greenspam

Geithner on Yuan: Misstep or Warning Shot?

First, the message is targeted to China's recent attempts at bringing back tax subsidies and talking about devaluing the yuan. This message says don't go there. Its not about whether strengthening the Yuan will benefit the US.
Second, even if China continued to "manage" their currency upwards, they would fall into "manipulator" category simply based on evidence that most surplus countries have had their currencies appreciate (the Japanese, Norwegian, Swiss). As a surplus country, Chinese currency should be moving upwards as well in par with the Norwegian at least if not the next most "manage currency" the Japanese Yen. Otherwise interest rates will not be useful in accurately assign cost to money so it goes where it needs to to solve problems.
Third, the Fed has already indicated they will step in to purchase Treasuries to keep the stated and real (Libor) rates spread where they want it. China's ability to purchase tens of billions of debt per month pale to Fed's ability to step in at 10x that level.

The Simple Explanation of Bailouts, Inflation, and Deflation

dlaw wrote: "The private banking system clearly expanded the money supply with fraudulent securities and now the market has lost faith in these institutions."

Basically the Banks increased money supply. Its not just about everyone wanting to be a real estate mogul. Or a commodities speculator buying on massive leverage (credit).
Fed injection of liquidity through lower-interest rates is one measure of (access) money. money Supply = Money x Velocity. Velocity is how fast a given amount of money is circulated in an economy. One dollar that is quickly spent, lent, traded, turned into a note and the note traded.. acts like ten dollars. By creating CDO's and derivatives of derivatives, banks not only created a derivative of money (credit) which enabled credit to be lent at a rapid pace. This rapid lending increased house values, which in turn allowed more lending to take place. This massive credit basically converts into turbo charged Velocity in the Money Supply equation. Both the private and public banks (Freddie and Fannie included) created this massive credit bubble. Once someone questioned the underlying worthiness of the bank's notes, the credit pyramid scheme came crashing and credit dried up. So dlaw is right. The banks created money out of nowhere by creating a massive expansion of credit (increasing velocity).