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Timmy Rings the Gong


China has suggested the development of a new world currency. I consider this the first ring on the gong of doom, as it would make everything sold in dollar terms worth significantly less in global markets.

The current President was asked about the issue during his prime-time press conference last Tuesday (snipped for relevance):

QUESTION: Good evening, Mr. President. Thank you.

Taking this economic debate a bit globally, senior Chinese officials have publicly expressed an interest in international currency. This is described by Chinese specialists as a sign that they are less confident than they used to be in the value and the reliability of the U.S. dollar. European countries have resisted your calls to spend more on economic stimulus.

I wonder, sir, as a candidate who ran concerned about the image of the United States globally, how comfortable you are with the Chinese government, run by communists [snip]?

OBAMA: [snip] As far as confidence in the U.S. economy or the dollar, I would just point out that the dollar is extraordinarily strong right now. And the reason the dollar is strong right now is because investors consider the United States the strongest economy in the world with the most stable political system in the world.

So you don't have to take my word for it. I think that there is a great deal of confidence that, ultimately, although we are going through a rough patch, that the prospects for the world economy are very, very strong.

And -- and last point I would make, in terms of changing America's image in the world, Garrett, I -- you know, I haven't looked at the latest polling around the world, but I think -- I think it's fair to say that the response that people have had to our administration and the steps that we've taken are ones that are restoring a sense of confidence and the ability of the United States to assert global leadership.

QUESTION: (OFF-MIKE) OBAMA: That will just strengthen -- excuse me?

QUESTION: (OFF-MIKE) global currency?

OBAMA: I don't believe that there's a need for a global currency.

Although it’s not a substantive response, Barry’s mouth said something useful. Unfortunately, Barry’s Treasury Secretary has contradicted that statement of US confidence:

US Treasury Secretary Tim Geithner shocked global markets by revealing that Washington is "quite open" to Chinese proposals for the gradual development of a global reserve currency run by the International Monetary Fund.

The dollar plunged instantly against the euro, yen, and sterling as the comments flashed across trading screens. David Bloom, currency chief at HSBC, said the apparent policy shift amounts to an earthquake in geo-finance. "The mere fact that the US Treasury Secretary is even entertaining thoughts that the dollar may cease being the anchor of the global monetary system has caused consternation," he said.

Mr Geithner later qualified his remarks, insisting that the dollar would remain the "world's dominant reserve currency ... for a long period of time" but the seeds of doubt have been sown.

The markets appear baffled by the confused statements emanating from Washington.

And we’re supposed to trust these clowns to straighten out banking and realign the US economy? The members of the Failed Obama Administration™ don’t even agree on which incoherent policy they’re promoting.

The story also seems in agreement with me about the significance of China’s call for a new reserve currency:

Beijing has the backing of Russia and a clutch of emerging powers in Asia and Latin America. Economists have toyed with such schemes before but the issue has vaulted to the top of the political agenda as creditor states around the world takes fright at the extreme measures now being adopted by the Federal Reserve, especially the decision to buy US government debt directly with printed money.

Mr Bloom said the US is discovering that the sensitivities of creditors cannot be ignored. "China holds almost 30pc of the world's entire reserves. What they say matters," he said.

What China says matters. What Geithner says is becoming less relevant each time he speaks. Although Barry thinks Timmy is doing a heckuva job, few agree with the President’s judgement.

Mr Geithner's friendly comments about the SDR plan seem intended to soothe Chinese feelings after a spat in January over alleged currency manipulation by Beijing, but he will now have to explain his own categorical assurance to Congress on Tuesday that he would not countenance any moves towards a world currency.