Geithner Takes His Act to China

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Budget: It's never a good sign when you want to borrow money and your potential lender laughs in your face. But that's exactly what happened to U.S. Treasury Secretary Tim Geithner on his recent trip to China.

What prompted the laughter? His remarks during a speech at Beijing University, in which he told the audience, apparently intending to reassure them about their investments in U.S. Treasuries, "Chinese assets are very safe."

Maybe that explains what Leno's writers have been doing since his final show last Friday.

Equally risible were these comments from Geithner shortly before departing for China: "No one is going to be more concerned about future deficits than we are," he told reporters as he prepared for two days of talks with concerned Chinese finance officials.

Obviously, he was showing off his comedic chops, since even that line was delivered deadpan.

He also insisted the U.S. is "committed to a strong dollar" — not exactly apparent when you look at the U.S. budget.

The problem with all this is obvious — and actually, quite serious. As of last Friday, the Merrill Lynch & Co. Treasury bond index was off 5.1% so far this year, its worst performance since the index was created in 1977. The dollar likewise is down — a double loss for the Chinese, who hold an estimated $770 billion in U.S. Treasuries.

Of course, we'd like them to buy more. That's the reason for Geithner's trip in the first place. Indeed, in March, Premier Wen Jiabao asked the U.S. to "guarantee the safety of China's assets."

But China's finance officials, many of them educated at the best U.S. business schools, can do the math. And it isn't very pretty.

Next year, the U.S. runs a deficit of $1.8 trillion — or nearly 13% of GDP. Last year's deficit was $455 billion. The deficits will slowly come down from that $1.8 trillion, but not by much, according to the White House's own forecasts. Geithner says he hopes to slash the deficit as a share of GDP from 13% to 3% by the end of the decade.

But those projections of declining deficits depend highly on the rosy scenario cooked up by the White House for the economy. They expect the economy, for instance, to expand 3.5% next year, 4.4% in 2011, 4.6% in 2012 and 3.8% in 2013. They might be right, but if they are, they'll be in the minority. Virtually no private sector forecaster expects the economy to grow that fast.

Over the next 10 years, the U.S. will rack up another $9 trillion in deficit spending — money that will have to be borrowed from someone — perhaps the Chinese, or maybe strapped and overtaxed U.S. consumers.

Another $1.1 trillion is planned as a possible down payment on nationalized health care. Add to that the $2 trillion at least that the Federal Reserve is spending, and government is on the hook for close to $13 trillion.

Given that the White House has built into its projections just $989 billion in added taxes, its clear the deficits will get big and stay that way for years.

One trip to China by our top bond salesman may not be enough.

As reported, 17 of 23 Chinese economists polled before Geithner's visit said the country's holdings of U.S. Treasuries pose a "great risk" for the economy.

Still, on Tuesday, Chinese officials responded with polite reassurances. Geithner said they expressed "justifiable confidence in the strength and resilience and dynamism of the American economy."

Maybe so. In fact, the U.S. fiscal problem really isn't so intractable, when broken down into parts.

Summed up, the U.S. is spending way too much on bailouts and bogus "stimulus" packages that haven't stimulated anything. And it's expanding the reach of government into areas it has no business being in — such as running auto companies and banks.

We have far too many regulations, not too few. We need to embolden entrepreneurs and small businesses, the backbone of economic and job growth in this country — not spend hundreds of billions on corporate losers with political clout.

Geithner's future sales pitches to the Chinese and other potential investors would be helped by a less radical U.S. fiscal approach.

Instead of spending wildly and taxing to the hilt, we should slash outlays, kill plans for nationalizing health care and lower taxes for all Americans, rich and poor. Such moves would restore U.S. growth and make all our investors, foreign and domestic, happy.

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