They All Laughed

The old commercial stated that when E.F. Hutton talks, people listen, But apparently when the U.S. Treasury Secretary speaks in China, it’s okay to laugh.
When Secretary Geithner asserted that Chinese investments in US Treasury and Agency bonds were very safe, his answer drew loud laughter from his student audience, reflecting skepticism in China about the wisdom of a developing country accumulating a vast war-chest of foreign reserves.

Vice Premier Wang Qishang later “clarified” that economic dialogue was wise, but the message was clear: the Chinese-the globe’s largest creditor-don’t respect the world’s largest debtor. To some extent, this attitude simply reflects the wisdom of Proverbs: “the borrower is servant to the lender.” But in financial and global affairs, disrespect and hubris are never wise.

Because what goes around comes around. After World War I when we held most of the world’s reserves, policy errors by our Fed and Congress helped initiate the Great Depression. In the end, it doesn’t matter who starts to laugh. What matters is who’s smiling at the end of the story.

Douglas R. Tengdin, CFA
Chief Investment Officer
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