Treasury Secretary Timothy F. Geithner said President Barack Obama’s $447 billion jobs plan would provide a “substantial” boost to the U.S. economy.
“I think we’ve got a good chance of continuing a moderate pace of growth coming out of this crisis,” Geithner said today in an interview with Bloomberg Television in Marseille, France. If Congress approves the plan, “it would dramatically reduce the risk of a long period of much weaker growth.”
The president, speaking before a joint session of Congress yesterday, demanded that lawmakers act “right away” on his plan boost spending on infrastructure, stem teacher layoffs and cut in half the payroll taxes paid by workers and small-business owners.
“It would make a very substantial contribution to growth at a time when we need it to help get hundreds of thousands and more Americans back to work more quickly,” Geithner said in the interview. “Of course the impact it has depends on what Congress does, so we would like them to do as much as they can as quickly as they can.”
Geithner also expressed optimism about the reaction of congressional Republicans.
“They were pretty encouraging last night in their initial response,” Geithner said. “They recognize, and this went into the design of the package, that large parts of this package have had support from Republicans in the past.”
Asked about the downgrade of the U.S. credit rating by Standard & Poor’s last month, Geithner said financial markets have given the nation a vote of confidence.
“There is enormous confidence around the world that this country, our country, is stronger than our political system looks today,” he said. “We’ve got to get the political system to catch up to the underlying strength of the economy.”
After a partisan fight over the deficit and raising the government’s debt limit took the country to the brink of default, Standard & Poor’s lowered the rating to AA+ from AAA on Aug. 5. As part of raising the debt limit, Congress created a 12-member supercommittee to find $1.5 trillion in cuts.
The government’s borrowing costs fell to record lows as Treasuries rallied. The yield on the benchmark 10-year Treasury note fell from 2.56 percent on Aug. 5 to 2 percent yesterday. Moody’s Investors Service and Fitch Ratings affirmed their top rankings on the U.S.
Still, Geithner said the debate over the debt limit hurt the U.S. economy and had repercussions globally.
“The damage of the debt limit we had in the United States, I think it hurt confidence around the world,” he said. “We’ve been a source of complications for governments, too, in this case.”
Geithner said over the long term the U.S. has the capacity to live within its means, and that it’s up to Congress to put health and retirement programs on a sound footing.
Stocks fell for a second day and German two-year yields declined to a record amid escalating concern about Greece’s debt crisis and speculation Congress won’t pass Obama’s plan. The MSCI All-Country World Index retreated 2.6 percent at 11:24 a.m. in New York, and the Standard & Poor’s 500 Index dropped 1.9 percent.
Geithner, who is in Marseille to attend a meeting of Group of Seven finance ministers and central bankers, said a solution to the continent’s debt woes depends on the “political will” of European Union leaders.
“They’re moving, but I think they’re going to have to demonstrate to the world they have enough political will,” Geithner said. “This is not a question of financial or economic capacity.”
Geithner said it’s “absolutely” in the interests of the U.S. that Europe’s single currency survive. “We have a huge interest in helping the Europeans through this.”
The G-7 officials are meeting for the first time since they promised “coordinated action” Aug. 8 to calm financial markets. Geithner is also scheduled to hold sessions today with French Finance Minister Francois Baroin and European Central Bank President Jean-Claude Trichet.
“Europe’s still under enormous pressure,” Geithner said. “They have a really, very difficult, challenging set of problems they’re going to have to deal with over a long period of time. And it’s not just of course what’s happening in Greece and Ireland and Portugal.”
German, Dutch and Finnish government bonds jumped today, while Italian, Spanish and Greek securities fell amid concern that the debt crisis is deepening as growth slows.
German 10-year and two-year yields declined to all-time lows after the ECB acknowledged the euro-region economic outlook has worsened, boosting demand for the safest assets. Greek 10-year yields climbed to a record, widening the spread over similar-maturity bunds to the most since the euro was introduced in 1999.
Trichet yesterday signaled that the ECB may take further steps to fend off the region’s debt crisis.