US treasury secretary touts Obama austerity policies in China visit

[Hannah Bell]

Geithner’s main objective in talks with top Chinese officials is to reassure Beijing that the Obama administration will safeguard China’s holdings of US debt by bringing down the federal budget deficit and phasing out the current policy of flooding the financial markets with dollars.

The exploding US deficit and massive debt taken on by the Federal Reserve Board have driven down the value of the dollar in recent weeks and heightened concerns on world markets about the stability of the dollar and the credit-worthiness of US Treasuries, causing a sharp rise in long-term US interest rates. This has the effect of eroding the value of Chinese dollar holdings. The market value of Chinese holdings in Treasury notes has already declined 5 percent this year.

Geithner’s trip provides the spectacle of the US being compelled to pledge the same sort of austerity policies that the US routinely demanded in past years of bankrupt lesser powers. Now it is the US government that must pledge to slash the living standards of its population in order to salvage its currency and protect the interests of its financial elite.

In his speech at Peking University, he said, “We are going to have to bring our fiscal deficit down to a level that is sustainable over the medium term. This will mean bringing the imbalance between our fiscal resources and expenditures down to the point—roughly three percent of GDP—where the overall level of public debt to GDP is definitively on a downward path.”

“...Consumer spending in the United States will be restrained for some time relative to what is typically the case in recoveries,” he said, adding, “These are necessary adjustments. They will entail a longer, slower process of recovery, with a very different pattern of future growth across countries than we have seen in the past several recoveries....

“In the United States, saving rates will have to increase, and the purchases of US consumers cannot be as dominant a driver of growth as they have been in the past.”

As a result, Geithner stressed, China would have to revamp its economy to drive up domestic consumption and make it less dependent on exports. Although he did not spell it out, the US has a vested interest in such a development. Under conditions of a protracted reduction in exports to the US and other countries, the ability of China to continue to subsidize the US economy is dependent on its ability to generate profits internally.

As an inducement, Geithner pledged that the US would avoid protectionist measures and champion a larger role for China in international policy-making bodies such as the International Monetary Fund.

In return, he called on China to provide the US with “increased opportunities to export to and invest in the Chinese economy....”

Geithner’s visit follows a series of trips by US politicians to Beijing over the past week, including House Speaker Nancy Pelosi, Chairman of the Senate Foreign Relations Committee John Kerry and the Democratic and Republican co-chairs of the US-China Working Group in the House of Representatives.

Geithner is to meet Tuesday with Chinese President Hu Jintao, Premier Wen Jiabao and Vice Premier Wang Qishan. The Chinese, for their part, are making demands in return for keeping up their purchases of US Treasuries, including an end to restrictions on US high-tech exports to China and greater access for Chinese capital in US markets...

http://www.wsws.org/articles/2009/jun2009/geit-j02.shtml