Randomly Noted

To no one’s surprise, The U.S. Treasury passed today on the opportunity to brand China a manipulator of its currency.

That was done as a way to avoid for now an artificial exercise imposed by law.

More telling, in the real world of hardball negotiations, the broad recent decline in the U.S. dollar’s value against many currencies could well give the U.S. less heft as it tries to jawbone Chinese leadership into submission on the yuan.

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There’s no reason yet for the Federal Reserve to accelerate unconventional measures to spur U.S. economic growth.

Indeed, to soon adopt what The Wall Street Journal today called a “modest but symbolically important change” in its quantitative easing might be counter-productive in that it spooks the market into thinking The Fed has lost all confidence in the recovery.

The correlated fear to that is to enlarge in investors’ minds the possibility of deflation.

And the maneuver itself, using money from maturing Fed-owned mortgage-backed securities to buy new securities, probably U.S. Treasurys, has no guarantee of making any measurable difference in the minimalist recovery under way.

Indeed, if the Fed winds up ‘pushing on a string’ with any sort of near-term additional quantitative easing measures, meaning they just won’t work because credit liquidity is not the problem, it could damage the Fed’s credibility.

The Journal’s Jon Hilsenrath reported today  that Fed policymakers are considering the move, not that it has already been adopted. A debate about what if anything to do likely will be continued at the Fed’s regularly scheduled monetary policy meeting later this month.

It’s also a bad idea to ease further when there’s still some debate about how strong the economy is right now. Though he has political reasons to want a rosy view, Treasury Secretary Timothy Geithner today laid out the pluses of the recovery that can’t fully be dismissed.

“Business investment and consumption – the two keys to private demand – are gettings tronger, better than last year and better than last quarter,” Geithner wrote in an op-ed piece in today’s New York Times. 

A more subtle argument also urges against further imminent action by the Fed. Call it fix-it fatigue. We’ve now lived through a couple of years of extraordinary actions by the government and central bank to end a credit crisis and cushion the impact of severe recession.

The great middle would agree that it was necessary, did some real good and kept things from being much worse. On the fiscal side, perhaps it even winds up costing the taxpayers a lot less than originally feared.

Still, that same middle group hasn’t given up on capitalism and realizes that too many short-cuts to avoid any economic downturn might well have helped get us into this mess.

That view argues that minimalist growth is all you can expect in the slow, painful process of deleveraging needed to clear the overextended decks for healthier, more sustainable economic growth.

In short, things need to be worse than they are for the Fed to decide it has to try anew to make things better.

While the world expected the U.S. administration to answer on April 15 the freighted question of whether it believed China a foreign exchange “manipulator,” the U.S. Treasury secretary found a third path that avoided yes or no. It was, of course, delay.

While no doubt disappointing to those who desire a bit of drama and conflict in the economic and diplomatic relations between powerful nations, delay has too many compelling advantages to ignore.

Once China’s preisdent, Hu Jintao, said last week he’d be boarding a plane for Washington to attend a nuclear summit in mid-April, it was clear the “manipulator” label, no matter how warranted by facts on the ground, was off the table. To make such a declaration with the Chinese president in town or just departed would be diplomatic insanity. China and the U.S. need each other far too much for that.

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“This is not Bolivia,” U.S. Treasury Secretary Timothy Geithner is quoted by The Wall Street Journal as having said when pushed by others to not honor contractually mandated bonuses to certain employees of American International Group.

It’s a good quote and a better policy. Give Geithner credit for a willingness not to bend to populist demands. In the end, upholding contracts and reinforcing that the U.S. is  a place where legal agreements are honored even when they become wildly unpopular and perhaps even grossly unfair is much more important than scoring an immediate political point or two.

The profile today of Geithner in The Wall Street Journal by Deborah Solomon is well worth reading. One interesting point: despite the criticism he’s endured in the role, largely on Capitol Hill, a significant part of the U.S. population doesn’t know who Geithner is.

The role of politics at so-called independent regulatory agencies in Washington has always been reasonably opaque to outside observers.

You know it plays some role. After all, the president gets to select the agency leadership. The Senate has to okay the leaders. Congress typically has to allocate funds and there is power in those purse strings. Congressional committees also have oversight authority. Some agencies are set up so a majority of the commissioners are from the party in the White House.

So complete political naivete won’t and doesn’t serve anyone well.

Still, chairs of the Securities and Exchange Commission, to name one agency, over the years would stoutly maintain the independence from politics of their decisions.

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