A few months ago, when Tim Geithner was on a bond-selling trip to China, he pledged that the US would repay the Chinese in full, prompting howls of laughter from the university in attendance at his speech.
We presume his international counterparts in Europe were more respectful when he told them basically the same thing.
Bloomberg: The U.S. will do “everything necessary” to maintain confidence in its currency, he told reporters after attending a meeting of counterparts and central bankers from the Group of Seven in Istanbul. This includes reining in budget deficits over time to put the country on a more “sustainable” path, he said.
“It is very important to the United States that we continue to have a strong dollar,” Geithner said. “We recognise that the dollar’s important role in the system conveys special burdens and responsibilities on us and we are going to do everything necessary to make sure we sustain confidence.”
There are so many interesting aspects to all this, the first being that he has to say this in the first place. This follows Bernanke’s testimony on the hill, when he was asked repeatedly about the future of the US Dollar. Basically, everyone’s obsessed with the dollar right now.
But beyond that, the foreign central bankers know that Geithner is writing a check he can’t credibly cash. It’s not under his ability to get deficits under control. With our broken down political system, and an inability to make hard choices, nobody has the power.
We can always hope, of course, but then we’ve heard that isn’t really much of a strategy.