•Geithner Says `No One More Concerned' Over Future U.S. Deficit Than Obama. BWAHAHA!!

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http://www.bloomberg.com/apps/news?pid=20601087&sid=aAbvz8Lryb_E&refer=home

Geithner Visits China With Reassurances on Deficit, Treasuries
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By Rebecca Christie

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June 1 (Bloomberg) -- Treasury Secretary Timothy Geithner arrived in Beijing with a pledge that the Obama administration will control its borrowing as he sought to reassure China its holdings of U.S. government debt are safe.

“No one is going to be more concerned about future deficits than we are,” Geithner told reporters on the way to two days of meetings that start today in China’s capital.

Geithner will meet with Premier Wen Jiabao, who in March called for the U.S. to “guarantee the safety of China’s assets.” China is the largest foreign holder of U.S. government debt, which so far this year has handed investors the worst loss since at least 1977 on forecasts for ballooning federal budget deficits.

“I hope Geithner’s visit can soothe our nerves,” said Yu Yongding, a senior researcher at the government-backed Chinese Academy of Social Sciences and a former central bank adviser. “The Chinese public is worried about the safety of its foreign- exchange reserves,” Yu said in an e-mail.

Investor concern about a record American budget deficit helped send yields on the benchmark 10-year Treasury note to 3.74 percent on May 27, the highest level since mid-November. The 10-year note yield ended last week at 3.46 percent, little changed from a week earlier.

China held about $768 billion of Treasuries as of March, according to U.S. government data.

Rising Yields

Treasuries have lost 5.1 percent so far this year including reinvested interest, according to Merrill Lynch & Co. index data. The dollar has also slumped, with the Federal Reserve’s trade-weighted Major Currency Dollar index sliding 3.2 percent so far this year.

For the fiscal year that ends Sept. 30, the deficit is projected to reach a record $1.75 trillion from last year’s $455 billion shortfall, according to the Congressional Budget Office.

Geithner told reporters that U.S. and China must press forward with efforts to build a lasting global economic recovery.

“We are seeing more durable stability in the economy and the financial system is in substantially better shape,” Geithner said. “But we have a ways to go, and we need to keep working in the U.S. and with other major economies to restore conditions for a sustainable recovery.”

In an interview with Bloomberg Television May 21, Geithner said the administration’s goal is to cut the budget shortfall to 3 percent of gross domestic product or smaller. That would be down from a projected 12.9 percent this year.

China’s Concern

Seventeen of 23 Chinese economists polled in connection with Geithner’s visit said holdings of Treasuries are a “great risk” for the nation’s economy, according to a Chinese state media report yesterday. Still, the majority argued against quickly cutting them, the Beijing-based Global Times reported.

Geithner, 47, needs to show how the U.S. can prevent the value of China’s investment from being eroded by a weaker dollar or by the inflation that might be stoked by the stimulus money being pumped into the U.S. economy, according to Yu.

“It will be helpful if Geithner can show us some arithmetic,” he said.

Geithner told reporters on the way to Beijing that he’ll continue U.S. efforts to seek a larger Chinese role in organizations like the International Monetary Fund.

Including China

“We would like to build with China the kind of relationship we built with the G-7 over the last several decades,” Geithner said. “We are committed to reforming the international system and our interests are best served by giving China a stake in that process.”

The Treasury Secretary will also meet with President Hu Jintao and Vice Premier Wang Qishan. He is scheduled to speak at Peking University on U.S.-China economic relations.

Geithner has avoided a showdown on China’s currency policy, declining to repeat comments he made in written remarks to lawmakers after his Senate confirmation hearing in January that China was “manipulating” its currency.

He will encourage China to move toward a more flexible exchange rate, a U.S. Treasury official told reporters in Washington last week.

To contact the reporter on this story: Rebecca Christie in Beijing at Rchristie4@bloomberg.net
Last Updated: May 31, 2009 12:00 EDT
 
concern over the deficits is just language they are beginning to use to set us up for a massive increase in taxes, given it's the "patriotic" thing to do and the wealthy became that way at the expense of the poor.

it's simply their belief that you can have high government spending, high deficits, and high taxes, without negatively impacting the economy. Lawrence Summers is on record as saying that taxes can go up to 50% without negatively impacting the economy.

perhaps, the results on their tax revenues, will not be quite as good as they think?

at the end of 1931, President Herbert Hoover asked for a temporary tax increase, saying it was "indispensable to the restoration of confidence." Congress went along in June 1932, raising the top income tax rate from 25% to 63% and quadrupling the lowest tax rate from 1.1% to 4%. That didn't help confidence or the Treasury. Revenue from the individual income tax dropped from $834 million in 1931 to $427 million in 1932 and $353 million in 1933
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should they fail to create a bubble, imagine what this would do to the debt to debt:gdp ratio? clearly, the printing presses, or rather, computers, would be running at overclocked speeds.
 
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