Treasury Secretary Timothy Geithner defended the Obama Administration’s fiscal policy on Thursday, saying deficit spending was unavoidable until the U.S. economy stabilizes.
In testimony before a Congressional committee, Geithner acknowledged that rapidly escalating national debt could erode the value of the dollar and put the U.S. at risk of losing its AAA credit rating.
There was no choice but to quickly implement costly stimulus programs, however, Geithner said, given the state of the economy when the new administration took over in January.
The only “responsible way” to address the fiscal crisis was for the government to purchase U.S. Treasuries in an effort to stimulate the economy, a policy that would necessarily increase the deficit, he said.
Not everyone was convinced, and Geithner was asked by members of the House Appropriations financial services subcommittee how the administration plans to deal with the deficit once the economy starts to bounce back.
“We will work very hard to make sure that we bring these deficits down once we put in place a recovery and we fix this crisis that we inherited. Remember, we start with, and we started with, an exceptionally high deficit. The cost of the crisis required exceptional costs up front. There is no way we could solve this crisis without the temporary necessity of higher short-term deficits, and if we did not do this, again, we would face higher deficits in the future,” said Geithner.
The Secretary also addressed questions regarding the success of the Troubled Asset Recovery Program, or TARP. In addition, some members voiced concerns that the administration is meddling too much in matters that might better be left solved by market forces.
“While TARP is proving effective at improving the immediate stability of the financial system, the scope of the issues that this administration and this department face extend beyond TARP to include striking the delicate balance between intervention and allowing market participants latitude to operate; devising a new financial regulatory structure for the future; and working through the tough problems of what form our government-sponsored enterprises, Fannie Mae and Freddie Mac, should take as we emerge from this difficult period,” he said.
Questions also arose over what plans the administration has to prevent further erosion of the dollar.
“As the secretary of the Treasury, I want you to know that my basic obligation is to make sure that we put in place policies that sustain confidence in this economy, in our currency, that we sustain a strong dollar, that we retain what is a great strength and asset to this country, which is the most deep and most liquid market for Treasury securities in the world,” he responded.
