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Lunch With the Treasury Secretary
When I wake up at 4:30 am each morning to check the overnight markets and review the opening salvo of incoming emails, I often have trouble focusing my eyes in my groggy state. So I had to blink twice when the first message in my inbox politely inquired if I had time to meet the Secretary of the Treasury in Palo Alto for lunch that day, apologizing for the short notice.
Tim Geithner was in San Francisco for a day to meet with a small group of venture capitalists and other business leaders. It was a short stop in his way to the G-20 meeting on finance ministers in Seoul, South Korea. I can’t say who else was invited. Suffice it to say that I was the only one without an NYSE or NASDAQ listing.
When I greeted lithe, athletic, but diminutive Treasury Secretary, I could see the six secret service agents in the room visibly tense up. At 6’4” I towered over him, but he shook my hand firmly. At 49, he is one of the youngest Treasury Secretaries on record. He is also the first one who surfs, so I if he had stowed his board on Air Force One so he could shoot “Steamer Lane” in nearby Santa Cruz after the meeting. He laughed, confessing that he rode the waves in a less than adequate fashion.
Geithner succinctly laid out the administration’s position on a wide range of financial and economic issues. The economy is now healing, has been growing for 18 months, but conditions were still very tough, especially if you were in construction, real estate, or small banks. Private sector investment grew of 20% in H1, but then slowed down to 10% in H2. Exports are strong.
The economy is undergoing some difficult, but necessary changes. The crisis was caused by excessive debt levels, the adjustment of which is now mostly behind us. The savings rate has soared from below 0% before the crisis to 4%-6% today. The debt burden is falling. Still, further measures are required.
Geithner thrilled his audience by proposing a permanent investment tax credit for domestic R & D. On top of that, he wants to add a one year tax credit for capital investment. It was music to the ears of those present, who were primarily engaged in the business of starting new companies. He would also eliminate tax preferences that encouraged companies to build plants overseas. At the very least, the playing field should be level.
Stepped up spending on infrastructure is a big priority, which has suffered from decades of neglect and under investment. The US is not a country with unlimited resources, and this is where the taxpayer gets the highest return on money spent. He also highlighted the urgency to extend tax cuts for the bottom 98% of the working population. The country entered the crisis with an unsustainable fiscal situation, and this would help address that.
Geithner says that the US would not engage in a debasement of its currency. It is very important that our counterparties believe that we will fulfill our long term obligations. The US benefits from the dollar being used as a reserve currency, and there will be no non dollar reserve currency in our lifetimes.
The Dodd-Frank bill was an essential reform, as a huge financial industry had grown up outside the existing rules. Banks needed bigger shock absorbers. Governments do a very bad job at picking industries to protect, which only supports the weak at the expense of consumers.
Geithner said that by any measure, the Chinese Yuan was undervalued, and that was unfair to all of the country’s trading partners. Although this was enabling China to reap short term benefits, long term it meant that the US was setting its monetary policy. A flexible exchange rate would give China economic independence and soften the impact of imported inflation. When asked what exchange rate he would be happy with, he would only say “HIGHER”.
Geithner has devoted much of his life to public service. He spent his childhood abroad while his father was a micro finance administrator for the Ford Foundation, growing up in Zimbabwe, Indonesia, and India, and finally graduating from high school in Bangkok. He did his undergrad at Dartmouth, and obtained a master’s in Asian studies at Johns Hopkins, where he gained fluency in Chinese and Japanese.
I first met Tim myself two decades ago, when he was a low level Treasury attaché at the Tokyo embassy who spoke the local language flawlessly. The embassy then was mostly staffed with plodding civil servants plodding towards an early retirement. Tim, who spoke the local language flawlessly, was the brightest bulb in a fairly dark closet. When I departed meetings at the Ministry of Finance and the Bank of Japan, I passed him on the way in. I dare say the order would be reversed today.
After that, his rise was meteoric, from Undersecretary of the Treasury for International Affairs, to President of the New York Fed, to his current gig.
Geithner put on quite the performance. No matter what the question, he was able to caste it in the context of its historical background, the lead up over the past two decades, the current policy response, and parallels with other major and minor countries. We jumped from the Japanese stagnation, to the Swedish banking crisis in the early nineties, to Indonesia’s explosion of hyperinflation in the sixties, to the Mexican debt crisis, all within a minute. His canned answers to standard question rolled effortlessly off his tongue, while original problems delivered an intensity of thought one rarely sees.
Before he left, I pulled out all the cash in my wallet and pointed out to Geithner that while I had bills signed by previous Treasury Secretaries Larry Summers, Paul O’Neil, and Robert Rubin, I lacked one with his illegible scrawl. Did he have any which he could exchange with me? He sheepishly admitted that while such bills existed, they we being held back from circulation until the Treasury’s existing stockpile of Hank Paulson bills ran out, in order to deliver taxpayers good value for money. I would only see his bills once the economy recovers and the growth of M1 starts to accelerate. That is truly an answer one would expect from the 75th Treasury Secretary.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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So Elf Ears wants the Yuan to be higher than the USD, but that's not de-valuing the USD?
They must think we are complete morons.
An insightful article. Thanks for sharing your meeting and comments with us.
The question about Geitner isn't his frankness or intelligence... it's whether he is right.
I remember when Geithner was made T. Sec. A big guy remarked that he knew him, nice guy but that he was a light weight.
In the US, sometimes its all about pushing others around that gains respect. I disagree personally, but look at Bill Gates.
In Singapore, civil servants are very well paid, well trained and chosen. They have been critiquing western style government for quite some time. Now there is a T. Sec who is fluent in Japanese and Chinese when the gravity of trade has shifted to Asia. Is the ZH crowd pining for the days of George Snow, the whitebread lawyer / economist from Ohio, CEO of CSX rail, Reaganite, who left Bush's administration and wound up at Cerberus?
New grist for the mill WB7 ... sub Mr. Geithner for Lance in the Apoc Now surf scene ...
Long penguins?
Where should we stampede today? MHFT?
So did you actually have lunch with Tim Geithner?
did he give u a #lowjob?? appers so ..
#The economy is now healing, has been growing for 18 months, bu
#The economy is undergoing some difficult, but necessary changes. The crisis was caused #by excessive debt levels, the adjustment of which is now mostly behind us. The savings #rate has soared from below 0% before the crisis to 4%-6% today. The debt burden is #falling. Still, further measures are required.
still wonder whats point to show stupidty???
#economy is now healing, has been growing fo
sure,, that 's it ... deficit is 1.7 trln $$.. all i got its healing???????
#ustment of which is now mostly behind u
realy ???????? so why eahc month all times records in home foreclosures, food stamps,
personal / business bankruptcies etc..
#has soared from below 0% before the crisis to 4%-6
SOAR.... well if you believe any money stats from gov.. you bigger fool i'd imagine
add on on on
alx
ps
btw I got bridge to sell.. #sshole.. :)))))))
Grew up in Zimbabwe, it explains everything.
At this point I thought this would all turn out ot be a dream (or a nightmare depending on your POV) - you know, the big "I see dead people" twist in the tale. But, alas, 'twas not to happen!
"Query for Mr. Mad Hedge Fund Trader Dude. Like...why didn't you give the little dork a wedgie when you had the chance?"
I guess he just missed his chance. Happens all the time. You know the one thing that was never uttered? How this administration is going to prosecute the fraud that lies behind the financial crisis. Lot's of things about how they plan to divert attention from the fact that this is not being done but never a hint.
I remember back in early 2009 I was having breakfast in San Jose. There were a couple of market types at the table next to me disucssing things and I asked one of them what the thought of Obama and the bank-bailouts. His response was that Obama was the poitical cover for a bank robbery. His exact words were, He's being paid to rob a bank. Nobody is that stupid." Years later I am affraid the man was entirely correct. Let's just all "look forward" while these nasty statute of limitations expire. He's guaranteed all the money in the World for a second term. If he had to spen $600 million last time this time it will be $1.2 Bn as they need the full eight years don't they.
William Black likes to preen and state for the record how as head of the Resolution Trust Corporation, he had 1,000 senior executives in jail a year after he was handed the reins. God bless him.
So....where are all the adults???
Michael lewis had an artilcle out a month ago about Greece. Nobody trusts each other because they all know that each of them is crooked. Greece isn't doing to well in case you hadn't noticed. We need about 3K execs in jail this time around to prevent our descent into feta and ouzo. Timmy doesn't have the scrods.
Put them in the Big House ...
An admirer of Timmy? Nice. This guy's routine is getting tiresome. Next week he'll tell us to invest in Antarctica, while casually mentioning his connections with the penguins on that continent.
He talks his book and boasts about having tea with the queen as if we'll be impressed enough to subscribe to his site. I hope he's paying to post here.
So....ummmmm....like Mr. Sectrtary Dude...ummmm...like......are you sending an R&D investment credit to TurboTax so they won't screw up tax-not-witheld in foreign lands and places??
So...ummm...like....Dude...ummmm....like...explain again how the Secretary of the Treasury of the strongest nation in the world ended up paying 100% on $20 billion of worthless CDSs to a pissant little bank like Goldman Sachs through the backdoor of AIG.
Ummmm....like...Mr. Secretary Dude...ummmm....ummmm....like, if you are so freakin fluent in Mandarin...uummmmmmm...like....how is it you didn't look into whether Bank of America had its mortgage and note documents in place before you bailed them out?? Oh that's right. You don't do paperwork, you have a program for that. Or is it that you prefer to invest in corportions that gave a less than full disclosure in their financial statements to the United States government. But...ummm...like...if you can read Mandarin, why can't you read the tax code? What's that?? It was outsourced and written in Sanskrit in Bangalore? OK. Makes sense now.
Query for Mr. Mad Hedge Fund Trader Dude. Like...why didn't you give the little dork a wedgie when you had the chance? And don't use the secrect service excuse.
long sharks
Geithner surfs? I suddenly feel better about him.
Always delightful.
:D