Davos 2011: Geithner resists pressure for drastic cuts

US Treasury Secretary Tim Geithner: 'America will act'

US Treasury Secretary Timothy Geithner has told Davos delegates rapid, drastic spending cuts are "not the responsible way" to cut national budget deficits.

He also said the US was more confident now there was a sustainable expansion, but said it was not a boom.

Mr Geithner said "education, innovation, and investment" were the way forward for the US economy.

And he envisaged a future where the US and China could both enjoy economic growth.

'Plan and adjust'

Mr Geithner was the first Treasury secretary in 11 years to address the world's business elite at their annual get-together in Davos, Switzerland.

His appearance came in the week that budget forecasts from the US Congressional Budget Office showed the federal deficit rising to nearly $1.5 trillion in 2011, the highest on record.

The US is one of only two G20 countries which expects its deficit to rise, not fall, this year.

At 9.8% of GDP, it will be higher than it was in the depths of the financial crisis, in 2009, and there have been questions about how long the US can run such a large deficit.

"There is a much greater recognition across the US political system that our fiscal position is unsustainable in the long-run," said Mr Geithner.

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What's going to happen first - sensible US fiscal policy, or a global revolt against the dollar? In all my discussions about the global economy so far here in Davos, that's the question we keep coming back to”

End Quote

He said it would take substantial effort to bring the deficit under control and that a plan would be laid out "to allow people to plan and adjust".

Mr Geithner said it was important not to "hurt the recovery and I know there are people who would like to make very deep cuts that would undermine the recovery".

He added: "You got to make sure that you don't hurt the recovery and take too much risk that you damage the early expansion by shifting too prematurely to substantial restraints.

"We're not going to let that happen. There are some people who like to move... very quickly to do very deep cuts in spending but it is not the responsible way to do it."


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There is more confidence now that the most acute part of the crisis is over, absolutely in the US, but even true globally”

End Quote Timothy Geithner US Treasury Secretary

His approach is in contrast to that of the UK coalition government led by David Cameron, also a delegate at Davos, which has implemented the biggest fiscal squeeze in a generation.

Chancellor George Osborne plans £81bn of spending cuts in the UK , but Mr Geithner has said he has no plans for such cutting measures.

"It would undermine the long-term objective of making sure that we achieve a sustainable fiscal position," Mr Geithner told the assembled gathering of business leaders. The process should start "more gradually", he added.

He also said that fears of the economy falling back into recession now seemed less likely, citing economists who have forecast US growth of between 3% and 4% this year and next.

"There is more confidence now that the most acute part of the crisis is over, absolutely in the US, but even true globally," he said.

"I think there is much more confidence now that we've got a sustainable expansion. It is not a boom."

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