By Bill Sokolis

CHICAGO (MNI) – U.S. Treasury Secretary Timothy Geithner Wednesday
said while he is still of the opinion that China’s currency remains
undervalued, the Chinese government has gradually eased efforts to keep
it so.

Answering a round of questions at the Economic Club of Chicago, he
noted promising, structural changes in comparing Chinese currency vs.
the U.S. dollar.

“In real terms,” Geithner said China’s currency has “appreciated
gradually against the U.S. dollar by approximately 13%-14% over the past
20 months and 40% in real terms over the past 5 years.”

China has loosened “up on controls designed to slow the pace at
which market forces can push the exchange rate higher.”

“Trade surplus is down dramatically,” Geithner added.

Meanwhile, when asked if he was satisfied with the level of action
presented by Dodd-Frank reforms, Geithner said he was “very confident
the reforms get to the core of the issues that caused the crisis,” while
he was positive over getting the “balance of reforms right.”

Reforms have produced “no negative impact that is material,”
Geithner said,” while they make financial institutions more resilient to
crisis.”

“Banks are much stronger than they were before the crisis,” while
they can “compensate, weather the weakness experienced in Europe,” he
said, adding that Europe has “has made huge progress in the last few
months, taking good steps to recapitalize financial institutions, larger
firewalls to protect foreign economies, spill over to U.S.”

Developments in Europe are “very promising, but still long way to
go, very fragile,” Geithner said, while the “$700 billion Euro lending
another step/piece to provide more durable economy.”

He gave credit to President Obama for “moving very early to put
reforms in place very early,” that if early “legislation of choices
made” had not occurred, the “crisis would have been much worse.”

“There was a huge amount of risk built up outside the traditional
banking system, larger than the bank system itself. When the storm hit,
it all came crashing down,” Geithner said.

“Reforms, at their core, give us the authority and better tools to
dismember, unwind large institutions,” he said, while providing “more
leverage with more conservative capital partners, providing more
consumer protection, transparency, oversight and a level playing field.”

Geithner said “tough reforms are prudent for the recovering
American economy,” and he is “sure reforms can improve over time, but
are absolutely necessary, tough where they need to be tough.”

Geithner said the “biggest source of unfinished business is the
housing market,” though current issues do not reflect systemic risks.
While “GSE’s have a much broader conservatorship,” Geithner said, “we
are much further behind in improving housing than in other areas.”

Meanwhile, Geithner conceded “unemployment remains high due to
aftershocks from crisis. The best way to lower unemployment rapidly is
to increase economic growth more quickly.”

On borrowing, Geithner said, “when you look through this debate ..
there are things we could afford, might have been important in the past,
we can’t afford them.”

“It’s just not fair. We used to think you could borrow to finance
at very low rates to affect taxes in investment income for wealthy
americans. we could borrow to finance them indefinitely. we don’t have
that option any more.”

“You think in this context it’s possible for us to go out and
borrow the trillion dollars over ten years it would cost us to extend
the bush tax cuts for the top 2% or capital income or sustain carried
interest.”

“You’d ask me and my successors, to go out and say, you go out and
borrow a trillion dollars over 10 years in this financial context? Not a
chance.”

On the debt ceiling, Geithner said “the threat of default hanging
over the country for the first time in our history at this level was
incredibly damaging, just enormous damaging to confidence.”

It “shouldn’t be unfair to expect, of course, when that happens, it
means unemployment is higher, more people are looking for work longer
and demand in the economy is weaker in that context. We cannot go
through that again.”

Geithner said “Congress is going to have to make a decision,
probably at the end of this year, to raise the debt ceiling again.”

And in the long run, “Congress has got to figure out a way to
separate politics from the basic question of how this country meets its
obligation over time,” Geithner said.

** MNI Chicago Bureau: 708-784-1849 **

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