Friday, January 30, 2009

Geithner Redux

Tim Geithner was confirmed 60-34 by the Senate as Secretary of the Treasury on Monday. He immediately assumed office and started a fast pace as Secretary of the Treasury.

He apologized profusely during his confirmation hearings for his tax oversights, at one point blaming the omissions on TurboTax. I just got a TurboRax disc in the mail. Maybe I should throw it away. If the brilliant Secretary of the Treasury can’t figure it out with Turbo Tax, what chance do I, a lowly law professor, have?

Already, he’s the butt of jokes around the internet. Next time you’re audited for failure to declare income, simply state “I forgot” citing the Secretary of the Treasury. Ask also for the Geithner/Rangel treatment and have all penalties waived.

Congressman John Carter, R Texas, introduced the “Rangel” Bill to have all IRS interest and penalties waived for taxpayers. Citizens should receive the same courtesies as Congressman Rangel and Secretary Geithner. We may also have to add Senator Franken, who dodged taxes in 19 states, and Secretary Dasche to the list as the Obama Administration becomes the Scofflaw Administration.

But that’s not the major problem with Secretary Geithner. His failure to declare taxes is but one instance of poor judgment in a growing list.

President Obama obviously thinks Secretary Geithner is the right man at the right time at the right place to fight our economic problems. He is very experienced, and enjoyed the respect of both Democrats and Republicans. Indeed, the 60 yeas and 34 nays were non-partisan. The President and a majority of the Senate believe these difficult times call for a Secretary with vast experience.

His degree is from Dartmouth, but his education is worldwide.

He has also worked in 4 administrations since 1988, except for three years at the International Monetary Fund. He has amazing skills in thriving in the bureaucracy.

The best education, and personality mean naught if judgment is flawed.

Twice in recent months the Secretary has shown bad judgment which has been costly to the economy and will add to future pressures on our recovery.

As discussed in an earlier blog, he opposed any bailout of Lehman Brothers in his capacity as President of the Federal Reserve Bank of New York. Lehman’s collapse directly resulted in the global credit freeze.

The US government has in just a few months invested trillions of dollars in either bailouts or guarantees. This year’s budget deficit will exceed one trillion dollars. President Obama has stated that we will be facing trillion deficits into the future.

The deficits will be financed, at least initially by the Fed borrowing money. Much of the bond purchases in recent years have come from foreign nations with large trade surpluses with the United States. China is high on the list.

China is a proud country and does not accept criticism lightly.

During his confirmation hearings Geithner strongly criticized China, claiming it manipulates its currency, ignoring the fact the Bush Administration de facto devalued the dollar earlier this decade ultimately resulting in the commodities price explosion.

Debtors should never insult their creditors. Debtor nations are playing with fire when they do so.

China’s highly offended by Geithner’s remarks. With its own economy reeling from the US collapse, it may well be unwilling to buy US debt, especially at the current low interest rates. China’s exports to the United States fell 17% in November. Thousands of its export oriented factories are closing with layoffs as severe as in the United States.

China’s premier has in essence blamed the policies of the United States for the global economic collapse. China has suffered large losses in Morgan Stanley, Reserve Primary Fund, Freddie Mac, and Fannie Mae.

Let’s hope Secretary Geithner has not inflamed a currency war with China, our creditor.

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