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“Much to Be Encouraged About”: Geithner Talks Tough on the Dollar, Deficits and More

Aaron Task
Editor in Chief
Fin - Daily Ticker - US

Treasury Secretary Tim Geithner reiterated and defended the "strong-dollar" policy following a speech Tuesday at the Council on Foreign Relations in New York.

"Our policy has been and will always be, as long, at least, as I'm in this job, that a strong dollar is in our interest as a country," Geithner said in response to a question. "And we will never embrace a strategy of trying to weaken our currency to gain economic advantage at the expense of our trading partners."

President Obama's former chief economic adviser, Christina Romer, recently described here how the administration sees benefits from a weak dollar, but Geithner was having none of it. (See: Christina Romer: A Weaker Dollar Is Good For America)

Unbowed by the dollar's recent weakness — it hit its lowest level since August 2008 Tuesday -- or record-setting gold and silver prices, Geithner reiterated a now familiar theme among policymakers: The dollar's strength during the "darkest moments" of the crisis is "very encouraging," he said, and shows investors "retain fundamental confidence in the ability of the U.S. to manage" its long-term budget issues.

I'd Prefer Our Challenges

Generally speaking, "confidence" was the theme of Geithner's remarks on a number of issues, including the economic outlook, the success of bailouts, and the likelihood of Washington politicians finding consensus over such contentious issues as the debt ceiling vote and America's long-term fiscal challenges.

Here are some highlights:

The Economy: "The economy is definitely healing, even with the many challenges we now face," most notably rising crude prices.

Even if first quarter GDP comes in below 2%, as expected, consensus estimates for 3-4% GDP growth over the next two years seem "like a reasonable expectation," he said. "I believe we can be confident the economy is healing [and] gradually getting stronger; there's much to be encouraged about."

The Bailouts: The direct cost to the U.S. government will be "trivially small," even when including the expansion of the Fed's balance sheet and the Treasury's exposure to Fannie Mae, Freddie Mac and AIG.

(That's true if current estimates hold up. But the indirect cost of the bailouts has been very steep, in terms of the loss of confidence in the financial system and credibility of the U.S. political system, which Geithner separately acknowledged must be restored.)

The Deficit: Addressing the deficit is a "formidable challenge" but it's "manageable" and "not as hard as" dealing with the crisis of 2008. "We don't need to resolve all issues but we can buy some time if we lock in a multi-year framework that imposes fiscal rules and discipline [on Congress.]"

The Debt Ceiling: "Of course they will act," he said of Congress, calling the political debate over the debt ceiling "ridiculous" and "irresponsible."

Us vs. Them: America's problems are "much more manageable" than other developed nations, he said. "I'd prefer our challenges."

Despite widespread concerns about the deficit, "we are a much younger country…we have much better underlying growth rates [and] we started with a much lower overall debt burden as a share of our economy," Geithner said.

Furthermore, the "structural piece" of America's deficit — vs. that which resulted from the crisis -- is much smaller than in other nations currently embracing austerity, most notable the U.K., he said. "The size and expense of our commitments in the safety net are a much smaller share of the economy as a whole so we are in a much better position to manage through this."