The U.S. Treasury Secretary discusses the global recovery, the ongoing American mortgage mess, and tensions with China over its currency
Tell me where the global economy is right now and what you expect to happen next.
The world's now healing. And it's growing. The IMF expects the world as a whole to expand at a rate of a little over 4 percent next year, which is not amazing but much better than we would have thought possible. But that overall number hides huge difference across regions. China, India, Brazil, emerging markets in Asia, Latin America, Eastern Europe, they've got a long period of very rapid growth ahead of them. In Europe and Japan, growth is much weaker. In the U.S., the picture is mixed. Most economists think we're growing at a rate of about 2 percent. But the private forecasters say they expect the economy to strengthen gradually into 2011 and grow at about 3 percent. That's not fast enough for us. We want it to be faster.
We are, in my judgment, a substantial way through the process of healing, of fixing the things that were broken. The financial sector is much less leveraged, we've had a traumatic, huge adjustment in house prices across the country, and private savings rates have already increased quite significantly. Those things are really important for future growth, and they're encouraging. But they do mean that we're not growing as fast as we'd like, and I think Washington's got more work to do to try to provide some support for the economy.
Should there be a national moratorium on foreclosures?
What you're seeing in housing is a national tragedy, still very, very difficult. A lot of people were taken advantage of, and a lot of people were too optimistic about what they could afford. Now you've seen some banks suspend the foreclosure process so they can make sure that they're not causing any injustice to borrowers, and that's very important. But a national moratorium would be very damaging to exactly the kind of people we're trying to protect. We want to make sure we're holding [lenders] accountable. But we also want to make sure that we're not going to make the problem worse.
Tell us about unemployment and why it's at 9.6 percent and why those numbers aren't going down.
Unemployment at 10 percent is still overwhelmingly a reflection of how serious the crisis was, how deep the damage was from this financial panic. And it is going to take time for that to come down. The most important reason why it's so high is because the economy is not growing rapidly enough to provide new opportunities.
Why aren't Americans investing in new factories, in hiring?
Well, they're still scarred by the crisis. They're still a little tentative and cautious. So while they're investing a lot—private investment by American companies grew by an annual rate of more than 20 percent in the first half of the year—you're still seeing businesses waiting to see how strong is growth going to be, and that's the fundamental factor holding back investment and hiring.
So what can you do to reassure them and try to create confidence?
The President, in September, proposed three very important things. First, he proposed a substantial program of investment in public infrastructure. He also proposed two very smart incentives for private investment. One is to make permanent a very generous tax credit for firms that conduct research and development in the U.S. He also proposed, for a one-year period, 100 percent expensing of new capital investments.
If you read the newspapers over the last three months, the impression you have is that all that Tim Geithner does is try to get the Chinese to let their currency appreciate. Where is that today?
China, over the last six weeks or so, has started to let its currency appreciate at a pretty significant rate—about 2 or 2.5 percent. But this is going to be a gradual process. What matters to us is that they continue to let their currency rise. And what we want to do is to maximize the incentives they have to let that process go as far as it needs to go.
What about all this talk of a coming currency war?
No risk of that.
There's a lot of capital flowing to [other countries] because they're letting their currencies move. And they're having to work very hard to make sure they're not at an unfair disadvantage with China....We want China to play by the rules of the game everybody else plays by.
Well...we'd like them to do more.
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