Inquiring minds are looking towards this weekend’s meetings of G-20 finance ministers where Treasury Secretary Timothy Geithner said he would use the weekend to advance efforts to “rebalance” the world economy. Yes, a vote for Obama two years ago was also a vote for Secretary Geithner to play God:
Treasury Secretary Timothy Geithner said he would use weekend meetings…to advance efforts to “rebalance” the world economy so it is less reliant on U.S. consumers, to move toward establishing “norms” on exchange-rate policy, and to persuade others the U.S. doesn’t aim to devalue its way to prosperity.
In an interview with The Wall Street Journal, Mr. Geithner said the world sorely needs to agree on guidelines for exchange-rate policy. “Right now, there is no established sense of what’s fair,” he said.
Pretty amazing. Reality is what Tim Geithner says it is. Not the free market.
Too bad we had to wait so long for him get to Washington. You would have thought that after Mr. Geithner did such a wonderful job during the Asain Currency Crisis in the 90’s he would have here so much sooner.
Paul Keating, former Austrailian Prime Minister, gave a frank assessment of Timothy Geithners’ performance of the Asian crisis that is sharply at odds with the standard US reports. According to Keating, Geithner completely misread the nature of the crisis, that it was the result of hot money flight, but reverted to the standard IMF “country facing currency crisis” playbook, and made a bad situation worse. From the Sydney Morning Herald:
If anyone in the US media had thought to ask a former Australian prime minister for his assessment, they would have heard a different view. And they would not have been so surprised at Geithner’s performance since.
In a speech to a closed gathering at the Lowy Institute in Sydney on Thursday, Paul Keating gave a starkly different account of Geithner’s record in handling the Asian crisis: “Tim Geithner was the Treasury line officer who wrote the IMF [International Monetary Fund] program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis.”
In other words, Geithner fundamentally misdiagnosed the problem. And his misdiagnosis led to a dreadfully wrong prescription.
Geithner thought Asia’s problem was the same as the ones that had shattered Latin America in the 1980s and Mexico in 1994, a classic current account crisis. In this kind of crisis, the central cause is that the government has run impossibly big debts.
The solution? The IMF, the Washington-based emergency lender of last resort, will make loans to keep the country solvent, but on condition the government hacks back its spending. The cure addresses the ailment.
But the Asian crisis was completely different. The Asian governments that went to the IMF for emergency loans – Thailand, South Korea and Indonesia – all had sound public finances.
The problem was not government debt. It was great tsunamis of hot money in the private capital markets. When the wave rushed out, it left a credit drought behind.
But Geithner, through his influence on the IMF, imposed the same cure the IMF had imposed on Latin America and Mexico. It was the wrong cure. Indeed, it only aggravated the problem.
Keating continued: “Soeharto’s government delivered 21 years of 7 per cent compound growth. It takes a gigantic fool to mess that up. But the IMF messed it up. The end result was the biggest fall in GDP in the 20th century. That dubious distinction went to Indonesia. And, of course, Soeharto lost power.”
Exactly who was the “gigantic fool”? It was, obviously, the man who wrote the program, Geithner, although Keating is prepared to put the then managing director of the IMF, the Frenchman Michel Camdessus, in the same category.
Worse, Keating argued, Geithner’s misjudgment had done terminal damage to the credibility of the IMF, with seismic geoeconomic consequences: “The IMF is the gun that can’t shoot straight. They’ve been making a mess of things for the last 20-odd years, and the greatest mess they made was in east Asia in 1997-98, so much so that no east Asian state will put its head in the IMF noose.”
Narcissism is never having to say you’re sorry.
At least we now know what the link between the two is.
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