Geithner Turns Up the Heat on China

In his confirmation hearing with the Senate Finance Committee, Treasury Secretary Nominee Tim Geithner said that a “strong dollar is in America’s National Interest.” As potential Treasury Secretary, we expected Geithner to adopt the stance of his predecessors, which is to pay lip service to the strong dollar policy. Over the past few years, the consequences of the US government’s fiscal and monetary actions is a weak and not strong dollar. For any country that is slowing or in recession, a weaker currency is more helpful than a strong one.

So there is no real meat to Geithner’s comments especially as the Federal Reserve embarks on their “credit easing” policies. It would also have been a mistake for Geithner to say anything otherwise about the dollar at his hearing because rocking the boat could risk his confirmation.

Geither Turns Up the Heat on China

More significantly, he also suggested that the Obama Administration will may be saying goodbye to the buddy versus bully approach to China. He believes that Obama will “aggressively try to change Yuan policy” and that China will no longer get a free pass in trade violations. Geithner went one step further by saying that Obama believes that China is “manipulating” its currency and therefore the new President wants currency realignment. This represents a dramatic departure from the Bush Administration’s strategy. Former President Bush and former Treasury Secretary Paulson have allowed China to appreciate the Yuan on their own terms and to a large degree it has worked because over the past 3 years, the Yuan has risen more than 15 percent. It is still undervalued by at least 10 percent but China is not one to buckle down to political pressure even if it comes from Obama. This is a bad time to ask for Yuan stregnth because growth in China has slowed materially. If the US brands China as an official currency manipulator it will be interesting to see what type of backlash or economic war comes out of it.

About Kathy Lien 236 Articles

Kathy Lien is an Internationally Published Author and Chief Strategist of, one of the world’s most popular online websites for currency research. Her trading books include the highly acclaimed, Day Trading the Currency Market: Technical and Fundamental Strategies to Profit form Market Swings (2005, Wiley); High Probability Trading Setups for the Currency Market E-Book (2006, Investopedia); and Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game (2007, Wiley). As Chief Currency Strategist at FXCM, Kathy is responsible for providing research and analysis for DailyFX, the research arm of FXCM. She also co-edits the BK Forex Advisor, an Premium Service with Boris Schlossberg – one of the few investment advisory letters focusing strictly on the 2 Trillion/day FX market.

Kathy is also one of the authors of Investopedia’s Forex Education section and has written for, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. She is frequently quoted by Bloomberg, Reuters, the Wall street Journal, and the International Herald Tribune and has appeared on CNN, CNBC, CBS and Bloomberg Radio. She has also hosted trader chats on EliteTrader, eSignal and FXStreet, sharing her expertise in both technical and fundamental analysis.

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