own Washington D.C. politicians, lock stock and barrel.  See this, this, this and thisTwo leading IMF officials, the former Vice President of the Dallas Federal Reserve, and the the head of the Federal Reserve Bank of Kansas City, Moody’s chief economist and many others have all said that the United States is controlled by an “oligarchy” or “oligopoly”, and the big banks and giant financial institutions are key players in that oligarchy.

Laws are being passed in secret, and not even Congress knows what’s going on.

In other words, not only the justice system, but the entire system of American representation has been corrupted, thus harming the economy.

Lawless Infringement of Freedom

Personal freedom and liberty – and freedom from the arbitrary exercise of government power – are strongly correlated with a healthy economy, but America is descending into tyranny.

Authoritarian actions by the government interfere with the free market, and thus harm prosperity.

U.S. News and World Report notes:

The Fraser Institute’s latest Economic Freedom of the World Annual Report is out, and the news is not good for the United States. Ranked among the five freest countries in the world from 1975 through 2002, the United States has since dropped to 18th place.

The Cato institute notes:

The United States has plummeted to 18th place in the ranked list, trailing such countries as Estonia, Taiwan, and Qatar.

***

Actually, the decline began under President George W. Bush. For 20 years the U.S. had consistently ranked as one of the world’s three freest economies, along with Hong Kong and Singapore. By the end of the Bush presidency, we were barely in the top ten.

And, as with so many disastrous legacies of the Bush era, Barack Obama took a bad thing and made it worse.

But the American government has shredded the constitution, by subjecting us to indefinite detention, taking away our due process rights, deploying drones above our heads, spying on all Americans, and otherwise acting in attacking our freedoms.

Indeed, rights won in 1215 – in the Magna Carta – are being repealed.

Economic historian Niall Ferguson notes, draconian national security laws are one of the main things undermining the rule of law:

We must pose the familiar question about how far our civil liberties have been eroded by the national security state – a process that in fact dates back almost a hundred years to the outbreak of the First World War and the passage of the 1914 Defence of the Realm Act. Recent debates about the protracted detention of terrorist suspects are in no way new. Somehow it’s always a choice between habeas corpus and hundreds of corpses.

Of course, many of this decades’ national security measures have not been taken to keep us safe in the “post-9/11 world” … indeed, many of them started before 9/11.

And America has been in a continuous declared state of national emergency since 9/11, and we are in a literally never-ending state of perpetual war. See this, this, this and this.

In fact, government has blown terrorism fears way out of proportion for political purposes, and “national security” powers have been used in many ways to exempt big Wall Street players from the rule of law rather than to do anything to protect us.

So lawlessness infringement of our liberty is destroying our prosperity.

Lawless Initiation and Prosecution of War

It is well-documented that war destroys the economy.

Top U.S. government employees lied us into war, and used illegal torture, assassinations and other crimes of war in prosecuting the wars they unnecessarily started. They were – at a minimum – criminally negligent for failing to stop 9/11 (and see this).

In the name of fighting our enemies – the U.S. has directly been supporting Al Qaeda and other terrorist groups for the last decade. See this, this, this, this and this.

Our use of torture has also created many more terrorists than it has prevented.

Security experts – including both conservatives and liberals – agree that waging war in the Middle East weakens national security and increases terrorism. See this, this, this, this, this, this, this and this.

Indefinite detention, drone-strikes on innocent civilians, occupation of foreign countries, and most of America’s other tactics in the “war on terror” increase terrorism.

Terrorism feeds the cycle of war … and is thus harming our economy. (and because terrorism spooks people, they spend less, which further harms the economy).

So lawlessness in starting and prosecuting war is destroying our prosperity.

Postscript:  We’re not facing a “fiscal cliff”.  We’re facing a descent into lawlessness.  Stopping the fraudulent schemes, endless bailouts and imperial adventures is the place to start.

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Forget The Election News: Keep Your Eye On Tim Geithner And The Love Trapezoid

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David Kotok, Cumberland Advisors 
Jan. 10, 2012, 11:50 AM

If you can take your eyes off the primary election coverage, watch GeithnerThe 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

U.S., China Further Strengthen Economic Ties

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Tim Geithner

From the Communist Party of China website

The United States is building cooperative bilateral ties with China on a broad list of economic fronts, U.S. Treasury Secretary Timothy Geithner said here (in Beijing) Tuesday.

China has scored remarkable economic achievements with a rise of confidence in the past decades, and is making headway in shifting its economic growth mode, Geithner said at a Tuesday meeting hosted by the U.S.-China Business Council.

The two nations should be “very direct with each other” in solving possible tensions in one of the most important bilateral ties in the world, he said prior to the coming U.S.-China Strategic and Economic Dialogue.

China and the United States will hold the third round of the Strategic and Economic Dialogue on May 9-10 in Washington.

Original Article

"Super-currency" to "replace" dollar? (Geithner, IMF)

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This is what Geithner says in response to an idea floated by the governor of the People’s Bank of China for a “new international reserve currency“, which some news outlets are calling a “super-currency”; he’s “open” to it. Sent the dollar sliding against the euro.

Geithner Remarks on IMF Roil Foreign-Exchange Market

By Rebecca Christie
March 26, 2009 00:00 EDT

March 26 (Bloomberg) — Treasury Secretary Timothy Geithner sent the dollar tumbling with comments about China’s ideas for overhauling the global monetary system, only to drive it back up by affirming that it should remain the world’s reserve currency.

Geithner was asked at a Council on Foreign Relations event in New York yesterday about People’s Bank of China Governor Zhou Xiaochuan’s call for a new international reserve currency. He said while he had not read Zhou’s proposal, he understood it as a plan “designed to increase the use of the IMF’s special drawing rights. And we’re actually quite open to that.”

The dollar slid as much as 1.3 percent against the euro within 10 minutes of news accounts of Geithner’s remarks. It recouped much of the loss about 15 minutes later, when Geithner then predicted no change in the U.S. currency’s role. The dollar was down 0.22 percent at $1.3553 per euro as of 12:13 p.m. in Tokyo.

The episode highlights investors’ sensitivity to any weakening role for the dollar as power shifts toward a wider group of developed and emerging nations, said James McCormick, Citigroup Inc.’s global head of foreign-exchange and local- markets strategy. It was “important” that China’s proposal came in the run-up to a Group of 20 summit next week, he added.

Share of Reserves

“The G-20 is gaining relative power versus the G-7 and we will feel that and see that for some time to come,” London- based McCormick said. One key focus for markets will be any change in sentiment toward the dollar, which makes up about two- thirds of world central banks’ foreign-exchange reserves, he said.

Geithner will attend the summit of the G-20, which groups the largest developing and emerging countries, April 2 in London along with President Barack Obama. The smaller Group of Seven had since the 1970s been the main forum for leaders of nations with the biggest economies.

After the dollar slumped in the aftermath of Geithner’s first remarks, Roger Altman, who worked with Geithner as deputy Treasury secretary in the Clinton administration, asked him whether he wanted to “clarify” his comments.

“I’d like to ask one final question, in effect on behalf of the market,” said Altman, founder of Evercore Partners Inc. “Let me ask the question this way. Do you see any change over the foreseeable future in the basic role of the dollar as the world’s key reserve currency?”

‘Strong Dollar’

Geithner responded: “I think the dollar remains the world’s dominant reserve currency.” In an interview with CNBC broadcast after the event, the Treasury chief said that a “strong dollar” is in “America’s interest.”

In his earlier answer, Geithner said increased use of SDRs should be “rather evolutionary, building on the current architecture, rather than moving us to global monetary union.” SDRs are a unit of account at the IMF used for member countries’ reserves with the fund.

Geithner’s remarks don’t indicate Geithner favors moving to a system with the SDR as a reserve currency, strategist Lee Hardman at Bank of Tokyo-Mitsubishi Ltd. wrote in a note.

“That was the big concern amongst the confusion,” London- based Hardman said. “A move to an SDR-linked system away from the dollar would naturally lead to a reduction in the dollar’s share of global reserves.”

‘Confidence’ in U.S.

Geithner, a former Treasury undersecretary for international affairs and president of the Federal Reserve Bank of New York, which carries out U.S. interventions in currency markets, also said that “we will do what’s necessary to make sure we’re sustaining confidence in our financial markets.”

Geithner and Fed Chairman Ben S. Bernanke both told lawmakers on March 24 that they expected the dollar to remain the most important global currency. Obama said at a news conference the same day that “the dollar is extraordinarily strong” because investors are confident in the ability of the U.S. to lead a worldwide recovery, and also rejected calls for a new global currency.

China is the largest foreign holder of U.S. Treasuries, and Premier Wen Jiabao earlier this month expressed concern about the value of its investment. Central bank governor Zhou this week advocated a “super-sovereign reserve currency” that’s disconnected from any individual nation.

Zhou said, in an essay posted on the PBOC’s Web site, that the International Monetary Fund’s special drawing rights offer “light in the tunnel for the reform of the international monetary system.” He said the SDR has yet to be “put into full play due to limitations on its allocation and the scope of its uses.”

McCormick at Citigroup said it was a concern that Geithner said he hadn’t read Zhou’s comments. “If I’m running the Treasury I would want to have been briefed on that.”

Geithner has been the only confirmed senior official at the Treasury since he took office in January. The White House this week nominated former Clinton official Lael Brainard as Treasury undersecretary for international affairs after at least one other candidate for the job removed herself from contention.

To contact the reporter on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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