Geithner Op-Ed: ‘What the world must do to boost growth’

WASHINGTON – Ahead of tomorrow’s meeting of the G-7 Finance Ministers and Central Bank Governors in Marseille, France, Treasury Secretary Tim Geithner, in an op-ed to be published in the September 9, 2011 edition of the Financial Times, outlines steps necessary for the world economy to regain momentum, including strengthening growth and employment at home through the President’s American Jobs Act package and forceful action by Europeans to generate confidence and quell instability.

What the world must do to boost growth

By Tim Geithner

The world economy is in the midst of the second slowdown of this recovery from the financial crisis of 2008 and 2009. The question is not whether we have the economic or financial capacity to act to strengthen growth, but whether we have the political ability to do the right things.

The shocks behind the slowdown – oil prices, Japan’s disaster, the crisis in Europe – are severe enough to have been dangerous even if they had happened during a global boom. They are more dangerous now because they hit a world still healing from financial crisis and because of the general fear that political constraints will prevent governments and central banks from acting sensibly with the tools available.

With interest rates very low in the major economies, budget deficits swollen by the crisis, and the financial imbalances of the crisis only partly resolved, there are limits on what policy can do to help strengthen growth.

But the biggest constraints on action in the major developed economies now have less to do with those economic realities and more to do with political paralysis, misplaced fears about inflation and moral hazard, and unwarranted disaffection with the efficacy of the traditional fiscal tools of tax cuts and investment to encourage growth.

The three most important things that have to happen for the world economy to regain momentum are these. First, the U.S. should act to strengthen growth and employment. President Barack Obama will push for the very substantial package of public investments, tax incentives, and targeted jobs measures he will put forward tonight, combined with a carefully balanced mix of fiscal reforms designed to restore fiscal sustainability over the medium term.

Second, Europe needs to take more forceful action to generate confidence that it can and will resolve its crisis. This requires governments working together and alongside the European Central Bank in an unequivocal commitment to support Europe’s financial system and ensure governments can borrow at sustainable interest rates as they reform. Finally, China and other emerging economies need to continue to strengthen domestic demand and allow their exchange rates to adjust to market forces.

In early 2009, the world showed remarkable unity and deployed remarkable financial force in rescuing the global economy. The challenges now are different and cannot realistically be confronted by a repeat of that coordinated global response of financial stabilisation and fiscal and monetary stimulus.

But the imperative remains to strengthen economic growth. Fiscal policy everywhere has to be guided by the imperatives of growth. Where deficits and interest rates are too high, governments have no choice but to consolidate. Where fiscal positions are stronger and interest rates low, some countries have room to take more action to support growth, and others can at least slow the pace of consolidation. Where more fiscal reforms are necessary to achieve long-run sustainability, the emphasis should be on policy changes that take effect over the medium term.

As for monetary policy, with growth slower and oil prices lower, inflation risks are on average, though not everywhere, less acute. This means some central banks will continue to ease policy, while some will keep rates lower longer and slow the pace of expected tightening. None of the major central banks are out of ammunition. The repair and restructuring of financial systems has to be accelerated where it has lagged. Countries that forced more capital into their banking systems early in the crisis are better placed to support the recovery. Those that did not should move more forcefully now.

Financial reforms designed to prevent the next crisis need to be designed and implemented in a way that does not exacerbate the slowdown. We need more progress in rebalancing global demand, with broader and faster appreciation of the remnimbi and the other policies necessary to strengthen domestic consumption in China and other emerging economies with large external surpluses.

The outlook is not all dark. Oil prices have eased somewhat, relieving pressures on consumers and businesses. Growth in emerging markets remains quite strong. Most private forecasters expect U.S. growth to be stronger in the quarters ahead than during the first half of this year. The IMF expects the world economy as a whole to continue to expand at a moderate pace.

But the risks of a longer period of relatively weak growth are significant, and it makes sense for policy makers to act to reduce the risk of that outcome. One of the most important lessons from the history of financial crises is that the political will to act to secure recovery fades too quickly in the face of the political costs of the initial response and early optimism about growth. This was a terrible crisis. Recovery was always going to be slow, fragile, and take time. We have more work to do. We are better off doing it together.

The writer is US Treasury Secretary

Secretary Geithner Supports Christine Lagarde For IMF Managing Director

WASHINGTON – Today, the U.S. Department of the Treasury issued the following statement from Secretary Tim Geithner.

“I am pleased to announce our decision to support Christine Lagarde to head the International Monetary Fund. Minister Lagarde’s exceptional talent and broad experience will provide invaluable leadership for this indispensable institution at a critical time for the global economy. We are encouraged by the broad support she has secured among the Fund’s membership, including from the emerging economies. I also want to commend my friend, Agustin Carstens, on his strong and very credible candidacy.”

Speech by Fed Chairman Ben Bernanke

At the International Monetary Conference, Atlanta, Georgia

June 7, 2011

The U.S. Economic Outlook

I would like to thank the organizers for inviting me to participate once again in the International Monetary Conference. I will begin with a brief update on the outlook for the U.S. economy, then discuss recent developments in global commodity markets that are significantly affecting both the U.S. and world economies, and conclude with some thoughts on the prospects for monetary policy.

The Outlook for Growth

U.S. economic growth so far this year looks to have been somewhat slower than expected. Aggregate output increased at only 1.8 percent at an annual rate in the first quarter, and supply chain disruptions associated with the earthquake and tsunami in Japan are hampering economic activity this quarter. A number of indicators also suggest some loss of momentum in the labor market in recent weeks. We are, of course, monitoring these developments. That said, with the effects of the Japanese disaster on manufacturing output likely to dissipate in coming months, and with some moderation in gasoline prices in prospect, growth seems likely to pick up somewhat in the second half of the year. Overall, the economic recovery appears to be continuing at a moderate pace, albeit at a rate that is both uneven across sectors and frustratingly slow from the perspective of millions of unemployed and underemployed workers.

As is often the case, the ability and willingness of households to spend will be an important determinant of the pace at which the economy expands in coming quarters. A range of positive and negative forces is currently influencing both household finances and attitudes. On the positive side, household incomes have been boosted by the net improvement in job market conditions since earlier this year as well as from the reduction in payroll taxes that the Congress passed in December. Increases in household wealth--largely reflecting gains in equity values--and lower debt burdens have also increased consumers' willingness to spend. On the negative side, households are facing some significant headwinds, including increases in food and energy prices, declining home values, continued tightness in some credit markets, and still-high unemployment, all of which have taken a toll on consumer confidence. (Read on)

Excerpts of Treasury Secretary Tim Geithner’s Remarks to the International Monetary Conference

6/6/2011

Atlanta, Georgia 

“We are committed to building a more level playing field internationally, as we move ahead with reforms in the United States. 

We don’t want to see another race to the bottom around the world.  As we act to contain risk in the US, we want to minimize the chances that it simply moves to other markets around the world.

The United Kingdom’s experiment in a strategy of “light touch” regulation to attract business to London away from New York and Frankfurt ended tragically.  That should be a cautionary note for other countries deciding whether to try to take advantage of the rise in standards in the United States. 

But it is important to note that the strength of the United States financial system in the decades that followed the Great Depression was that we had the highest standards for disclosure and investor protection, we had the strongest protections for depositors and against money laundering, and we had the best exchanges.  We did not lower our sights to match the more limited ambitions of others.  We knew we would be more vulnerable if we did.

So we will do what we need to do to make the United States financial system stronger.  We will do so carefully.  And as we do it, we will bring the world with us.”

“Now, as we work with our international counterparts on this range of issues, we need to develop a global margin standard. 

Just as we have global minimum standards for bank capital – expressed in a tangible international agreement – we need global minimum standards for margins on uncleared derivatives trades.  

Without international consensus, the broader cause of central clearing will be undermined.  Risk in derivatives will become concentrated in those jurisdictions with the least oversight.  This is a recipe for another crisis. 

A global approach to margin will help prevent regulatory arbitrage and a “race to the bottom.”  It will make our global financial system safer and stronger.”

The United States Should Withdraw From the International Monetary Fund

By Darrell Castle

Vice-Chairman Constitution Party National Committee

Currently headquartered in Washington DC, the International Monetary Fund (IMF) was formed in 1944 and finalized in 1945 as part of the Bretton Woods agreement made by the victorious Allied Powers at the end of WWII.

The IMF’s stated purposes are as follows:

•To promote exchange rate stability;

•To facilitate and manage the growth and balance of international trade;

•To provide resources to member countries experiencing balance of payments problems;

•To help maintain a multilateral system of payments;

•And finally, to promote international monetary cooperation.

Despite its stated purposes, many people believe that the real purpose of the IMF is to bring poorer, less-industrialized countries into the orbit of global government and multinational corporations.

According to John Perkins in his book Confessions of an Economic Hit Man, third world countries have been threatened with CIA destabilization and regime change unless they accept IMF loans. The loans are made with draconian repayment provisions like cutting social services, renegotiating union contracts and privatizing public services, which then allow foreign multinational corporations access to the country’s resources. Since these target countries often have their credit ratings downgraded, the loans also carry a very high interest rate. (Read on)

Source: Constitution Party