So last week, we had a bit of a circus in which Patterico and Jeff Goldstein (whose tone risks making me kind of sad to have defended him so strongly at other times) went at it over the reaction to Rush Limbaugh’s “Obama Fail” comment.
As noted, it was pretty clear that Limbaugh’s statement was partisan but innocuous, and also clear that it became a nifty sound bite to the Democratic media strategists who promptly plated it with lead and tried to hang it around Limbaugh’s neck.
The issue under debate was whether Limbaugh took any blame for speaking in a way that left him open to that kind of attack.
More recently, we’ve seen a (much more serious) example of the same thing, in which Tim Geithner was asked about the Chinese proposal to move away from dollar-denominated world trade to a “basket” (which had been variously interpreted as a new pseudocurrency and a simple extension of the existing IMF SDRs.
Geithner gave a kind of mealy-mouthed response when asked about this – emphasizing his regard for his Chinese counterpart, and saying that many things should be considered.
Here’re his quotes with commentary by James Joyner:
Q Well, thank you. Wonder if you could comment on two related things. One, the Chinese government proposal about a global currency; and about the IMF regulations that were — the new IMF idea about, you know, very general agreements to borrow and having a faster ability to disburse to the (margin ?) markets…
SEC. GEITHNER: On the first question, I haven’t read the governor’s proposal. He’s a remarkably — a very thoughtful, very careful, distinguished central banker. Generally find him sensible on every issue. But as I understand his proposal, it’s a proposal designed to increase the use of the IMF’s special drawing rights. And we’re actually quite open to that suggestion. But you should think of it as rather evolutionary, building on the current architectures, than — rather than — rather than moving us to global monetary union.
Moderator Roger Altman, James reports, “immediately recognized that Geithner had slipped off the deck and was a man overboard, at least when it came to U.S. dollar policy. Altman tried to throw Geithner a lifeline.”
MR. ALTMAN: Let me just follow that up for one second. A number — I haven’t read the governor’s essay, either, but a slew of news reports interpreted his comments to suggest that the world needs a super reserve currency, and that the dollar, on some gradual basis, ought to be replaced in favor of that. And I wasn’t entirely clear what your response was.
SEC. GEITHNER: Well, as I said, I haven’t read his proposal, but I thought the initial reaction was sort of ahead of the details of the proposal I saw. The only thing concrete I saw was a reference to expanding the use of the SDR, but I look forward to reading his figures. As I said, I have tremendous respect for him. He’s a really thoughtful, pragmatic guy, and he has a great record of credibility in China as a whole, so anything he’s — he’s thinking about deserves some consideration.
It is very important just to underscore that the future evolution of the dollar’s role in the system depends really primarily on how effective we are in the United States in getting not just recovery back on track, our financial system repaired, but we get our fiscal position back to the point where people will judge it as sustainable over time.
After much back-and-forth, Geithner eventually allowed as to how “I think the dollar remains the world’s dominant reserve currency. I think that’s likely to continue for a long period of time.”
So let’s go back to the original argument. Is what matters Geither’s intentions when he spoke? Because the markets certainly didn’t see it that way.
Ambrose Evans-Pritchard, writing for The Telegraph, reports that, “The dollar plunged instantly against the euro, yen, and sterling as the comments flashed across trading screens.”
David Bloom, currency chief at HSBC, said the apparent policy shift amounts to an earthquake in geo-finance. “The mere fact that the US Treasury Secretary is even entertaining thoughts that the dollar may cease being the anchor of the global monetary system has caused consternation,” he said.
Mr Geithner later qualified his remarks, insisting that the dollar would remain the “world’s dominant reserve currency … for a long period of time” but the seeds of doubt have been sown.
The markets appear baffled by the confused statements emanating from Washington. President Barack Obama told a new conference hours earlier that there was no threat to the reserve status of the dollar. “I don’t believe that there is a need for a global currency. The reason the dollar is strong right now is because investors consider the United States the strongest economy in the world with the most stable political system in the world,” he said.
Words matter, and the plain meaning people reading or listening attach to them – regardless of what the author had in mind when writing or speaking – change their views and behavior. That’s why people who speak in the public sphere are held to a higher standard (which in the case of Joe Biden, is somehow often overlooked…).
Geithner stepped in it, and the financial markets are making him and the people he speaks for (us) pay. Limbaugh stepped in it as well, and the political markets reacted similarly…or at least it sure seems like you could use today’s events to make that argument a little more strongly.