Tim Geithner speaks at his alma mater, Dartmouth College
June 26, 2011 7:22 PM   Subscribe

US Secretary of the Treasury, Tim Geithner '83 Speaks at Dartmouth Summer Lecture Series "Leading Voices in Politics & Policy". Geithner's alma mater is Dartmouth College.
posted by gen (6 comments total) 7 users marked this as a favorite
Thanks, this was informative. I see a little better why revenue/spending is taking precedence over action on unemployment. Still bullshit that it will be that way, but I see the systemic perspective invoked, prematurely, though perhaps constructively.
posted by zangpo at 8:24 PM on June 26, 2011

empty suit.
posted by ennui.bz at 12:58 AM on June 27, 2011

It was somewhat unclear to me what, in the answer to the interlocutor's question about running a surplus, Geithner was referring to. Was he referring to the possibility of running a surplus, further action on unemployment, or the fact that the U.S. has a bad habit of spending a lot of money during bad times but not running a surplus during good times to pay for it?

If he was referring to unemployment, I have to take issue with that. Japan, a resource poor country with an aging and shrinking population, has a debt to GDP ratio of over 200 percent - nearly twice that of the U.S. under even the most pessimistic projections. Despite that, and the fact that they suffered a massive natural disaster which caused extensive damage to their productive capacity and infrastructure - which, if anything, one would think would give creditors doubts as to their ability to repay their debt - they are still able to borrow money extremely cheaply.

It wouldn't take running up even that much debt in the U.S. to do more on unemployment.

Which we should. Right unemployment is over 9 percent, and, frankly, at the rate things are going, I have my doubts that it will drop below seven percent before the next recession hits, as they tend to occur about once a decade.

To put that into perspective, full employment used to be considered between 4 and 5 percent.
posted by eagles123 at 1:23 AM on June 27, 2011

Japan's debt is different because very little of it is foreign held. There is a very high savings rate over there a a ton of that very wealthy country's money is invested in its own government's debt.
posted by Aizkolari at 2:45 AM on June 27, 2011

burn the witch
posted by clavdivs at 6:04 AM on June 27, 2011

Look at this list: http://en.wikipedia.org/wiki/List_of_countries_by_external_debt

There are plenty of countries with a higher external debt level relative to their GDP than the U.S. (Don't just look at the absolute amounts, look at the percentages of GDP)

There simply is a lot of debt in the economy in general right now. I don't care what entity you look at, government, corporations, or household, chances are there is going to be a high debt level. In a global economy, it is inevitable that the ownership of that debt crosses borders.

Out of all of the entities I listed, even among countries, the U.S. is actually in good shape. Maybe that is why the interest rates that it needs to pay to finance its debt are are at historic lows.

As to the foreign holders of U.S. debt:

Only about 30 percent of U.S. debt is held by foreign countries. Most of that is China, which, among other reasons (U.S. debt is viewed as a safe asset) buys U.S. treasury bonds in an attempt to artificially inflate the dollar relative to their own currency so as to give their manufacturers a competitive advantage versus those in the U.S. - as well as other developing nations. If they wanted to cut down on those holdings it would actually be a good thing.

They won't though, because it would hurt their exporters and destabilize their economy.

The rest is held by Japan, random European countries, and countries in the Middle East. All of these rely on the U.S. for security and to be a market for their goods.

In the end though, countries simply view the U.S. as a safe investment. Why?

The U.S. is a massive country that spans an entire continent. It contains the most fertile farmland on earth, and, were it so inclined, could grow enough food to feed the entire world. In addition, it has access to abundant natural resources, even more when those in Canada are included due to NAFTA. It also posses a huge, highly educated population, one that is still growing thanks to immigration, and has abundant land to place those immigrants.

That being said, I am not saying that we should pile on debt indefinitely. I'm simply saying that it is not such as massive crisis that it requires abandoning the social compact, in place since the New Deal and implicitly recognized by both Democratic and Republican presidents, that obligates the government to work to maintain full employment and economic growth.

The short term deficit is due to the Bush tax cuts, tax shortfalls due to the recession, and the wars in Iraq and Afghanistan. If we just do nothing those budget items will take care of themselves.

The long term debt is due to Medicare and Social Security. Social Security is relatively simple. Right now it is fine, but in the future it will begin to contribute to the deficit due to the temporary demographic bulge caused by the baby boomers. Fixing it is as simple as raising the cap on earners subject to taxation to fund it - something that should be done anyway due to inflation.

Medicare is a bit more difficult, but it is something that we are already taking steps to address in the health care bill. Health care costs are rising generally, so in the end we are just going to have to combine reforms in that sector to bring costs more in line with those in other countries with measures to increase the money we put into the program.

I reiterate, however, that Medicare and Social Security are medium to long term issues, not issues that require immediate action in the short term.

We could easily make a commitment now, to take measures necessary to deal with deficits both present and future, while also recognizing that, over the near term, stimulating the economy in order to restore proper growth and full employment is more important.
posted by eagles123 at 3:42 PM on June 27, 2011 [1 favorite]

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