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Secretary Geithner: Reason for Optimism

Aug 24, 2012 Written by  Oscar Montealegre, Contributor

4863360989 93af78a773“We are still living with the scars from the Great Recession,” says U.S. Secretary of the Treasury Timothy Geithner. Yet at a luncheon in Los Angeles where Mr. Geithner made a rare visit, he voiced a sense of optimism that the U.S.'s outlook is not as dire as Europe's and China's.

The economy is currently in a challenging phase, and Mr. Geithner by no means shied away from this reality. In the beginning of 2012, growth was quietly accelerating but has recently slowed due to several reasons. First, the European sovereign debt crisis has affected U.S. exports; second, government spending has decreased--regardless where anybody stands on government spending, in a soft economy, government spending dropping will, for better or worse, affect short-term growth; third, consumer confidence has spiked downward; and fourth, political uncertainty reigns.

Europe, on the other hand, is dealing with a sovereign crisis that continues to escalate. Greece is on the brink of departing the once-coveted European Union. Spain is struggling to cope with high unemployment (in the 20 percent range) and high volatility in the bond market, forcing the government to borrow money at high interest rates. Portugal, Ireland, and Italy are mired in low productivity, high unemployment, or minimal growth. France has their own share of problems that are being swept under the rug, exemplified by the downgrading of their AAA investment-grade status and a public debt that is 90 percent of their GDP.

Secretary Geithner stressed the importance of European leaders finding a solution to their problem(s). Interestingly, Mr. Geithner stated that it is not a complicated issue; it is a political issue, not economical. It hinges on the EU’s willingness to give up political control and muster the capability to build institutions “a la Alexander Hamilton.” When the U.S. faced economic Armageddon, our leaders made swift decisions that, at the very least, stabilized the markets. Europeans, on the other hand, are delaying the inevitable, placing band-aids time after time when surgery is required. It is as if the EU is getting a rush from living on the edge of collapse.

China receives much fanfare, with merit, but it cannot sustain itself economically long-term by being the low-cost manufacturers of the world. Secretary Geithner alluded to this, stating it is not in China’s interest in being the workshop for Apple and Microsoft. Also, they have a severe demographic problem that can cause sustainable damage. Similar to the situation in Japan, China’s population is aging, and stubbornly adhering to a one-child policy will only accentuate an aging population, creating an upside-down demographic. For example, Japan’s population is currently 128 million, aging by the second and stuck in what seems a perpetual economic malaise. Now imagine if China with a population of 1.3 billion would mirror Japan’s demographic--it would not only grossly damage China’s growth, but the world’s economy.

The U.S. has a much younger population than China; this fact is not mentioned much. Even India, despite their problems, may have less long-term head wind than China because their population is young, a major ingredient for a vibrant economy.

Moreover, the U.S. economy is less dependent on the state-for now than China, creating a more open and entrepreneurial environment which China can only view with envy. Regarding manufacturing, the U.S. can boast about their reemergence in sectors such as energy, agriculture, and high-tech. According to a recent article in Forbes magazine, the U.S. is gradually strengthening its energy supply, shifting the power away from the Middle East back to the U.S.

The U.S. does have its fair share of problems: high unemployment, a scarred real estate market, low consumer confidence, and political uncertainty. Nevertheless, remedies take time. What is essential is that the economy is positioned for long-term growth.

Secretary Geithner made one thing clear: he would not trade the challenges the U.S. faces for any others in the world.

Photo courtesy of the Center for American Progress (cc).

Tagged under Secretary of Treasury    Tim    Timothy Geithner    Los Angeles    Europe    Eurozone    Euro    Greece    Portugal    Ireland    Italy    unemployment    jobs    growth    economy    economic    population    China    Alexander Hamilton    demographic    India    Japan    real estate    consumer    confidence   
Last modified on Friday, 24 August 2012 01:22


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