Alan Beattie

Eight former US trade representatives and commerce secretaries pop up in the renminbi debate, warning Congress against legislating. No doubt timed to coincide with the deliberations on the Hill, with Ways and Means chairman Sander Levin having to decide which of the various options he wants to go with.

Easy to urge others to take a politically difficult route once you are out of office and don’t have to be re-elected, of course, but still might be an interesting contribution. The letter was distributed, btw, by the US-China Business Council, an association of multinationals active in China, which has been lobbying hard on the issue.

Alan Beattie

Somewhat as predicted, or at least predicted by me, Tim Geithner went as far as he could go in suggesting that various options were on the table for trying to push the Chinese into letting the exchange rate rise without giving any hostages to fortune.

The Murphy-Ryan bill (similar to Schumer-Graham in the Senate) got respectful attention and the possibility of support, though no commitment. Naming China as a currency manipulator, though, seems still to be off the table

Alan Beattie

No doubt in a valiant attempt to feed our insatiable curiosity ahead of time, some excerpts from Tim Geithner’s written testimony and prepared oral statement have come out tonight, before Thursday’s appearance in front of two Congressional committees. The key passage:

“We are concerned, as are many of China’s trading partners, that the pace of appreciation has been too slow and the extent of appreciation too limited. We will take China’s actions into account as we prepare the next Foreign Exchange Report, and we are examining the important question of what mix of tools, those available to the United States and multilateral approaches, might help encourage the Chinese authorities to move more quickly.”

It’s not explosive stuff but it does show that: 1) the administration is considering (or at least wants to give the impression that it is considering) a range of options, which could include classifying exchange rate undervaluation as an illegal export subsidy or taking a case to the WTO; 2) It is not a given that the Treasury will repeat its previous decision to resist naming China as a manipulator in the twice-yearly currency report. 

Alan Beattie

Big day on the Hill on Thursday as Mr Secretary does the rounds talking about China: the Senate banking committee in the morning and the House of Reps ways and means committee (which spent yesterday on another auto da fe hearing about the Chinese currency) in the afternoon. He faces a Blondinesque balancing act of being mad enough at Chinese foreign exchange intervention to placate angry lawmakers while not committing to precipitous and possibly WTO-illegal action like agreeing to currency tariffs.

Last time he was in this position, on June 10, Geithner rather neatly managed to amplify the complaints of senators in the hope that they would be heard in Beijing without necessarily endorsing them. Nine days later, China unpegged the renminbi. He will most probably try some version of this again on Thursday and hope that puts enough pressure on Beijing to take its foot off the renminbi brake for a while. Would that placate the senators and the congressmen? No. (Appearing in front of congressional committees, Geithner somewhat resembles a put-upon nephew who has been deputed to break some bad news to a gang of irascible uncles.) But would it do enough to stop them forcing currency legislation on to a crowded fall legislative schedule? Probably, yes.

Alan Beattie

Yowkers. Interesting timing for Japan to go back into the FX markets and sell the yen for the first time in six years. On Wednesday the US Congress cranks up its China currency campaign again, this time the House as well as the Senate coming up with a bill allowing the US to block Chinese imports on grounds of currency misalignment.

As I wrote before, it’s not clear which way this development cuts. Does it make it easier to confront China because another G7 country has been forced to deal with the effects of Chinese currency intervention, or does it make it harder to argue that China should stop intervening when Beijing can point at Tokyo and say “them too”? 

Alan Beattie

Washington returning to work after August and the Labor Day holiday, and some chatter about the prospect that currency intervention by Tokyo will complicate the diplomatic drive to get Beijing to ease off selling renminbi. The White House just despatched (who else?) Larry Summers on a charm offensive to China to ask for faster appreciation, and would dearly like the rest of the G20 to line up behind its campaign. The bad cop role is being played by Congress, which is holding a high-profile hearing on the issue next week.

But as sage Washington observers note, that becomes a harder sell if a prominent G20 member – indeed, a G7 member – is intervening as well. Of course, Washington could argue that Japan was forced into extraordinary action because of China’s persistent intervention. But at the very least it complicates the choreography.

Alan Beattie

For most of the last 20 years, central banking was increasingly a soloist affair: one instrument (interest rates), one target (inflation). Since that didn’t prevent a series of asset price bubbles and gigantic leverage nearly destroying the world economy, fashions have shifted to employing a veritable orchestra of instruments including a “macroprudential controls” section – capital requirements, collateral rules, dynamic loan loss provisioning and so forth. The IMF released a paper today which confirms the intellectual shift.

All very well, but putting this new approach into operation is going to be highly complex, not least because of the potential for normal monetary policy and the new macroprudential roles to get mixed up – one of the reasons that monetary policy and financial supervision were separated in the first place. Central banks are going to have to learn how to be independent of themselves.

Alan Beattie

The risk of a slowdown in the global economic recovery has risen sharply, but governments should continue planning to tighten fiscal policy, the International Monetary Fund has said.

Updates to the IMF’s regular world economic outlook and assessment of global financial conditions, released on Thursday, said jitters in financial markets in May and June threatened confidence and growth worldwide. 

Alan Beattie

The US will have much less room to grow than it believes and should therefore tighten fiscal policy more rapidly, according to estimates by the International Monetary Fund.

In the first report of the G20’s “mutual assessment process”, by which leading economies are supposed to hold each other accountable for growth, the IMF suggests that the “advanced deficit countries” – dominated by the US – should tighten fiscal policy more rapidly than planned. 

Alan Beattie

Ben Bernanke failing to blaze like a news comet in front of the House budget committee just now: US recovery steady but unspectacular; limited impact from Europe crisis so far; need to do something about the deficit in the medium term. The usual. One query came up from Paul Ryan (R-WI), the committee’s hawk-in-residence: why is gold hitting an all-time high? Is it a general flight from fiat currencies because investors think central banks are going to inflate the debt away?

Bernanke, predictably, thought (i.e. promised) not, offering the observation that gold was out there on its own “doing something different from the rest of the commodity group” and confessing that he didn’t fully understand movements in gold prices. Looking at long-term yields almost across the board, except for the default risk countries like Greece, it’s hard to argue he’s wrong. There are some anomalies that encourage investors to hold government debt, like the UK pension regulations which created artificial demand for gilts for a long time (one of the reasons the Debt Management Office was able to flog so many long-dated bonds), but not to this level. Gold still looks like the outlier, not the bellwether.