Chinese policymakers must be bemused, or at least confused.
US Secretary of State Hillary Clinton has pleaded with China to continue buying
US Treasury bonds amid mounting fears that Washington may struggle to finance
bank bail-outs and ballooning deficits over the next two years. "It's a safe
investment. The United States has a well-deserved financial reputation," she
told Chinese television stations at the end of her diplomatic tour of Asia.
President Barack Obama believes China is “manipulating” its currency, his choice
to head the U.S. Treasury said on Thursday....Washington will “aggressively” use
all its diplomatic tools to press Beijing to move faster on currency reform, New
York Federal Reserve Bank President Timothy Geithner said ...U.S. Treasury bond
prices fell on worries China could respond to Mr. Geithner’s frank comments by
dumping U.S. Treasury bonds.
The inconsistency in the policy here becomes fully apparent only when one understands how China "manipulates" its currency: It keeps the value of the yuan lower than it otherwise might be by supplying yuan and demanding dollars in foreign-exchange markets. Those dollars are then invested in U.S. Treasuries.In other words, Secretary Clinton is now asking the Chinese to do precisely what Secretary Geithner asked them not to do.
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