Secretary of the Treasury Timothy Geithner spoke today to a not-full room in Jeddah. While the speech ranged through centuries of Gulf history and seemed designed to continue until the Saudi kingdom becomes a republic, it does open a window on current interventionist thinking. Some highlights:
It would be even worse if we weren't here:
The global economy today is going through one of the most challenging periods of economic stress in generations. On every continent, in almost every country, businesses and families have experienced a severe loss of wealth, rising unemployment, business failure.
But the policies, the economic policies that have been put in place here in the kingdom, in the region, in the United States and around the world have helped contain the crisis. It helped arrest the crisis, slowing the pace of decline in economic growth, pulling the global financial system back from the edge of failure and establishing the basis for economic recovery.
The force of the global recession is now receding, and the IMF and a range of private analysts are starting to revise up their forecasts for growth in the second half of the year and next year, and global trade is now starting to expand again.
Really, you should see the size of our package, it's huge. Just give us two years. OK, give us six months:
Within just weeks of taking office, President Obama worked with the Congress to put in place the largest and most sweeping economic recovery package in our nation's history, a comprehensive program of tax incentives for businesses and households, support for state and local governments. and investments in critical economic priorities such as public infrastructure, energy, health care and education. This recovery act was designed to provide a sustained boost to economic growth over a two-year period. And the administration has moved, as your government has here, moved with care and speed to put these programs in place quickly, and as the program is designed, the largest effects on the spending side will start to take effect over the next six months.
We're still free traders, under a holistic system of systems, one vast, interwoven, interacting, multivariate, multinational dominion of dollars:
As we moved quickly to address the problems we face in the United States, we've worked with the major economies of the world on a coordinated program of macroeconomic stimulus and financial stabilization. We've agreed to keep our markets open to trade and investment, and we built consensus on an exceptionally large program of financial support for emerging and developing economies through the IMF and the multilateral development banks. And together, this represented the most aggressive response to a financial crisis in the last 50 years, implemented with unprecedented speed and breadth. Unlike the crises of the 60s, the 70s, the 80s and the 90s, where division and hesitation slowed the international response, this time the world came together.
This is going even better than I'd planned!
In the United States the rate of decline in economic activity has slowed, business and consumer confidence has started to improve, the housing markets are showing some signs of stability; the cost of borrowing, the cost of credit, has fallen significantly; credit markets are opening up.
And these improvements have been more substantial and have come more quickly than many of us expected when they were designed in December and January.
Folks in foreign lands believe in Green Shoots too:
I arrived here from Europe, where the pace of contraction is showing some signs of moderation.
In Japan similar signs of stabilization are starting to emerge.
In China the government has been successful in using policy to lift demand, and this is in turn helping boost the prospects for other Asian economies.
In Brazil and other parts of Latin America, growth prospects are also improving.
And here in Saudi Arabia, the non-oil economy continues to expand, boosted by one of the largest stimulus packages of any G20 country, and by very aggressive, appropriately aggressive, monetary policy in the financial sector actions.
On the strength of this global response, and these initial signs of traction, the IMF recently upgraded its forecast, predicting 2.5 percent growth for the world economy in 2010, slower than is typical for recoveries, but a recovery nonetheless.
Beatings will continue until morale improves:
Our challenge, and this is our collective challenge globally, is to make sure we provide a steady, forceful and sustained level of support for economic growth until we are confident that we've established conditions for a durable recovery led by private investment and private spending.
Now although this strategy has been successful so far in reducing the risk of catastrophic failure in our financial system, and reducing the risk of a much deeper global recession, we need to keep the growth, keep economic growth the focus of policy. The classic, tragic errors of economic policy in financial crises and economic crises around the world are: governments act typically too late with insufficient force, and then they put on the brakes too early, they put on the policy brakes too early. And we are not gonna repeat these mistakes.
Pay-as-you-go rules will finally shape us up.
And that's why it's so important that the exceptional actions that we have taken to help address the crisis are temporary and will be reversed as soon as the crisis has definitively receded. The United States was on an unsustainable fiscal path before this crisis, and we will not succeed in establishing a sustained recovery without a credible commitment to address our longterm fiscal deficits.
That's why the president, in his first budget to Congress, made it clear that as soon as recovery is firmly established, we'll bring down our budget deficits to a level that is sustainable over the longer term. And for us that means bringing the imbalance between our fiscal resources and our expenditures down to the point roughly in the range of 3 percent of GDP, where the overall level of public debt to GDP stabilizes at a manageable level.
It also means limiting future spending commitments, in part through the kind of budget disciplines we call pay as you go rules. And it requires, and this is critically important, it requires reducing longterm growth in our health care costs and reforming social security.
We know we've hurt you in the past, but we've grown, we've changed, we really have:
Since the controversy surrounding the Dubai Ports deal in early 2006, our government has put in place a series of reforms designed to safeguard national security while providing more clarity, more predictability and more transparency to investors.