Tuesday, January 27, 2009

Geithner’s Opening Blunder – China Bashing

As refreshing as the activist tone and tempo of the early days of the Obama administration may be, there is a developing uncertainty as to exactly what is the philosophy of the new administration? Take, for example, the nexus of foreign and economic policy and the comments made by recently confirmed Treasury Secretary Geithner.

What is Mr. Geithner trying to convey when he states that China is “manipulating” its currency? What is the strategy and gamesmanship behind rhetoric that can easily be construed as having a protectionist sound to it?

At a time when the threat of a global beggar-thy-neighbor mindset could develop between and among nations pressured by their citizens (leading to protectionist actions, such as the one the toy industry in India just instituted), it seems quite imprudent for a high US government official in a brand new administration whose philosophy is not quite fully disseminated to be making accusatory statements about one of the world’s most important countries.

The activist tone and tempo of the Obama administration is clearly designed to quickly seek the high ground in the battle to change the game of the political status quo. And who can blame the President. The economic stimulus package is a perfect example of the competing forces at work, with the result almost certainly being the equivalent of an economic camel – a horse designed by a committee. Therefore, getting a jump out of the starting gate does seem to be a rational tactic. However, as shown in business, the first mover advantage may not be sustainable, particularly when so many forces are aligned against change AND the advocates for change may not be completely prepared for all contingencies, including the inevitable unintended consequences.

Investment Strategy Implications

There’s a great moment in the acclaimed HBO series “John Adams” when Ben Franklin advises the volatile Mr. Adams against publicly attacking someone who disagrees with him. “He might think you are serious”, cautions Mr. Franklin. Perhaps the Treasury Secretary should heed such advice. Or, maybe the implied no-drama Obama administration is just a campaign slogan.

No comments: