Treasury's Geithner on the State of the Economy
SECRETARY TIMOTHY GEITHNERYou're seeing a really dramatic improvement in access to credit. But parts of the system are still very damaged, access to credit for small business remains constrained, and there are markets, such as mortgages, where progress is enormously reliant on the government.
Right. Look at the cash-for-clunkers deal. Car sales went from horrible to great to horrible again. What happens when the stimulus is gone?
A recovery that's going to work requires a recovery led by private demand. But you still have to make sure there's enough support to reinforce that process of recovery. That's a difficult balance to get right. We're not going to make the mistake many countries made in the past of putting the brakes on too early and creating the risk of a weaker recovery with even higher levels of unemployment.
Do we need a second stimulus?
No. But Congress is looking at unemployment insurance and other programs critical to recovery. And there's a good case for extending them.
People are nervous about 2010 and new taxes. Are you going to allow the Bush tax cuts to expire if the economy remains flat and unemployment is still high?
The overwhelming responsibility of people in government today is to make sure we have an economy that's growing, unemployment coming down, factories going back to work. That is the critical imperative. That's why we cut taxes for 95% of working Americans and for businesses across the country. It does not make sense to raise taxes in a recession.
How worried are you about the deficits?
When we have an economy that's growing again and we get unemployment down, we're going to have to bring those deficits down. And we need to make sure people understand we will do that. Because if they're not confident in that, the recovery will be weaker, interest rates will be higher, investment will be constrained, and you'll have higher unemployment. Deficits can be very damaging to growth.
When do you expect growth in jobs?
I'm not an economist, and I don't forecast, but if you look at what business economists say now, you're going to see the economy growing at a significant rate for the rest of this year. Then positive growth in 2010 at a level that will begin to gradually bring down the unemployment rate.
World Bank President Robert Zoellick recently said that the U.S. should not take for granted the dollar's preeminence. Would you expect, at some point, that the dollar will not be the world reserve currency?
I wouldn't. But I think the dollar's role in the system requires us to do everything possible to keep inflation low and make sure we're getting our fiscal house in order. That's really important to confidence [in the dollar]. We take that very seriously—nobody more than me.
Here we are at Dow 10,000, and JPMorgan (JPM) and Goldman Sachs (GS) are once again reporting great numbers and paying record bonuses. And yet 10% of the country is unemployed. Some people out there are saying: "Did we get snookered again? Have we learned anything?"
We're not going to let this financial system go back to where it was, and we're not going to let the practices reemerge that caused this crisis. That's very, very important, and the financial community has a huge interest in a more stable framework with better protections for the industry. The best-run firms were disadvantaged by the worst-run.
But we're still dealing today with too big to fail, aren't we?
At the center of any reform process is making sure institutions are not living with the expectation the taxpayer is going to save them from their mistakes. The object of reform—apart from what we're trying to do on the consumer side—is to make sure we have a system in which we can let firms fail without taxpayers being on the hook. And we're going to do that.
Won't a consumer protection agency just be one more bureaucracy?
This basic balance between [financial] innovation and protection is really important to get right. But we got it wrong. There's no way to look at our system the way it was run and say we did an adequate job of protecting consumers and investors. Of course we want to make sure there's innovation and choice, but I think we found that balance in the proposals we made to Congress.
Some people feel there's real class warfare going on, and when you look at some Administration policies—whether it's cap and trade or higher taxes, or in some cases higher health-care costs—it feels a little anti-business. Is this Administration anti-business?
Absolutely not. And the President and the people around him understand deeply that for our economy to be more productive in the future, it requires an atmosphere in which businesses are willing to innovate, invest, and take risk. There's no path to growth, no path to lower unemployment, no path to broad-based gains in income that doesn't come from and rely on an atmosphere in which investors are confident and companies are confident.