The Chinese have a proverb: With money you are a dragon; with no money, a worm. In other words, money equals power. But in today’s context, it could be that saving money equals power. At least that’s what Treasury Secretary Tim Geithner is hearing from the Chinese.
Geithner is in China this week. It’s his first trip there as Treasury Secretary.
Former Chinese central bank adviser Yu Yongding has one message for him: save more money. Yu tells Bloomberg that unless the US government increases its savings rate, the collapse of the dollar could trigger another global financial crisis:
Referring to the Federal Reserve “as the world’s biggest junk investor,” and to Chairman Ben S. Bernanke as “helicopter Ben,” Yu said the Fed has dropped “tons of money from the sky since the subprime crisis.”
“The balance sheet of the Federal Reserve not only has expanded like mad but is also ridden with ‘rubbish’ assets,” he said.
Meanwhile, Geithner is telling the Chinese, no worries. Marketplace’s Scott Tong reported this morning:
(China has) invested a trillion dollars in U.S. bonds and wants assurances they’re secure. In Beijing today, Geithner said Chinese financial assets in the U.S. are “very safe.” At which point some members of the audience reportedly laughed.
This all points out the lack of confidence abroad that the US can keep printing money and not rue the consequences down the road.
On the other hand, the personal savings rate in the US is at a 14-year high. So, at least some people are heeding that old Chinese wisdom.
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