WASHINGTON (MNI) – The following is the text of Treasury Assistant
Secretary for Financial Markets Mary Miller’s remarks Tuesday, prepared
for the Futures Industry Association:
I want to thank the Futures Industry Association for organizing
this conference.
We believe that it is very important to maintain an open and
transparent relationship with financial markets, and venues like this
present excellent opportunities for that sort of communication.
My background is in the investment management industry and for over
25 years I attended meetings and programs like this as an investor, not
an issuer. As someone who used to trade in the futures markets, I have a
great deal of appreciation for the importance of these markets to the
functioning of the financial system.
I have now served at the Treasury for seven months as Assistant
Secretary for Financial Markets. In that role, I oversee the Office of
Federal Finance, which is responsible for U.S. Treasury debt management.
I also oversee the Office of Capital Markets, which is focused on
financial market policy, and right now on implementing Dodd-Frank
legislation and the reform of the U.S. housing finance system.
I believe that this is an important time to be engaged in the U.S.
government and particularly at the Treasury as we work to right the
economy, financial markets and fiscal outcomes.
Today, I have been asked to say a few words on the state of the
U.S. economy, the progress on restoring order to financial markets, and
the plan for managing our national debt.
After my remarks, I believe there will be time for a discussion on
questions of direct interest to the futures industry.
The U.S. Economy and Fiscal Position
America continues to recover from the worst recession since the
Great Depression, beginning in December 2007 and lasting for 18 months.
Since 2008, we have taken unprecedented steps to regain financial
market stability and restore growth. While necessary, these steps have
had significant implications for debt management and financial market
regulatory reform. In the longer term, the legacy of the financial
crisis and ensuing recession will require significant fiscal discipline
to restore budget balance.
After a year of positive growth in GDP, we are seeing improvements
in revenues at the federal level. Corporate tax revenues are running
over 40 percent above last year’s levels and personal income taxes are 5
percent ahead.
Still, due to the deep economic recession, there has been a large
imbalance between revenues and expenditures, which caused the fiscal
deficit to reach nearly 10 percent of GDP in FY 2009. We expect this
year’s deficit to be a similar or slightly lower percentage of GDP.
However, the Administration’s decision to freeze non-security
discretionary spending, together with economic recovery, will reduce
deficits over the next few years. The official forecast from the Office
of Management and Budget shows the deficit falling to 4 percent of GDP
by FY 2015.
We have also benefited from a steady stream of repayments of
investments made under the Troubled Asset Relief Program (TARP). TARP
has proven remarkably successful in achieving its goal of stabilizing
the financial sector and laying the foundation for our nation’s economic
recovery at a fraction of the cost that was originally anticipated.
While originally authorized to provide up to $700 billion in assistance,
we spent far less than that amount. New estimates indicate that the
program may end up costing $50 billion or less approximately 7 percent
of the original appropriation. To date, TARP has recovered $225 billion
in revenue from these investments and repayments are expected to
continue as time goes on.
At the end of this year, the National Commission on Fiscal
Responsibility and Reform, a bipartisan commission established by
President Obama, will offer ideas to further reduce our deficit. Once
the fiscal commission finishes its work and as our economy strengthens,
the President and the Administration are committed to making the tough
choices necessary to reduce our deficits.
While we have seen important signs of improvement, some recent data
on the economy have been more mixed. The business sector has been a
source of strength. Businesses have started to increase investment in
equipment and software, which leads directly to GDP growth. However,
data on the labor market has been less encouraging. While private
sector employment has expanded in each of the last eight months, 15
million Americans remain out of work and future improvements in
unemployment are likely to be slow. Accordingly, private forecasters
have lowered their average growth forecasts to 2 percent for the second
half of 2010 and 3 percent for 2011.
In addition, many consumers’ balance sheets are still impaired for
a number of reasons related to stress in the housing and financial
markets. As consumers work to repair their balance sheets by
deleveraging and saving which is a good exercise for the long term –
household consumption will contribute less to growth in the short term.
An important contributor of the downturn, the housing market,
remains weak and the shadow inventory of foreclosed-upon and vacant
housing will likely weigh on residential investment for some time.
Nevertheless, low interest rates are helping homeowners to refinance and
the trajectory of delinquencies and foreclosures is starting to improve.
Home prices have started to stabilize in most markets, albeit at lower
levels relative to their peak in early 2007. We are also seeing some
signs of stabilization in the commercial real estate market and the
re-emergence of financial transactions to reduce inventory. A key to
further improvement in both of these areas, of course, must be gains in
employment.
The downside risks to the economy have led some to forecast a
“double dip” recession. That is not our forecast and seems unlikely. We
are in an important transition period as government support for the
economy subsides and private demand takes over. The economic data show
that this transition is happening private demand, including business
investment and even consumer spending, has increased recently and will
likely continue to increase in the second half of 2010. During this
transition, periods of weaker economic data are not surprising,
especially given the depth of the economic downturn we experienced.
While we have come quite a distance from the winter of 2009, when
the economy was losing more than 700,000 jobs a month, more remains to
be done for the millions of Americans who remain out of work. That is
why the President recently announced a new plan for rebuilding and
modernizing America’s roads, rails and runways. This will help the
economy in the short term, while setting a foundation for continued
growth and prosperity over the longer term. In addition, the President
has proposed allowing businesses to write off investments made in 2011,
which will further encourage businesses to get off the sidelines and put
their profits to work creating jobs.
Financial Markets
Despite recent volatility, one reason for the reemergence of
confidence in the economy is the recovery of the financial markets since
the first quarter of 2009. The stock market, measured by the S&P 500, is
up nearly 70 percent since the March 2009 low. Credit sectors have also
performed well as corporate debt, municipal bonds, and asset backed
securities have all recovered significant ground.
Together with the recovery of the banking sector, improvements in
these credit markets will make financing more widely available for all
types of borrowers, which will in turn facilitate economic recovery.
Let me be clear that not all parts of the financial markets are back to
where they were pre-crisis nor should all be but we have largely
restored stability to these markets.
We are also confident that futures markets, and in particular the
market for Treasury futures, will remain highly liquid as the country
moves forward toward economic recovery. As you all know, we are already
seeing volumes in Treasury futures rebound. CBOT-traded Treasury
futures of virtually every maturity were up significantly during the
first nine months of 2010 as compared to the same period a year earlier.
What is not back to normal is investor confidence and that will
take both time and significant action to restore. After a tumultuous
decade marked by high levels of volatility and negative returns in many
sectors, investors are understandably cautious. Retreating to the
sidelines has been a frequent response from market participants over the
past two years. Very low returns on cash investments and money market
funds make this a painful choice, even in a low inflation environment.
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** Market News International Washington Bureau: 202-371-2121 **
[TOPICS: M$U$$$,MFU$$$,MCU$$$,M$$FI$]
