29 May 2009

President Obama: "Bob Murphy is a trusted advisor."

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Well, he didn’t actually say that, but it must be what he’s thinking. My argument is bulletproof:

(1) On May 27, EPJ wondered, “What can Geithner say to get China to continue to buy U.S. securities aggressively? Nothing.”

(2) In the comments, I used my extensive training in game theory and Walt Disney to explain how the world works:

Actually, if I were Obama I’d call [Geithner] into my office and say, “Tim, I want you to go over there and assure the Chinese that you are very confident US interest rates will rise, and that in your expert opinion, you advise them to stop buying Treasurys.”

(3) The next day, May 28, EPJ reported that Geithner’s official mission is pretty close:

[Geithner] is also planning to press Beijing to take drastic measures to turn China’s economy into one that depends heavily on sales to domestic consumers and less on sales to the U.S. and other foreign markets, according to a senior Treasury Department official.

That means encouraging Beijing to offer more generous health-care, retirement, welfare, educational and other benefits in order to persuade the average Chinese citizen that spending now doesn’t mean starving later.

“The efforts China could take would be efforts to strengthen the comfort that Chinese households have in spending, which largely involves reducing or addressing the reasons why they feel such a great need to save for precautionary purposes,” said the senior Treasury official, who briefed reporters Thursday in advance of Mr. Geithner’s departure on Saturday.

It is quite obvious that President Obama was notified of my advice, realized its excellence, and–master politician that he is–tweaked it to flatter the Chinese consumer, rather than humiliate the US Treasury. But the actual recommendations are the same.

And hence, if the Chinese rulers are as clever as Obama, they will do the exact opposite of Geithner’s recommendations.

OK that’s enough engineering of geopolitics for the week. I have a lecture on Saturday I need to prepare.

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