Chinadaily: I’m with China Daily; it’s a great honor to talk with you. Actually, I have a lot of questions want to ask you, but due to the time constraint, I think I will just ask one or two questions. I think the 1st question is about China’s foreign exchange reserves. The Chinese public is actually worried about the safety of their money, so I’m wondering what you’re going to say to the Chinese public to assure them that their money is safe.
Geithner: Thank you for asking me that question; it’s a very important issue. Let me just begin by saying that we came into the beginning of this year with the world in an exceptional financial crisis. And just like your government has acted very, very forcefully to address this crisis, in the United States we have moved…the President has moved early….to put in place a very strong program of tax incentives, temporary investments, support for the financial system to help lay a foundation for recovery and growth. And that has required that we temporarily increase the size of our budget…like has happened in China as well and countries around the world because that is the only way for the US and the world to get through this crisis.
Now, it’s very important to us and I will say to China as I say to all American investors, that you understand that as we lay a foundation for recovery, as we come out of this crisis, we are going to move very quickly to bring our fiscal deficits down to a sustainable level. We have a strong independent federal reserve that is committed to keep inflation low and stable over time. We’re going to…as soon as we lay a foundation for recovery we’re going to bring down, unwind, reverse these exceptional measures we’ve taken in the financial sector to repair the system, make sure credit is flowing again. We are going to do everything we need to do to make sure we sustain confidence in the United States and around the world in the strength and civility of our economy and financial system. I want to underscore that we have a very resilient, very dynamic economy in the United States and I am very confident that we have the ability to get through this, working closely with China and other countries around the world, to resolve this crisis.
Chinadaily: I fully appreciate the efforts made by US government. But we still have questions. Firstly, we know you are suffering from very larger budget deficit, your government is going to sell 3.8 trillion (dollars) bonds, we are wondering if there is enough demand for these bonds. If not, do you think there is any trouble?
Geithner: I believe there will be and I think you can be confident and I think that investors can be confident that we will do what’s necessary not just to fix this crisis but to lay a foundation for fiscal sustainability over time. Just as an example, you see right now the President of the United States, even with all our challenges, working very closely with the Congress on a comprehensive program of health care reforms that will help lay a foundation for reducing growth and health care costs, bring down our long term deficits. So we are very committed to do this, and I’m completely confident we’ll be successful in doing it.
Chinadaily: I believe your sincerity, but you know there are lots of technical details. Actually, previously I just wanted to ask you about these technical details.
Geithner: But…this is not a technical question. This is what governments have to do.
Chinadaily: Yes, but what you have to do and whether you can do are different. For example, during the (past)Asian financial crisis, the Japanese economy was in trouble. And it was suffering from some fiscal problems. At that time, I talked with some Japanese government officials. They assured me that they would reduce their budget deficit and reduce the ratio of debt over GDP ratio gradually and smoothly and so on. But after ten years, now they have a debt over GDP ratio something like 200%. So it’s easily said than done.
Geithner: I agree…but…we don’t say it lightly, okay? And you watch what we do, okay? And you watch what the President said. Early in his term, as we put in place this strong…of recovery, he made it clear at that point that we would bring our deficits down to a level that is sustainable and we are absolutely committed to doing it, and I am completely confident we’ll be able to do it. If you listen carefully to the US political debate in the United States now, you will see there is much broader support for a fiscal sustainability than I think there has been over the last eight years or so and that’s a beginning. But of course, you’re going to want to watch what we do.
Chinadaily: We will be watching you very carefully.
Geithner: Of course….and just as we’ll watch very carefully what you do in China. But again, look at what your government is doing, and your government’s doing what it needs to do also which is in the face of an enormously challenging crisis globally, a huge reduction in external demand. Your government is acting very forcefully to help address this crisis. And if you look at what we’re doing together, it’s been enormously important in laying a foundation for stability, the basis for recovery. These are necessary steps and they will make it possible for us when growth is established to get back to a more sustainable path.
But there’s no alternative right now. Again, the basic lesson of the financial crisis is you need to act…to slow the pace…to lay a foundation for recovery and growth if you’re going to be able to reduce the damage to long term fiscal positions. So, if we had not acted aggressively, our deficits would have been higher in the future. You would have seen more damage to the productive capacity of the American economy, more damage to our revenue base. So this is the fiscally conservative policy strategy is to address the crisis and bring those deficits down over time.
Chinadaily: I agree these…and I just worry about the details. And also I want to point out one fact that China’s situation is quite different from your situation…
Geithner: Very different, I agree.
Chinadaily:…Because we have very good fiscal position. You do not.
Chinadaily: China’s debt over GDP ratio is 18%, and budget deficit is very small.
Geithner: That’s right. And you have a very high savings rate…you do.
Chinadaily: yes, we have a very high savings rate. So we have tremendous policy room, so that we can use expansive fiscal policy.
Geithner: But so do we…but so do we. But again the important thing…the important thing is that in a crisis like this you have to what is necessary. And I think…you raised Japan…so if you contrast what the United States is doing in this crisis relative to what many countries have down in past crises, I think you can see that we are acting on the basis of the lessons and experiences of those cases. And I think again the basic lesson from that experience is the conservative approach, the fiscally responsible approach requires in the near term temporary measures to make sure you are fixing broken financial systems…that’s what we’re doing and it’s the necessary path to fiscal sustainability.
Chinadaily: I have great sympathy with you, because I think you are in more difficult position than the financial minister of the People’s Republic of China.
Geithner: I’m not sure about that, you know China…China has, you know, gone through this enormous economic transformation. China is still developing countries. You have many challenges ahead but I have enormous respect and admiration for what your leadership has already accomplished and for the commitments we made to bring better reforms here.
Chinadaily: I have another question about Federal Reserve. Perhaps I should not ask you this question, I should address this question to Professor Bernanke. Currently Federal Reserve are using very expansive monetary policy, and the growth rate of broad money is something like 15%, and the excessive reserve has increased from 3 billion to something like 800 billion, that is a tremendous increase, of course at this moment of crisis management, perhaps it’s OK but when the US economy turn around, when risk appetite increases, then people will stop hoarding and spend their money. Therefore, potentially, inflation threat is very serious
My question is that is there any viable way for the Federal Reserve to withdraw excessive liquidity in a timely fashion, when the moment comes.
Geithner: Absolutely. I am the secretary of the treasury, not the chairman of the Fed. I do not comment on the action of the Federal Reserve. But I have experience. So let me say a few things.
We have a very strong independent central bank. Their obligation under the law is to achieve maximum sustainable growth and price stability. Their responsibility is to keep inflation low and stable over time. I’m completely confident in their ability to do that, and completely confident they will have the ability not just the will to bring down this exceptional growth in their balance sheet overtime as soon as those actions have served their purpose.
Now, just as an example, if you look carefully at what’s happened already to the exceptional financing programs they have put in place, they have started to come down as conditions in the financial system have normalized. They were designed to have that basic self-liquidating capacity, and that process have already started. But I am completely confident as can you be, that the central bank of the United States will be able to bring these down and to keep inflation low and stable over time. And I hope you have a chance to talk directly to the leadership of the Federal Reserve about that challenge.
Chinadaily: because of the time constraint, I just want to say that I’ m still not very much convinced and I am not alone. Actually, many American economists have pointed out these dangers. How you can timely withdraw excess liquidity is a big challenge for you, …no, for the Fed, more precisely.
Geithner: No one is more focused on that than the chairman of the Federal Reserve. And he has done an enormously impressive job in the worst financial crisis in decades. Working with central banks，not just in China but around the world, and making sure that markets have liquidity, that monetary policies are appropriately expansive. And I think that has been critical to helping stabilize this crisis. But I am completely confidence as should you be, that he will have not just the will but the ability to bring this down so that we achieve the obligation to keep the inflation low and stable in the United States going forward.
Chinadaily: I still wish we can see the details. What are the instruments you are going to use and what is the sequence of these policies. Devil is in the details.
Geithner: You’ll have a chance to see, but again, this is completely within their capacity to do and they’re going to do it.