U.S. Treasury Secretary Timothy F. Geithner called on European policy makers and lawmakers in Washington to spur economic growth even as they seek long-term measures to narrow budget deficits.
“There’s a lot of things Congress can do, in the near term, not just in the long run, to make growth stronger,” Geithner said in an interview with Bloomberg Television in Los Angeles yesterday. European leaders also “have to do some more things to help support growth in the near term,” he said.
Geithner, 50, said Congress should take advantage of low borrowing costs to adopt measures to support the economy, which he said must grow faster to create jobs and reduce an unemployment rate stuck above 8 percent since February 2009. He said such measures include helping homeowners refinance mortgages and approving tax incentives for businesses.
“We pay about 1 1/2 percent for a 10-year Treasury now, to borrow long-term now, because fundamentally people have faith in the ability of the U.S. to solve its problems,” Geithner said. “It’s sensible for us to take advantage of this moment to do things that will make the economy stronger.”
Treasuries recorded a monthly gain yesterday as Europe’s debt crisis underpinned demand for the securities and investors awaited the results of central-bank policy meetings in the U.S. and euro area this week.
Ten-year U.S. yields fell to a record 1.379 percent on July 25, compared with a high for the year of 2.38 percent on March 19, according to Bloomberg Bond Trader prices. They were at 1.48 percent as of 1:18 p.m. today in Tokyo.
The U.S. faces a so-called fiscal cliff of more than $600 billion in higher taxes and reductions in spending on defense and other government programs that take effect at year-end unless Congress acts. The nonpartisan Congressional Budget Office has said the economy would shrink by 1.3 percent in the first half of next year if the higher tax rates and automatic cuts are kept in place.
“If you listen closely, there is a lot of bipartisan work going on in the Congress, trying to lay a foundation for how to work through these problems, how to replace those expiring tax cuts and the automatic spending cuts with a more sensible balanced package of reforms that again reduce those long-term deficits,” Geithner said.
European leaders must take steps including “bringing down interest rates in the countries that are reforming and making sure those banking systems can provide the credit those economies need,” Geithner said.
“A big challenge they face right now is to figure out how they put in place a stronger bridge to those longer-term reforms, because, again, without growth, they’re going to find a political basis for reform erode beneath their feet,” he said.
Geithner was speaking from the rooftop of a downtown Los Angeles apartment building a day after returning from Germany, where he held separate meetings with German Finance Minister Wolfgang Schaeuble on the North Sea island of Sylt and in Frankfurt with European Central Bank President Mario Draghi.
In a statement released after their meeting, Geithner and Schaeuble “took note” of comments made last week by European policy makers to “take whatever steps are necessary to safeguard financial stability” in the 17-nation euro area.
To resolve crises, governments and central banks must work together, Geithner said in the interview yesterday.
‘Moving in Parallel’
“You can’t put all of the burden on one of those parties,” he said. “You need both moving in parallel, of course, within the competence and the responsibility of their authority.”
The Treasury chief said that “the human costs are acute” in the European crisis. “Not just in Greece, but throughout other countries in Europe, too. And the political costs in terms of rising extremism are terribly troubling.”
Asked about the investigations into possible manipulation of the London interbank offered rate, Geithner said “it’s very important to our country” to have “an enforcement response that’s very powerful and credible.” Regulators will need to “take a careful look at how to make sure that we can deal with the potential implications of this for the broader financial system.”
Geithner last week told U.S. lawmakers that he was concerned when he heard about potential weaknesses in Libor in 2008 and that he moved quickly to alert regulators in the U.S. and U.K. Geithner was president of the Federal Reserve Bank of New York at the time.
Banks including UBS AG, Citigroup Inc., Royal Bank of Scotland Group Plc and Deutsche Bank AG are being investigated worldwide for practices in setting Libor. London-based Barclays Plc was fined a record 290 million pounds ($454 million) on June 27 for rigging Libor, leading to the resignation announcements of CEO Robert Diamond, Chairman Marcus Agius and Chief Operating Officer Jerry Del Missier.
Geithner has said he won’t serve another term if President Barack Obama wins re-election.
“I haven’t had a chance to think about that much,” he said when asked what he’ll do next. “I will think about it. But I’ve got a lot going on at the moment.”