WASHINGTON — Former Treasury Secretary Timothy Geithner writes in his memoir, released Monday, that Illinois Republican Mark Kirk was “delusional” in warning the Chinese not to buy U.S. debt — but a source who was actually at that meeting Kirk had with Chinese officials told me that Geithner, who was not present, got it wrong.
Kirk’s long-held view is that Geithner — along with a host of administration officials up to President Barack Obama and many members of Congress — is crazy not to be more concerned about runaway U.S. spending. So when it comes to who is delusional, Kirk’s not worried about Geithner’s shot, delivered in his book, “Stress Test, Reflections on Financial Crises.”
Anyway, Geithner may have had a chip on his shoulder when he wrote his memoir because Kirk took him on — and won — in his Senate push for Congress to impose tougher sanctions on Iran’s banks in an effort to thwart Iran from developing nuclear capability.
Elected to the Senate in 2010, Kirk, a fiscal hawk, has been crusading against the mounting U.S. debt, especially the money owed to the Chinese, for years.
Kirk also has been deeply involved in U.S.-China relations policy. In the mid-2000s, when he was a House member, Kirk started the “U.S.-China Working Group” with Rep. Rick Larsen, D-Wash.
As a House member, Kirk was in China from May 25 to June 1, 2009, on a trip sponsored and paid for by the National Committee on U.S.-China Relations, a New York think tank. Geithner also landed in China at the same time.
Writes Geithner, “I remember on my first trip to Beijing as secretary, an embassy official called to tell me that Mark Kirk of Illinois, one of the few nominally moderate Republicans left in Congress, had just held an unusual meeting with Chinese officials.”
“Kirk had advised them not to buy Treasuries or other U.S. government debt, warning them that our spending was driving us toward default, and that the Fed was creating hyperinflation.
“I couldn’t believe it. Not only were those fears delusional, but he was undermining American interests on foreign soil. I called him on his way out of China to explain that there was this noble tradition in politics that you don’t criticize the United States while you’re abroad — and you definitely shouldn’t say we’re going to default on our debts. But partisan politics no longer seemed to stop at the water’s edge.”
Kirk’s office said in a statement, “Since traveling to China in 2009, our nation’s debt has grown from $11.9 trillion to $17.5 trillion. What is fact, and not delusional, is that our spending habit cripples our economic recovery and is undeniably unsustainable.”
The irony here is that Geithner was able to get his briefing on what happened in the private meeting because Kirk, I am told by the source, insisted on having U.S. embassy personnel present — as a courtesy to President Obama and to the U.S. embassy.
When Geithner called Kirk to ream him out, Kirk, I am told by the source, who was listening to Kirk’s side of the conversation, told “Mr. Secretary” he did not advise the Chinese not to buy U.S. debt — Geithner’s main charge.
The source was also at the meeting Kirk had with the Chinese officials and said Geithner did not accurately relate what happened. Kirk did discuss soaring U.S. debt and the implications that had for the Chinese lenders — but not in the way Geithner portrayed, the source said.
Geithner never reported Kirk’s denial in his book.
Kirk’s takeaway from that meeting with Chinese leaders was delivered in public on June 8, 2009, just days after he returned from China, when everything was fresh in his memory.
That’s when Kirk and Larsen discussed their trip at a forum hosted by the Center for Strategic and International Studies, a Washington think tank. It’s not quite the same story Geithner told.
On Monday, I listened to a tape of that session — it’s on the CSIS website — and Kirk did say that he told a Chinese official that the giant loans the Chinese were making to the U.S. made them vulnerable.
“One of the messages I had — because we need to build trust and confidence in our number one creditor — is that the budget numbers that the U.S. government had put forward should not be believed,” Kirk said. “The Congress is actually going [to] spend quite a bit more than what’s in the budget, and the health-care bill probably being the lead driver of additional spending by the Congress.”
Kirk said he told a Chinese official at that meeting, “Loan us a billion dollars and you own us, loan us a trillion dollars and we own you.”
He said China was “at a unique point of vulnerability” because Federal Reserve policies were such that each bond sold was “far less worthwhile.”
Kirk urged Congress to spend less, to “dramatically reassure our creditors, China, being, unfortunately the Number One.”