Treasury Secretary Timothy F. Geithner said the U.S. economy still faces challenges from the aftermath of the financial crisis and the “damaging” situation in Europe.
“We still have a lot of work to do to repair the damage from the crisis and get more Americans back to work. And we still face some risks ahead,” Geithner said in a speech in Baltimore today. “We still live in a dangerous and uncertain world, with Europe confronting a severe and protracted crisis.”
Geithner’s comments came as the European debt crisis mounted on concerns that Greece may leave the euro area. Greece’s impasse over forming a government led to the scheduling of another election next month, threatening the implementation of austerity pledges under the international financial rescue plan.
Geithner also warned that the U.S. economy continues to face the threat of higher oil prices.
“The world is engaged in a critical struggle with Iran, which has added to upward pressure on oil prices,” Geithner said.
In response to a question after his speech, Geithner said JPMorgan Chase & Co.’s $2 billion trading loss makes the case for financial reform rules to be tough and effective.
“This is obviously a material, significant failure of risk management,” Geithner said. “It makes a very powerful case for financial reform.”
Chief Executive Officer Jamie Dimon, 56, announced the loss May 10, assailing his firm’s handling of trading in synthetic credit positions as “flawed, complex, poorly reviewed, poorly executed and poorly monitored.”
In the U.S., Geithner urged Congress to take steps to speed up the recovery. Congress can help “Americans refinance their mortgages, creating incentives for companies to bring jobs back from overseas, putting veterans back to work, creating jobs by investing in clean energy, and cutting taxes for small businesses,” Geithner said.
Geithner said the challenges facing the U.S. economy “cannot be solved by an economic agenda of severe, immediate austerity, combined with deep, permanent cuts in education and the safety net for retirees, caps on spending that could not plausibly accommodate the 25 million Americans who become eligible for Medicare and Social Security over the next 15 years.”
He urged Congress to “act quickly to prevent interest rates on student loans from doubling this summer and pass a transportation bill to put thousands of construction workers back on the job.”
Geithner again urged Congress to not repeat last year’s months-long debate over raising the debt limit. The Treasury secretary also said the executive branch has “tools” that can push back the deadline for raising the debt limit until early 2013, even though the government will hit the ceiling before the end of the year.
“It is not a crisis; it does not need to be a crisis. It’s a crisis Congress is making,” Geithner said. He said Congress should raise the debt limit in a way that does not cause pain and damage. “You don’t need to put the threat of default over the country to try to induce politicians to act.”
House Speaker John Boehner on May 16 revived Republicans’ insistence that any increase in the nation’s debt limit be matched by at least as much in spending cuts, positioning his party for a renewed standoff with Democrats over the federal budget.
Europe Crisis ‘Damaging’
On Europe, Geithner said it is “still caught in a grip of a very tough financial crisis. That crisis as it has evolved has been quite damaging to the growth around the world,” Geithner said. “They are trying to find a better balance between growth and austerity. They are working to make sure their financial system is strong enough to weather the storm.”
European governments have hinted at giving Greece more time to meet budget-cut targets as long as the country’s feuding politicians put together a ruling coalition committed to austerity.
Euro-area finance ministers in March decided that 500 billion euros ($635 billion) in fresh money would go along with 300 billion euros already committed to create an 800 billion-euro defense against the two-year-old crisis.