Geithner: U.S. will lower deficit

Treasury Secretary Timothy F. Geithner, during a two-day visit to Beijing, tried to reassure nervous Chinese investors on Monday that the Obama administration is committed to fiscal discipline and lowering the deficit once the slumping global economy makes a recovery.

The secretary, who was making his first trip to China since becoming secretary in January, added that the federal government’s intervention in the private sector, including the $700 billion Wall Street “bailout,” has played a crucial role in helping to stabilize the faltering U.S. economy.

“We fully appreciate that exercising this special responsibility - of fixing the global economy - begins at home,” said Mr. Geithner during a major speech at Peking University, where he studied Chinese as a student almost three decades ago.

“As we recover from this unprecedented crisis, we will cut our fiscal deficit, we will eliminate the extraordinary governmental support that we have put in place to overcome the crisis, we will continue to preserve the openness of our economy, and we will resolutely maintain the policy.”

China holds about $768 billion of U.S. Treasury securities, making the communist country the United States’ biggest creditor. Mr. Geithner promised the Chinese that their investments were safe despite administration projections that the deficit for this year will soar to $1.84 trillion - four times the previous single-year record.

China’s investments in the United States “are very safe,” Mr. Geithner told students during a question-and-answer session at the university, according to an Associated Press report. “We have the deepest, most liquid financial markets in the world.”

Mr. Geithner also stressed to the students that the administration soon would outline a comprehensive overhaul of financial-system regulations designed to fix the flaws exposed by the current crisis, the worst to hit the U.S. economy since the Great Depression.

The secretary used his speech at the university, as well as separate meetings with top Chinese officials, to deliver a message that the United States and China must cooperate in playing crucial roles in shepherding the global economy back to health - and ensuring against future potential collapses.

“How successful we are in Washington and Beijing will be critically important to the economic fortunes of the rest of the world,” he said. “The effectiveness of U.S. policies will depend in part on China’s, and the effectiveness of yours on ours.”

Mr. Geithner acknowledged that the two countries will take divergent approaches to improving their domestic economies. Americans must increase their savings rates, while the Chinese government must do more to increase the buying power of its citizens.

But he listed health care reform as a vital necessity for both countries to improve their economies.

Mr. Geithner also said that the worst of the global recession appears to be over, although he cautioned that a full recovery will be a slow process.

“We are starting to see some initial signs of improvement. The global recession seems to be losing force,” he said.

Absent so far from Mr. Geithner’s rhetoric, at least publicly, has been criticism of China’s practice of artificially depressing the value of its currency, which American manufacturers say has contributed to the United States’ skyrocketing trade deficit with China.

Mr. Geithner also refrained from criticizing a push by China’s central bank to replace the dollar as the world’s key reserve currency with an alternative currency or basket of currencies. Mr. Geithner has said he doesn’t foresee such a scenario occurring in the near future.

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