New York — Treasury Secretary Timothy Geithner nearly struck out Wednesday morning despite multiple opportunities to defend the dollar. Geithner’s narrowly averted gaffe was sadly typical, given the greenback’s shabby treatment these days.
While addressing a jam-packed meeting of the Council on Foreign Relations, Geithner answered Standard Chartered Bank’s Doug Smith who wanted the secretary’s thoughts on “the Chinese government proposal about a global currency.” People’s Bank of China governor Zhao Xiaochuan would shift Earth’s reserve currency from the dollar to “Special Drawing Rights” (SDR), combining the dollar, Britain’s pound, Japan’s yen, and the euro. Call it the international “globo.”
Geithner should have echoed his boss’ reaction to this idea. President Obama declared at his Tuesday-night press conference: “I don’t believe that there’s a need for a global currency.”
Instead, Geithner rhapsodized about Zhao’s brilliance.
Geithner called Zhao “a very thoughtful, very careful, distinguished central banker. Generally find him sensible on every issue.” Geithner added that Zhao’s idea is “designed to increase the use of the IMF’s Special Drawing Rights. And we’re actually quite open to that suggestion.”
After Geithner swung at that slow ball and missed, moderator and former Treasury secretary Roger Altman pitched Geithner a soft ball.
Altman said, “A slew of news reports interpreted [Zhao’s] comments to suggest that the world needs a super reserve currency, and that the dollar, on some gradual basis, ought to be replaced in favor of that. And I wasn’t entirely clear what your response was.”
Once again, Geithner lauded the man who wants to end the dollar’s starring role on the world stage. “He’s a really thoughtful, pragmatic guy, and he has a great record of credibility in China as a whole, so anything he’s thinking about deserves some consideration,” Geithner gushed.
Beyond the CFR’s Park Avenue headquarters, traders quickly learned of Geithner’s shaky at-bat. The greenback’s value against the euro slumped 1.3 percent within 10 minutes of Geithner’s non-defense of the dollar. “That’s a huge currency move,” observed one Wall Street veteran.
Giving him one more opportunity to prevent a strike out, Altman practically dangled the ball in Geithner’s wheel house, as if from a string.
“I’d like to ask one final question, in effect, on behalf of the market,” Altman nearly pleaded. ”It might be useful if you tried to clarify your earlier comment on the reaction to the central bank governor of China’s idea, and so let me ask the question this way. Do you see any change over the foreseeable future in the basic role of the dollar as the world’s key reserve currency, or the reserve currency?”
This time, Geithner’s bat smacked white leather.
“I think the dollar remains the world’s dominant reserve currency,” Geithner replied. “I think that’s likely to continue for a long period of time.”
Even after listening to Geithner’s otherwise sharp and witty dialogue with his savvy audience, it hardly instilled confidence to watch him require this much help to stand up for America’s currency.
“I wish Mr. Geithner would be clearer on the need for a strong and stable dollar, especially when we’re going to be issuing a lot of debt,” former Treasury official and Encima Global president David Malpass told me. “He’s spent too much time talking up China’s yuan and now the SDR. I don’t see how that helps us attract capital to U.S. financial markets.”
The Federal Reserve recently announced plans essentially to print $1.15 trillion to purchase mortgage-backed securities and Treasury bonds. President Obama’s budget would double down on the national debt, from $4.4 trillion today to $9.3 trillion in 2019. By then, the Congressional Budget Office estimates, the national debt will rise from 40.8 percent to 82.4 percent of GDP, a truly equatorial level of fiscal squalor.
The dollar needs a hug. That Secretary Geithner required former Treasury Secretary Altman’s adult supervision to discern this should inspire prudent Americans to start pricing wheelbarrows.