–Important China Let Yuan Appreciate to a Significant Degree
–Seeing Encouraging, Healthy Adjustments In US Economy

By Brai Odion-Esene

WASHINGTON (MNI) – Although the economic recovery remains on track
— albeit at a slow pace — the U.S. will bear the scars from the 2008
financial crisis for “some time,” U.S. Treasury Secretary Timothy
Geithner said Wednesday.

He also cautioned that despite the Obama administration’s proposed
“pro-growth tax policies,” the federal deficit will still be
unsustainably high in the long-term, adding even more importance to the
work being done by the bipartisan Fiscal Commission.

In a question and answer session following a speech of future tax
policies at the Center for American Progress in Washington, Geithner was
asked to comment on the state of economy and worries that the recovery
might have stalled.

Overnight, the yen advanced to an eight-month high against the
dollar on speculation that growth in the U.S. economy is slowing and the
Federal Reserve will announce bond purchases next week to restrain
borrowing costs.

But Geithner insisted that the economic recovery in the U.S.
remains on track. While it is moving along at a moderate pace, “it has
been growing for 12 months,” he said.

“We have really adjusted with amazing speed and force through this
crisis,” Geithner declared, noting major adjustments in the housing
market, massive levels of deleveraging as the financial sector seeks to
correct itself, and households making substantial cuts in their debt
levels while saving a larger proportion of their income.

“Those are very encouraging, very healthy adjustments,” he said.

“But, it is very important to recognize that we are still living
with the scars of a very deep, traumatic financial crisis,” the Treasury
Secretary said. “They are going to last for some time.”

It will take the United States a long time to repair the damage
caused by the meltdown in the financial sector, he warned, and it is the
obligation of the Obama administration to do all it can to help
reinforce the recovery.

However, the American economy is in a much better position today to
deal with the challenges ahead, he added, because of the actions the
Obama administration took “to break the back of the financial crisis.”

Growth must be extended, Geithner said, to those parts of the
economy still suffering the most. This is why the government continues
to push Congress to pass measures to ease credit conditions for small
businesses.

The government’s job is to support growth and extend it to all
parts of the economy, he said.

Asked to comment, yet again, on the China and the U.S. pressure to
appreciate its currency, Geithner said China is only at the beginning of
the appreciation process.

What matters is how far and how fast Chinese authorities let the
yuan rise against the dollar he said, adding that the U.S., like
everybody else, will be watching very closely.

“What’s important to us … is they actually let it (the yuan)
appreciate significantly in response to market forces,” Geithner
emphasized.

Geithner’s main reason for attending the event was to champion
— and defend in equal measure — the Obama administration’s plan to
temporarily extend tax cuts for middle class Americans, while allowing
the 2001 and 2003 Bush tax cuts for the wealthiest Americans to expire.

“The debate we now confront is whether to extend tax cuts for the
middle class, which are due to expire at the end of the year; and
whether to allow tax cuts for the top 2 percent of Americans, those with
annual household incomes of at least $250,000, to expire, as scheduled,”
he said in his prepared remarks.

The administration’s proposal would make a significant dent in the
deficit going forward, Geithner argued during the q&a session, while
noting in his speech that policies to help the middle class will also
lay the foundation for better long-term growth.

It is essential to continued economic recovery, he said.

Geithner said the government has “limited resources” and must make
difficult choices in deciding where to best allocate them.

“Borrowing to finance tax cuts for the top 2 percent would be a
$700 billion fiscal mistake,” he warned in his speech. “If the middle
class tax cuts are not extended, Americans will face a sharp increase in
taxes and a sharp fall in disposable income.”

He opined that the world is likely to view any temporary extension
of the income tax cuts for the top 2% “as a prelude to a long term or
permanent extension.”

“That would hurt economic recovery by undermining confidence that
we are prepared to make a commitment today to bring down our future
deficits,” he said.

Still, the administration’s acknowledges that its tax policies
won’t cure all that ails the country’s economy, he said. “We are still
going to have unsustainably high long-term deficits. We don’t get them
down far enough.”

Hence the creation of the bipartisan fiscal commission, Geithner
continued, whose task now is to come up with policy changes to help make
up the additional distance required.

“Fiscal discipline requires hard choices and we must be prepared to
make them,” Geithner said.

** Market News International Washington Bureau: 202-371-2121 **

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