Back when Treasury Secretary Geithner was telling China to stop "manipulating" its currency, I was puzzled: Didn't that mean he wanted them to stop buying US Treasurys, and hence push up US interest rates and consumer prices? (Robert Wenzel over at EPJ was saying this too, I believe, but I don't have the link handy.)

Well Greg Mankiw (HT2MR) nails it by quoting Geithner on "manipulation," and then now Hillary Clinton on China's duty to finance Obama's spending spree. Mankiw comments:

The inconsistency in the policy here becomes fully apparent only when one understands how China "manipulates" its currency: It keeps the value of the yuan lower than it otherwise might be by supplying yuan and demanding dollars in foreign-exchange markets. Those dollars are then invested in U.S. Treasuries.

In other words, Secretary Clinton is now asking the Chinese to do precisely what Secretary Geithner asked them not to do.

Now this is just the kind of thing I meant in my earlier post about Obama's possible sincerity. Some right-wingers will say, "Ha! What a moron! Clinton/Geithner doesn't understand currency markets."

But no, that's not it at all. Each of them understands full well that if China stops buying Treasurys, that will make the dollar fall. We have to always remind ourselves that politicians say things for political effect, not in order to communicate their actual view of the world.