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Treasury's international policy chief on Chinese currency and U.S. financial reform

Updated 4:09 p.m.

By Howard Schneider
The United States is carefully monitoring "how far and how fast" China's currency appreciates, Lael Brainard, undersecretary of the Treasury for international affairs, told a lunchtime crowd at the Peterson Institute for International Economics.

But she deferred on the follow-up: How much does Washington think the Chinese currency should rise? What would be considered a fair pace of appreciation? There are estimates that the Chinese currency is undervalued by as much as 40 percent -- a potentially huge boost to Chinese exports.

 "We have not stated a benchmark" for the currency's revaluation, Brainard said. (For the record, the renminbi has risen less than 1 percent since China announced a month ago that it was reapplying a "flexible" exchange rate, presumably allowing its currency to drift higher on the open market as a way to curb its large trade surplus and aid in the rebalancing of world trade flows. Members of Congress have promised a legislative response.)

It was much the same on the other issues Brainard addressed -- a restatement of administration policy without much insight into what is likely to happen next.

This was one of her first public appearances since her Senate confirmation to the international post, and she fielded a full hour of questions from an audience of economists, ambassadors and journalists.

She was pressed a lot on trade -- about the administration's plans for boosting exports to China or moving ahead with stalled free trade agreements.

"The question of how to move forward is an important one was we seek to boost exports," she said in response to a question about the Korea-U.S. free trade negotiations, while increasing purchases from U.S. companies is "squarely on the table" in negotiations with the Chinese.

But some of her most intriguing comments were on the still unfinished business of financial reform. In particular, Brainard was asked for more detail about the functioning of the Financial Stability Oversight Committee, established under the recently approved financial legislation.

A lot of stock is being put in such new panels to root out "systemic risk," ensure strict oversight of large, connected institutions, and take action to prevent another global collapse. But the precise powers and methods of the oversight committee are still to be determined. A new Treasury-based office of research will be feeding it information --
theories about systemic threats to the economy are not fully formed -- and at a minimum, Brainard said, the panel will ensure that the country's top regulators will have a place to sit face to face and discuss the emergence of broader threats.

Membership in the panel includes Treasury, the Fed, and key regulatory agencies. "I can't speak to all the specifics," Brainard said, but "it's got all the right people at the table."

As The Post's Howard Schneider reported earlier, Brainard's prepared remarks were pretty routine, overall: We did great managing the crisis, she said. The new financial regulations will make the system stronger. ... More good things to come through the Basel Committee on bank capital and liquidity requirements.

By Howard Schneider  |  July 26, 2010; 4:09 PM ET
Categories:  U.S. Treasury  
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Americans have Subsidized and Sacrificed enough Jobs to help China Job growth. Now it's time to encourage China to play fair and for the USA to Do more than just Talk about China's Currency Manipulation that is costing the USA millions of Jobs. Actions speak louder than words. China’s currency manipulation and other Policies cheat the USA in several areas:

1) Currency manipulation. China "pegs" its currency at a very low, or "weak" rate, so goods from China cost up to 40% less than they otherwise should.
2) Labor-rights suppression has lowered manufacturing wages of Chinese workers by 47% to 86%.
3) There is massive direct government subsidization of export production in many key industries.
4) China allows environmental degradation that ends up affecting all of us.
5) Intellectual property theft and piracy mean that American products that could be sold are stolen instead.
6) China has a number of policies that block U.S. firms from market access.

This costs USA Industry Millions of Jobs. Not the Walmart and dollar store product Jobs, but the big industrial multi-million dollar steel, carbon fiber and technology (Nuclear, Aviation, Transportation etc.,) products.

Foreign companies in China sound off on business policies

The USA must Immediately enact a gradual tariff on all goods imported from China up to 40% within 12 months in response to their currency manipulation that keeps the Yuan/Renminbi 40% below value. Ratify the free trade agreement with South Korea which will allow fairer trade than what we have with China.

S. 1254: Currency Exchange Rate Oversight Reform Act of 2009: A bill to identify foreign currency manipulation and apply tariffs to their imported good as is fair to the US consumer:

The Fair value for the Chinese Yuan is ¥4/$1 not ¥6.78/$1. An exchange rate of ¥4/$1 makes USA made products more affordable for the Chinese and promotes America based Job growth.

Posted by: Anonymous | July 26, 2010 7:03 PM | Report abuse

Foreign companies in China sound off on business policies

“(China) policies known as "indigenous innovation," which essentially requires firms operating here (in China) to transfer their latest technology to China; it also favors homegrown Chinese companies for government business and contracts.

A foreign company here (in China) "has to register its technology in China, innovate in China and, in some cases, make it in China." Without… safeguards of intellectual property, some foreign business leaders are worried that Chinese companies will copy their technology and use it to compete against the foreign firms in the global marketplace.

Technology-based multinational firms -- particularly those involved in telecommunications, aerospace, semiconductors, pharmaceuticals and alternative energy -- are finding China increasingly assertive and more interested than ever in acquiring their know-how. "”

China combines the Power of the State to help create Private Industry Jobs while the USA "Wastes" money on 100% taxpayer funded Defense spending. China "Invests" their unfair Trade Surplus money on Products they can sell. China trade surplus with the USA is projected to be $250 Billion for 2010 ($71 Billion for 1st Quarter) and their Defense budget is under $150 Billion versus $722 Billion for the USA in 2010. This $800 Billion Dollars a year goes towards Creating Jobs and Industries in China.

In 2009 China invested $100 Billion into High speed rail compared to US stimulus investment of $8 Billion. China is investing $120 Billion in High speed rail for 2010.

World Nuclear Association: 23 Nuclear Reactors under construction In China:

* Mainland China has 11 nuclear power reactors in commercial operation, 23 under construction, and more about to start construction soon.
* Additional reactors are planned, including some of the world's most advanced, to give more than a tenfold increase in nuclear capacity to 80 GWe by 2020, 200 GWe by 2030, and 400 GWe by 2050.
* China is rapidly becoming self-sufficient in reactor design and construction, as well as other aspects of the fuel cycle.”

China is pulling ahead in worldwide race for high-speed rail transportation:

“Last year (2009), China surpassed the United States as the world's largest automaker. The country is aggressively making jets to compete with Boeing and Airbus. And in recent years, with little outside notice, China made another great leap forward in transportation: It now leads the world in high-speed rail.”

Posted by: Airborne82 | July 26, 2010 7:31 PM | Report abuse

The Federal Bank Option

The federal government could issue credit through its own lending facility, leveraging "reserves" into many times their face value in loans just as banks do now.

Franklin Roosevelt funded his New Deal through the Reconstruction Finance Corporation (RFC), a government-owned lending institution; but the RFC borrowed the money before lending it.

A debt-free alternative would be for a government-owned bank to issue the money simply as "credit," without having to borrow it first. This was done by the state-owned central banks of Australia and New Zealand in the 1930s, allowing them to avoid the worldwide depression of that era.

In the informative booklet "Modern Money Mechanics," the Chicago Federal Reserve confirms that under the fractional reserve system in use today, one dollar in reserves is routinely fanned by private banks into ten dollars in new loans.

Following that accepted protocol, the government could fan the $700 billion already earmarked to unfreeze credit markets into $7 trillion in very low-interest credit.

Seven trillion dollars in government-issued credit could furnish all the money needed to fund Obama's New Deal with a few trillion to spare.

Among other worthy recipients of this low-interest credit would be state and local governments. Many state and municipal governments are now going bankrupt through no fault of their own, because mainline banks are holding trillions in toxic assets.

A New Dollar

Another alternative to escape the tyranny of America's private banking system and create a self-sustaining government would be for Congress to simply create the money it needs on a printing press or with accounting entries, then spend this money directly into the economy.

The usual objection to that alternative is that it would be highly inflationary, but if the money were spent on productive endeavors that increased the supply of goods and services – public transportation, low-cost housing, alternative energy development and the like – supply and demand would rise together and price inflation would not result.

The American colonial governments issued their own money all through the eighteenth century. According to Benjamin Franklin, it was this original funding scheme that was responsible for the remarkable abundance in the colonies, at a time when England was suffering through the depression conditions of the Industrial Revolution.

After the American Revolution, private bankers got control of the money supply; but Abraham Lincoln followed the colonial model and authorized government-issued Greenbacks during the Civil War.

Not only did this allow the North to win the war without plunging it into debt to the bankers, but it funded a period of unprecedented expansion and productivity for the country. Financing a new New Deal without putting the country further into insolvency would not represent a radical departure from tradition but would mean a return to our roots.

Posted by: Anonymous | August 1, 2010 1:52 PM | Report abuse

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