“The distortions caused by China’s exchange rate spread far beyond China’s borders and are an impediment to the global rebalancing we need,” Geithner said in prepared testimony before the Senate Finance Committee today. A more flexible yuan would allow China to pursue “a more effective, independent monetary policy, which is particularly important now, with China’s economy facing a risk of inflation in goods and in asset prices.” Here's the link: Absurd GrandiosityThe fact of the matter is that the primary "distortion" in the global economy - and one that FAR dwarfs any other imbalance - is being caused by the massive imbalance between spending and savings in the United States. Not only does every level of Government in the U.S. operate on a massive spending deficit, but U.S. citizens also, as per net debt levels, engage in deficit spending. I believe Hemingway's bell is tolling for Tim, not China.
I'm not sure how seriously the Chinese will regard Geithner's comments, considering this the same person who cheats on his income taxes, was so upside-down on his home mortgage that he was forced to rent his house rather than sell it and has helped create and enable the biggest financial catastrophe in history.
My best guess is that, best case, Geithner's comments will be rightfully ignored. Worst case, it might trigger some sort of subtle adverse response in order to remind Geithner/Obama/Summers/Bernanke that China controls the U.S. financial destiny via its massive Treasury holdings and its willingness to hold them - for now.
Personally, I would love it if China let its currency revalue to a much higher level because it will have the effect of making gold a lot less expensive in terms of yuan, and thereby turbo-charge China's already massive appetite for gold and silver. In the meantime, I can say with complete conviction that Tim Geithner is one of the biggest baffoons to ever have served in the U.S. Government.