Geithner on China's Currency Manipulation

Tim Geithner's testimony about China's currency manipulation is the top story in the world today, judging by the NYT's front page. And he did indeed say three times in his written responses to the Senate Finance Committee that "President Obama - backed by the conclusions of a broad range of economists - believes that China is manipulating its currency."

The general reaction in the blogosphere has been dude, I thought you liked a strong currency. And this isn't manipulation anyway. And does this mean we're asking them to sell their dollars now? Etc. But looked at in the context of the full set of responses, I see this answer a bit differently.

The overwhelming impression one gets from reading the full 102 pages is that Geithner never wants to answer a question directly, always wants to leave open the possibility that he might agree with the senator asking the question, and is generally taking a don't-spook-the-horses approach to the committee. Remember that his answers are key in determining whether his nomination will get voted through by the committee, and in fact that's their only real purpose.

Looked at in that light, it's on the face of it a bit weird that he's taking such a strong view on China when he's so good at taking no view at all on, say, Cuba. But think about it for a second: which committee member, if any, would actually object to Geithner's statement that China is manipulating its currency? Politically speaking, as far as the finance committee is concerned, the upside to such a statement is significant, while the downside is limited.

Still, didn't Geithner know that the Chinese would read his comments, and not just the senators? Of course. But if you're going to say something which, at the margin, risks weakening the dollar and raising Treasury's borrowing costs, what better time to do so than a day when the dollar is very strong and Treasury's borrowing costs are almost zero? Yes, the low interest rates on Treasury bonds will make it much easier to finance the upcoming stimulus package. But Treasury also has a broader interest in pricking the Treasury bubble and getting credit flowing elsewhere.

What's more, Geithner was careful to take this position only after Barack Obama had personally laid it out first. This is also true of Geithner's other substantive statement: "President Obama has said that he wants to reform the IMF to increase developing country representation." Geithner clearly -- and understandably -- doesn't feel comfortable taking public positions on issues which Obama hasn't already nailed down before he's even been confirmed. But when Obama has nailed down a position, the least Geithner can do is reiterate it: neither the Senate nor China can really blame Geithner for Obama's previously-announced policies.

So, like Dan Drezner, I'm not sure the China part of Geithner's testimony was really such a big deal. But I'm clearly in the minority here.