Friday, December 21, 2007

Chutzpah

Twice a year, the U.S. Treasury Department presents a report to Congress on the currency policies of countries around the world. Its report of December 2007 once again declined to designate China as a currency manipulator, but stated that the recent appreciation of its currency, the yuan, has been too modest and limited.

The report recommended that "China should significantly accelerate the [yuan’s] effective exchange rate in order to minimize the risks that are being created for China as well as the world economy, of which China is increasingly a critical part." The report stated that the U.S. will continue to use every opportunity to stress to Chinese leaders "the need for China to rebalance growth, including reform of the exchange-rate regime."

The Treasury report was issued the same day that China took a 9.9 percent stake in Morgan Stanley with a $5 billion cash injection. Morgan Stanley had to write off $9.4 billion in losses for its fiscal fourth quarter on its U.S. subprime and other mortgage investments. China came to the rescue of one of America’s premier financial houses even as it was chastised by the Treasury for mismanaging its currency.

The Treasury report amounts to the kettle calling the pot black. What was Secretary Henry Paulson and his deputies doing while the subprime mortgage crisis was building? Ditto for the Federal Reserve Board. So far, all the king’s horses and all the king’s men have been unable to put humpty-dumpty back together again. It has taken China and other cash-rich countries to help extinguish the U.S. financial fire. Rather than the Treasury criticizing China and offering advice on how to run its economy and currency, which have been remarkably well-managed for the past quarter century, perhaps the Treasury should pay attention to home-grown financial problems.

The day will come when China’s Ministry of Finance presents a report to the National People’s Congress stating that the ministry will use every opportunity to stress to American leaders "how to manage a financial system."

No comments :