Fed Geithner: 'US Fiscal Position Is Unsustainable'

Federal Reserve Bank of New York President Timothy Geithner again warned the U.S. needs to get its financial house in order to remain competitive in the global economy.

In a speech Wednesday in Washington, the Fed's point man with financial markets said "the United States faces very substantial gaps between our fiscal resources and our expenditure commitments." He warned "these gaps remain substantial and the U.S. fiscal position is unsustainable," adding that a response must be implemented "if we are to preserve confidence in our market and our long-term economic prospects." Geithner, who is the vice-chairman and a permanent voting member of the interest-rate-setting Federal Open Market Committee, refrained from commenting on monetary policy in his prepared remarks, although he did say "one of the most important roles for public policy is the maintenance of a stable macroeconomic framework that enables firms to make long-term investment decisions." The official dedicated much of his speech to the importance of the U.S. increasing its integration with the global economy. But he also noted there are downsides to doing so, and that efforts must be made to smooth the transition, lest the public lose support for the endeavor. Calling the current state of the economy "a remarkably favorable picture, he explained that "the American economy and American business are performing well" and "corporate balance sheets are healthy." But Geithner added "there is growing concern about the long-term challenges for the U.S. economy and their implications for future prosperity." At the same time, globalization-related pressures "have led many to suggest that we should become less open as a country," and many want to slow integration and offer more protection for domestic industries, Geithner said. "Moving in this direction would, I believe, be a fundamental mistake," the policy maker said, explaining "more than ever before, our fortunes are linked to those of the global economy." Geithner said "if anything, we need to become more open, not less; more open to trade in goods and services, but also to investment, to people and to ideas." The official said there are steps the U.S. can take to increase the public's confidence in allowing a more globally integrated economy. One concerns health insurance. Given a need for greater flexibility in employment, "we probably need to move to a system in which a change in employer or profession does not carry the substantial uncertainty it does today about how one will provide for one's health and that of one's family," Geithner said. He added, "we need to be more attentive to the risk that specific aspects of our system, regulations or other constraints, create a greater disincentive to locate a financial business here, or to invest here, or to raise capital here, than would have been the case five or 10 years ago." Meanwhile, Geithner said "we need to get used to a world in which we will see, in many areas, less willingness to adopt a U.S. model or to defer to a U.S. view on the appropriate global standard."