Geithner and Qishan to Let Yuan Float

Treasury Secretary Tim Geithner and Chinese Vice Premier Wang Qishan shared dim sum yesterday. The topic of their discussion has been clear for several days. But today, the conclusion is only dribbling out.

According to a vague report by The New York Times, the Treasury will delay calling China a “currency manipulator,” for whatever that’s worth. In return, China will depeg the people’s currency from the US dollar…sort of. The renminbi will be allowed to float within a fairly tight range, much like the last depeg, which took place 2005-2008.

The 2005 revaluation moved the yuan up 2% against the dollar on the first day. A similar move this time around may even be enough to shut Paul Krugman up. He and the 130 members of Congress have been lobbying to slap a tariff – er, “surcharge,” Krugman calls it – on Chinese imports if they don’t let the yuan float freely against the dollar.

Just hours after Geithner’s surprise visit to Beijing was announced yesterday, the US Treasury auctioned off $21 billion in 10-year notes. It was among the most successful Treasury auctions in history: The bid-to-cover set a record high of 3.72. In our language, nearly four bids came in for every note sold.

Crazy town. Flight to safety, all over again.

“Indirect bidders” (i.e., foreign central banks, i.e., our friends in China) showed up in force at this auction…the first time since last fall. When it was all over, the yield on a 10-year Treasury was back down to 3.9%, but still near a 12-month high.

Support from China, among others, is exactly what the Fed and Treasury needed to ameliorate volatility after they closed the quantitative easing (QE) program a week ago yesterday. And the bizarre dance between the New World and the Middle Kingdom continues…

About Addison Wiggin 88 Articles

Affiliation: Agora Financial

Addison Wiggin is the editorial director of The Daily Reckoning, and executive publisher of Agora Financial, a multi-million dollar financial research firm and publishing group based in Baltimore, Maryland. His second edition of The Demise of the Dollar… and Why it’s Even Better for Your Investments was just fully revised and updated.

He is also the executive producer of and a writer of I.O.U.S.A. a feature length documentary film nominated for the Grand Jury prize at the 2008 Sundance Film Festival. The film is inspired by the international bestsellers Financial Reckoning Day and Empire of Debt, which he coauthored with Bill Bonner.

Visit: The Daily Reckoning

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