Monday, January 26, 2009

How's that again, Mr. Geithner?

The actions President Obama has taken in the first days of his office reinforce our audacity to hope that much needed change will take place to restore America’s historic place in the world.

The announcement to close the Guantanamo detention camp suggests his desire to return America to moral high grounds.

The calling of world leaders on his first day of office reflects his desire to rejoin the international community and replace the go-it-alone approach with cooperation and consensus building.

But the nomination of Timothy Geithner as the new Treasury Secretary and the statement Geithner submitted in his pre-confirmation hearing about China’s alleged currency manipulation is deeply troubling.*

First of all, it’s hard to see how the old accusation, regardless of validity, will solve America’s current economic ills.

Mr. Geithner will not be able to explain how the exchange rate of renminbi to the dollar caused the creation of the sub-prime mortgages and naked derivatives, the mess responsible for the collapse of Wall Street.

Nor, can he explain how the Chinese currency caused Detroit to persist on building humvees and gas guzzlers, thereby taking the auto companies to the brink of bankruptcy.

Nor, can he come up with a logical way to blame China for our SEC that facilitated Madoff in absconding billions from investors around the world.

Since Mr. Geithner is said to be a smart man and slated to be Obama’s point person in overcoming the economic difficulties, he probably does understand that America’s economic woes is not China’s fault.

Since the U.S. pressured China off the peg to the dollar, the yuan has appreciated about 20%. The appreciation did not materially alter the economic balance between the two countries and to assume further appreciation will have any impact on the current mess would be shockingly naïve.

Perhaps he feels that he needs to pay lip service to members in the Senate or to certain constituents of the Democratic Party that are still spoiling to blame China for our problems.

However, to pull out of the “worst economic crisis since the Depression” (Obama’s words), Geithner needs the courage (and audacity) to explain to the Congress and the American people that we need China’s cooperation rather than enmity.

We need China to continue to buy our Treasury notes and hold on to dollars. We need China to want to continue to invest in Fannie Mae and Freddy Mac and in America.

It’s now obvious to everyone in the world that the economic crisis is a global one and the solution will depend on close collaboration of all the major players, the most prominent being China and the U.S.

The road to economic recovery will be long and uphill all the way. It will be up to Geithner and the rest of Obama’s economic team to focus on the real issues in order to successfully get to the end of the road.

To dilute their attention and energy on bogus issues because of domestic politics will surely be disastrous for America.

* In today's Wall Street Journal, there is a commentary critical of Mr. Geithner even more substantively than this piece.

An edited version was posted on New America Media including a translation in Chinese.

Thursday, January 22, 2009

The Democracy of Money

Any of you getting tired of the endless fund raising solicitations from all political stripes? Here is my recent response to Morgan Freeman, allegedly raising funds for the Democratic Senate.

Dear Mr. Freeman,

I too am proud that we have as our new president an intelligent man of color, willing to listen and not afraid to make changes.

I am also weary of how much America’s democracy is dependent on money. We need to raise money before election and after election and all the time in between. When do we not need money but let principles of right and wrong guide our government to do the right thing in the interest of all Americans?

I am frankly completely turned off by the incessant solicitations from political organizations of every ilk.

Sunday, January 4, 2009

Richardson's Withdrawal as Commerce Secretary

I have been among those that objected to the nomination of Bill Richardson as the next Secretary of Commerce. Governor Richardson's recent withdrawal from his nomination as the next Commerce Secretary is due to ongoing grand jury investigation of possible corruption related to political campaign contribution. I feel neither elation or sadness over this outcome. It is a development over which I have no basis to pass judgment.

President-elect Obama publicly acknowledged and thanked Richardson for putting the nation's interest ahead of his own by withdrawing from the nomination. So be it.

I am among those that continue to believe that it would in our nation's interest for Governor Richardson to acknowledge the error of his conduct and apologize to Dr. Wen Ho Lee and the Asian community for racial profiling and violation of judicial due process. Thus, if the current investigation absolves Governor Richardson and in the future he is again considered for positions of public service, at least his action that so offended the Asian American community need not be revisited again.

Background and chronology of the Wen Ho Lee case is readily available.

Thursday, January 1, 2009

Is It America's Turn to Learn from China?

On Jan. 1, 30 years ago, the United States and China resumed normal diplomatic relations—a culmination of the fence mending between the two nations that began with President Nixon's historic visit to China in 1972.

A simultaneous public announcement of the bilateral agreement came two weeks earlier. The People's Daily, the official newspaper of the government, rushed out a rare extra edition. The last time The People's Daily had printed an extra edition—with bold headlines and in red ink—was when China detonated its first atomic bomb 14 years earlier.

The reaction in Washington to the bilateral agreement was more muted. There was a perfunctory announcement. At the time, the United States was the world's largest economy and China was in the process of moving up from the world's 30th.

America's economic partners were Europe and Japan. China hardly made any difference. Today China is in a virtual tie with Germany as the world's third largest economy and holder of the largest amount of American debt.

How the United States chooses to deal with China now will make a world of difference.

Thirty years ago, no playbook existed on how to transform a state-planned economy to a free and open market. Deng Xiaoping was the paramount leader who saw that a normal relationship with the United States was essential to China's road to reform. He came to Washington that January to celebrate the newly established relationship, to don a cowboy hat and savor some Americana.

More importantly, Deng opened China to Western ideas. Measures of financial performance, articles of incorporation for a functioning enterprise, regulations governing joint ventures, guidelines for bank financing, taxation with incentives for new investments and many more ideas became part of China's legal environment. These were conditions necessary to attract foreign investment and encourage the growth of the private sector.

In 30 years, China's economy has increased by more than 30 fold. Few would deny that China's reform has been a spectacular success. It is the United States that is now at a crossroads and in need of drastic systemic reform.

While China's economic development has too short of a history to provide any useful lessons on bailing out a crashing economy, if Barack Obama were to visit China after the inauguration, he could find some fresh and useful approaches.

China has shown that step-by-step reform rather than sudden "big bang" reform—or deregulation in the case of the United States—proved to be the road to success. Applying this principle, Obama might follow gradual steps toward re-regulation.

If Obama wishes to see how infrastructure investments can act as stimulants to the national economy, all he needs to see is how the building of mass transit systems, airports, bridges, tunnels and super highways have benefited China's economy and its cities.

More importantly, Obama would see a China vastly different from the image portrayed in the West. He would see a nation of people working hard striving for a better life. He would see a society surprisingly free and open.

He would also see a country that shares many of the challenges and aspiration the United States faces. From anti-piracy off the Somalia coast, to security from global terrorists, stopping drug trafficking, pollution abatement, developing clean alternate sources of energy, and increasing drinkable water supply, China and the United States are facing common hurdles best overcome through working together.

By joining China in a true partnership, Obama's administration can leverage the relationship and accomplish the same goals at a lower level of national expenditure. By selling clean technology and other high-tech products, Obama can even generate more business for American companies.

Mutual trust and confidence would be built from increased contact and personal rapport between Obama and the leaders of China, and the hundreds of billions of dollars that the United States has allocated for advanced weapons development could be cut from the national deficit.

Originally posted on New America Media.