Geithner says: "The FED is not monetized debt"

The trip to China from U.S. Treasury Secretary Timothy Geithner, is giving a lot to talk about. The financial situation of the U.S., and its dependence on the Chinese financing, which makes the relations between the two countries are very sensitive.

Having provoked the laughter of some Chinese students to say that country's money invested in U.S. debt are very safe, Geithner has awarded a juicy interview at the CNBC reporter Steve Liesman, who accompanied the Chinese country.

The issue that generated most concern in the relationship between the U.S. and China if the latter is to continue funding the massive deficit that is incurred in the administration who chairs Obama, increasing consumerism in the wake of Bush administration.

During recent years the savings from Asian countries like China have helped to fund the excesses of the American giant. However, in recent times there are doubts that the Chinese want to keep this huge number of dollars in U.S. government debt. ¿The Chinese sell their debt? ¿No longer finance the U.S. deficit?.

These doubts are fueled by the uncertainty regarding the future evolution of the dollar, and the need to introduce a new currency which serves as the international reference. This was suggested countries like China, Russia and emerging countries.

All this points to the growing concern about the precarious financial situation of the United States and the strong dollar, because a government deficit and external exorbitant. These are crucial issues for the U.S., and consequently also for the whole world.

China "trusts" in the U.S.

As no surprise, the journalist was the point: "How much concern is being transmitted on the size of the deficit and the U.S. dollar." Geithner said that instead of concerns among the Chinese, which is collecting a lot of confidence, not only in the strength, resilience and long-term dynamism of the American economy, but also in all the policies that the Government has implemented Obama.

This is the fundamental, as Geithner. Seeking to avoid the question of how important China is to continue buying and holding U.S. government debt, Geithner argued that "what really matters is that we do in the U.S. is ensuring that American investors, and investors from the rest of the world , maintain their confidence in the policies of United States. "

The secretary reiterated several times during the interview of the exceptional and temporary fiscal and monetary measures have been implemented, while recognizing the need for budgets to return to more sustainable by cutting the fiscal deficit, amounting to 13% of GDP this year.

The measures are inevitable to avoid the collapse, but once the economy picks up those steps are removed and everything back to normal, said Geithner. This was expressed by the Secretary of the Treasury along much of the interview, using the same argument that President Obama on other occasions.

Sees no inflation risk

On the outstanding actions of the U.S. Federal Reserve (FED), expressed confidence in the success of the monetary authority and its ability to keep inflation low and stable over time. Thus, he noted that aggressive monetary policies implemented to date have had and are having positive impacts: a reduction of the fear of deflation in the markets, a recession that loses some of its force, first signs of stabilization in economic activity and global demand, and above all, have prevented the collapse of the financial system.

Perhaps it is this curious Geithner confidence in the monetary authority, as he himself noted that "his policy too lax for too long" was precisely a cause of the current financial problems.

In this sense, the journalist asked him about the unconventional measures the Fed, in reference to the purchase of up to 300,000 million dollars in debt: "Is not this something like the monetization of the debt for which both warn with economists. "
Indeed, the monetization of debt is perceived by most economists as a monetary policy of high risk, because it can generate high inflation. However, "there is no risk of that in United States," he Geithner, because we have a strong central bank, "whose duty under the law is not only achieve maximum growth but keep inflation low and stable." Ie, the secretary denied the possibility of high inflation. "The FED is not monetized debt."