Geithner To Visit China Amid Currency Dispute
STEVE INSKEEP, host:
The trip to India is just the beginning of the treasury secretary's travels. Timothy Geithner will hold talks in Beijing, China on Thursday. and those talks come at a time when both countries - China and the U.S., have been arguing over the value of China's currency.
We're going to talk about that and some more with David Wessel. He's economics editor of The Wall Street Journal and a frequent guest here.
David, good morning.
Mr. DAVID WESSEL: Good morning, Steve.
INSKEEP: What makes China's currency a matter of concern for the United States?
Mr. WESSEL: Well, unlike most major economies in the world, China is holding its currency steady against the dollar. It's not allowing it to rise against the dollar, and that makes it easier for them to export stuff to the United States and harder for us to export stuff to them. It's one of the major frictions in the world economy.
The U.S. has been pressuring China to let the currency rise. Geithner's trip suggests to me that there's some deal in the works that China's on the verge of doing something that might allow its currency to gradually rise against the dollar as it was before the global financial crisis.
INSKEEP: Just to be totally clear on this, you're saying that when China holds its currency artificially low that means Chinese goods are especially cheap in the United States, and we buy more of them. And American goods are especially expensive in China, and at least in theory, they buy less of our stuff. Is that right?
Mr. WESSEL: Exactly. And the strategy for the world economy right now, in a simple formula, is the U.S. needs to export more and China needs to export less. And a change in the value of the exchange rate, between the Chinese currency and the American currency has got to be part of that adjustment - most economists believe.
INSKEEP: Although, let me ask, can that really make a significant difference? Because even if the currency moves a little bit, China is still going to be producing really, really, really cheap goods and we're not going to be.
Mr. WESSEL: It's not, alone, going to change the balance in the world economy. It's kind of an essential part of the adjustment though. China needs to do things to get its people to save a little less and buy a little more. It needs to invest more in its own infrastructure - thats the U.S. view. And if that happens, the currency has to change.
Otherwise theyll be forced to spend billions and billions of dollars of intervening currency markets and building this huge hoard of American Treasury Bonds. And thats a sign of that they are kind of interfering with the market forces.
INSKEEP: We're talking with David Wessel of the Wall Street Journal about some numbers that can affect the economy, and also our affected by it.
And let's move on to another number, if you dont mind, David - interest rates, which of course can change everything from people's credit card payments to the house they buy, to the financial health of our employers.
The Federal Reserve is at the center of the debate about interest rates, because it's kept the rate that it controls exceptionally low. And I suppose the question, David Wessel, is how long the interest rates will stay that low?
Mr. WESSEL: Well, a while longer. The Federal Reserve, this week, put out minutes of its meeting in March - there's always a lag before they put them out. And it shows the economy - the officials still very worried about the fragility of the economic recovery, worried about the waning effects of the fiscal stimulus, about high unemployment, about how weak housing prices are.
And actually, although we're accustomed to Fed officials always worrying that inflation is around the corner, several of them are actually worried that inflation - already pretty low - is falling behind the target range that they think that actually inflation could come too low to make them comfortable.
INSKEEP: Meaning that they would like to keep interest rates lower. If they could get below zero, some people might like to do that for a little while. Is that what that means?
Mr. WESSEL: Yeah, actually the Fed formulas for setting interest rates would dictate interest rates below zero. They just can't get there.
So what this means is that the widespread expectations that the Fed is going to keep interest rates near zero, through the end of the year, are definitely reflected in these minutes. And it would take something extraordinary - a really welcomed burst of economic growth or an unwelcomed burst of inflation -to knock the Fed of that course so they would raise interest rates sooner.
INSKEEP: But let's remember, David Wessel, the Fed doesnt control all interest rates, only some of them. And even though the Fed is keeping its rates very low, we can read and the Wall Street Journal says that long-term mortgage rates and some other rates are actually going up.
Mr. WESSEL: Thats right. The bond market is pushing up interest rates. The 10-year Treasury, a benchmark is near four percent, which is higher than it's been.
The Fed looks at that as a sign that the economy is inching towards normal but businesses are borrowing again. And it also sees it as a kind of danger sign. A sign that investors are getting a bit anxious about the amount of borrowing that the U.S. government is doing to finance these massive budget deficit.
In fact, Ben Bernanke, the Fed chairman, is speaking in Dallas this afternoon and thats likely to be at the top of his worry list today.
INSKEEP: Some of the clues in the numbers, from David Wessel of the Wall Street Journal, regular guest here.
(Soundbite of beeping)
INSKEEP: Sounds like your time is up, David.
(Soundbite of laughter)
INSKEEP: David, thanks very much.
Mr. WESSEL: You're welcome.
INSKEEP: And we continue to get advice from David Wessel whenever he's got the time.
It's MORNING EDITION from NPR News.
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