–Better To Conclude Budget Discussions Before Addressing Tax Reform
–On IMF Selection Process: France’s Lagarde ‘Exceptionally Capable’
–Bemoans Congress’ Lack of Progress on Diamond, Other Nominations
By Brai Odion-Esene
WASHINGTON (MNI) – U.S. Treasury Secretary Timothy Geithner
Wednesday said he is confident that by the summer, Congress will not
only have raised the debt ceiling, but the administration and lawmakers
will have agreed on a “comprehensive” plan to tackle the nation’s
long-term deficits.
In a wide-ranging discussion at the Politico’s “Playbook
Breakfast,” Geithner also talked up the talents of France Finance
Minister Christine Lagarde, while describing the failure of Congress to
approve the nomination of Peter Diamond for the Federal Reserve Board
and other government agency heads as “irresponsible.”
And Geithner said he remains confident Congress will act to raise
the debt ceiling, stating unequivocally that “the United States will
never default on its obligations.”
Hill leadership, and the “vast bulk” of Congress, understand the
need to raise the limit, he said, describing the ongoing debate over the
debt as simply “theater.” Treasury is taking extraordinary measures to
remain under the debt limit, but has stressed that it can only hold out
until August 2.
Geithner predicted that not only will Congress pass an increase in
the debt ceiling by the summer, but it will also have put in place “a
long-term comprehensive, bipartisan fiscal reform plan that begins this
process of getting us back to living within our means.”
“I think we have a very good chance of doing that,” on the basis of
ongoing negotiations, he said, noting that there are good prospects for
a “sizable deal” on the U.S. long-term fiscal path.
On the matter of overhauling the U.S. tax system, Geithner said a
lot of progress is being made and there are set of options in place that
will be good for the country, the economy and investment.
However, it is important to get through the ongoing debate about
the budget and the long-term fiscal future of the U.S. before addressing
the issue of tax reform, Geithner said.
“You don’t want to do anything right now that would make the budget
discussions harder … and we don’t want to do something now that would
reduce the prospect that we could people to come together on a sensible
approach to tax reform,” he said.
On the debate surrounding the selection of the next head of the
International Monetary Fund, Geithner said the selection process must be
“contestable,” and based on the talents as well as the merit of the
individuals.
So far Bank of Mexico Gov. Agustin Carstens and France’s Lagarde
have thrown their hats into the race to succeed Dominique Strauss-Kahn
and Geithner said they are both “very credible.”
It will be an open selection process, Geithner said, with the goal
of selecting the candidate not just with the most experience but “who
can command the most broadest base of support.”
But in comments that could boost her frontrunner credentials,
Geithner praised Lagarde, calling her “an exceptionally capable person”
with an “excellent mix” of financial and economic talents and the
political skills needed to navigate the contest to be IMF chief.
Given that it is the largest IMF shareholder, Geithner said the
U.S. will play a significant role in ensuring not only that the
selection process is fair but that the best outcome is reached.
Providing his outlook for the U.S. economy and the recovery,
Geithner said “the future of housing, the pace of repair, will depend
much more now on just what happens in terms of growth in the United
States.”
Realistically, Geithner said it will take “several more years” for
the housing market to recover.
Commenting on the still fragile jobs market, Geithner noted that
the unemployment rate remains very high “and is going to come down
slowly, too slowly for everybody.”
The most important think thing that policymakers in Washington can
do now, Geithner said, “is to create the conditions for continued
progress in getting more Americans back to work.”
The Dodd-Frank financial regulatory reform act had come under
intense criticism by many in the financial community since its passage
last year, and Republicans have sought to limit or undo many of its
provisions.
“We are not going to let that happen,” Geithner said, issuing a
warning to those that he says “are waging a war of attrition” against
Dodd-Frank.
“They won’t have success,” he said.
On the sovereign debt crisis in Europe, Geithner said it completely
within Europe’s capacity to manage the crisis without any spillover. “I
think it’s a containable problem for them,” he said.
Geithner spoke with exasperation regarding the spate of
administration nominees for top regulatory jobs that have made no
headway in the Senate, saying he could not understand why some members
of Congress consider it a good strategy to block “talented” individuals
nominated by the White House.
He noted for example that “Congress has proven itself unwilling to
confirm … a Nobel Prize winning economist,” referring to the
nomination of Peter Diamond serve to be a Federal Reserve governor.
Diamond’s nomination continues to languish in the Senate, as
Republican Sen. Richard Shelby, ranking member of the Banking Committee,
making it clear to Market News International in a May 18 interview that
he will continue to oppose the MIT economist’s appointment to the Fed.
Congressional opposition has been cited the major reason for the
delay in the White House putting forward a nominee to be director of the
Consumer Financial Protection Bureau, while the nomination of Joseph
Smith to be director of the Federal Housing Finance Agency also remains
in limbo.
“By making the confirmation process really untenable … they deter
people from putting themselves through that process,” Geithner said.
“The reason why all those jobs are staying empty, is because they’ve
raised the bar so high — untenably high.”
That is a mistake and it is “irresponsible,” Geithner said.
“Everybody, I think, wants to make sure we have a strong financial
system … and everybody recognizes it’s got to be a more stable
system,” he said.
But for that to work, regulators are required “who know what they
are doing … who understand markets,” Geithner continued.
He warned that a strategy that prevents such individuals from being
appointed cannot be in the interest of the financial system.
The administration wants to place talented individuals in roles
that require difficult and complicated choices, Geithner said, but has
to balance that against ensuring the nominee can make it through the
confirmation process.
“Finding the intersection between those two things has become
difficult,” he said.
** Market News International Washington Bureau: 202-371-2121 **
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