04/08/10 Baltimore, Maryland – Treasury Secretary Tim Geithner and Chinese Vice Premier Wang Qishan shared dim sum yesterday. The topic of their discussion has been clear for several days. But today, the conclusion is only dribbling out.
According to a vague report by The New York Times, the Treasury will delay calling China a “currency manipulator,” for whatever that’s worth. In return, China will depeg the people’s currency from the US dollar…sort of. The renminbi will be allowed to float within a fairly tight range, much like the last depeg, which took place 2005-2008.
The 2005 revaluation moved the yuan up 2% against the dollar on the first day. A similar move this time around may even be enough to shut Paul Krugman up. He and the 130 members of Congress have been lobbying to slap a tariff – er, “surcharge,” Krugman calls it – on Chinese imports if they don’t let the yuan float freely against the dollar.
Just hours after Geithner’s surprise visit to Beijing was announced yesterday, the US Treasury auctioned off $21 billion in 10-year notes. It was among the most successful Treasury auctions in history: The bid-to-cover set a record high of 3.72. In our language, nearly four bids came in for every note sold.
Crazy town. Flight to safety, all over again.
“Indirect bidders” (i.e., foreign central banks, i.e., our friends in China) showed up in force at this auction…the first time since last fall. When it was all over, the yield on a 10-year Treasury was back down to 3.9%, but still near a 12-month high.
Support from China, among others, is exactly what the Fed and Treasury needed to ameliorate volatility after they closed the quantitative easing (QE) program a week ago yesterday. And the bizarre dance between the New World and the Middle Kingdom continues…
Addison Wiggin
for The Daily Reckoning
Addison Wiggin
Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He’s the creator and editorial director of Agora Financial’s daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar… and Why it’s Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!
We Respect Your Privacy and We will
Never Share or Sell Your Email Address
