I summarize via Greg Mankiw:
Tim Geithner to China: “Stop manipulating your currency. You are keeping its value too low. When you do that, it makes Americans want to take dollars and buy Chinese goods that they otherwise would not want to buy. We don’t like how you do it … you “sell” your currency to us, so that we can buy your cheap stuff, and then with the dollars you invest in our Treasury securities.” This is not fair to American workers – who don’t have a”fair shot” at producing goods and services for their fellow citizens.
Hillary Clinton to China: “Please, please, please, please keep buying our Treasury securities with your currency. Otherwise, we really can’t afford the corporatist/socialist revolution we are in the process of undertaking.”
You can’t have it both ways. Geithner’s comment is the political salve for an uniterested or illiterate American public and a “buyoff” of the “labor” movement. Clinton’s comment reflects the economic reality of the day. I am not worried that China will reverse its position any time soon, but the probability of something adverse happening in the bond market is far higher today than it was 17 months ago.