Geithner's Speech to the Economic Club of Washington

Geithner's Speech to the Economic Club of Washington

By Timothy Geithner - April 22, 2009

Thank you, David. I appreciate the chance to speak to the Economic Club of Washington.

I want to talk today about the global nature of the current financial and economic crisis.  I will offer an update on our efforts to bring the crisis to a close and set the stage for a new, more balanced prosperity in the future.

The world economy is going through the most severe crisis in generations.  We each face somewhat different challenges and thus are not all in the same boat.  But we are all in the same storm. 

We now have in place a strong framework of policies to confront the crisis.  Our challenge is to put those commitments into action, and to make sure that our actions are proportionate to the challenge.

The Global Nature of the Crisis   

Although this crisis in some ways started in the United States, it is a global crisis. It is global in the sense that the damage has spread widely. It is global in the sense that the challenges we see in the United States today are common to many countries around the world. 

We bear a substantial share of the responsibility for what has happened, but factors that made the crisis so acute and so difficult to contain lie in a broader set of global forces that built up in the years before the start of our current troubles. 

Never before in modern times has so much of the world been simultaneously hit by a confluence of economic and financial turmoil such as we are now living through.

The International Monetary Fund now expects the world economy to decline this year for the first time in more than six decades. The 1.3% decline forecast by the IMF represents a sharp deterioration from the roughly 4% annual rate at which the world economy normally would be expected to grow. The lost output could be as high as three to four trillion dollars this year alone. 

And those numbers mask grave damage to economies around the world.

Only 17 of the 182 economies followed by the IMF are expected to grow faster this year than they did last year. Some 71--including 30 of the world's 34 advanced economies--are expected to shrink. The collapse of world trade is will likely be the worst since the end of World War II.

Several crucial lessons flow from the simultaneous nature of this crisis.

The rest of the world needs the U.S. economy and financial system to recover in order for it to revive.  We remain at the center of global economic activity with financial and trade ties to every region of the globe.

Just as importantly, we need the rest of the world to recover if we are to prosper again here at home. Before the crisis, U.S. exports were among our economy's fastest-growing sectors, accounting for more than 6 million American jobs, or about 5% of total private sector employment in the U.S.  Now, they are one of its fastest-shrinking.  

As a consequence, the community of nations must work together--and that work has already begun--to revive economies around the world and to lay the groundwork for a new, more stable and more sustainable pattern of growth in the future.

During the boom years, we marveled at how globalization was speeding the pace of economic activity and integrating national economies.  Now, we are learning that in times of contraction globalization transmits trouble with enormous speed and force, affecting economies around the world – the relatively strong as well as the more vulnerable. 

This crisis is not simply a more severe version of the usual business cycle recession, the typical downturn in which economies ultimately adjust and stabilize.  Instead, it is an abrupt correction of financial excesses that has overwhelmed economies' and markets' self-correcting mechanisms, and so can only be ended by extraordinary policy responses.

The Policy Framework for Recovery

Over the last three months, President Obama has moved quickly to put in place a comprehensive framework of policy initiatives to restore growth and create jobs at home, and to build consensus with other nations on a coordinated global response. 

 This response reflects the three critical imperatives of the crisis:

 First, it requires very strong actions to increase demand through fiscal actions--investments and tax incentives--alongside the actions undertaken by central banks to reduce interest rates.

Second, it requires a sustained effort to repair the financial system, so that we get credit flowing again to those who can use it most effectively. 

Third, it requires the mobilization of financial resources to help directly address the challenges facing emerging and developing economies.

Spurring Growth

 Within weeks of assuming office, the President worked with Congress to enact the largest economic recovery plan since World War II. By the time the plan has been fully implemented by the end of next year, we will have injected nearly $800 billion into the U.S. economy, saved or created 3.5 million jobs and raised our real gross domestic product over where it would otherwise have been by more than 3%.  

In just over 60 days since its passage, funds are already at work in communities across the country as highway projects break ground and people see more money in their paychecks.  

In tandem with our expansion plan, we and the other nations in the G-20 agreed during our Summit meeting in London earlier this month to muster an unprecedented, cooperative program of fiscal stimulus .  The IMF estimates that our combined efforts add up to a $5 trillion dollar fiscal boost over the three years ending in 2010 and will raise global output by four percent  over where it would otherwise have been. 

What makes this global program so powerful is not simply its size, but the fact that nations are acting alongside each other to support demand with fiscal policy, which increases the effectiveness of each of our actions. Central banks started earlier in the crisis to move together to reduce interest rates, and those actions are now being matched on the fiscal front. 

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Geithner is the Secretary of the Treasury.

Timothy Geithner

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