Transcript: George Interviews Timothy Geithner
Unemployment Could Go Up Before It Goes Down, Geithner Says
Aug. 3, 2010
Treasury Secretary Timothy Geithner sat down for an interview with "Good Morning America" anchor George Stephanopoulos on Monday, Aug. 2, 2010. The following transcript of the interview has been edited for clarity.
GEORGE STEPHANOPOULOS: Mr. Secretary, thanks for joining us.
TIMOTHY GEITHNER: Good to see you, George.
STEPHANOPOULOS: In your speech today, you say that the economy is healing. But I guess the question for a lot of Americans is how quickly? Alan Greenspan said over the weekend that we're actually in a pause in the recovery. Is he right?
GEITHNER: It's a tough economy still for a lot of people. And the crisis was brutal. Businesses across the country, they just-- just cut savagely into investment and into payroll when the crisis was at its peak. But we've had now a year of growth. Private sector jobs coming back, not as fast as we'd like but they're coming. They're starting.
STEPHANOPOULOS: And not as fast as you expected it to either.
GEITHNER: Actually, in some ways it's stronger than we expected. We did not think we'd have -- the economy would bottom so quickly, growth back this quickly, this strong, and actually this much job growth this quickly. Now, again, parts of the economy are still very hard, very tough. But a lot of the economy is getting stronger.
And if you look at the numbers last week that tell you what's happening to the economy as a whole, what they showed is-- is the private sector is getting stronger. So if you'd add together business investment and consumption, that part of the economy, which is what matters for the future, is getting progressively stronger and that's very important. So you take out the government, take out inventory, the private sector of the American economy is investing again. And that's very promising.
STEPHANOPOULOS: Starting to. But I remember we talking back in December and-- and you all expected and others in the administration expected steady job growth over the course of the spring. And that hasn't what we-- isn't what we've seen.
GEITHNER: Well, again, I think you're seeing generally businesses, they're certainly investing again. Business investment was up 20 percent in the second quarter, very strong despite what some people say is concerned about uncertainty, a lot of strong investment.
You're seeing hours increase, people bringing back hours. And private job-- sector job growth is increasing. Now, in the spring you had a significant thing happen, which is you had a lot of concern about Europe falling apart. And that caused another blow to –
STEPHANOPOULOS: It was a setback.
GEITHNER: It was a setback. And you saw equity prices fall a lot over that period of time. But Europe's moved now to bring a little more stability back. You're seeing confidence start to return there. That's encouraging. That was just a temporary thing.
And I think, again, if you look at the part of the economy that matters, which is not the government, not what the government's doing. Look at what businesses are doing across the country. You look what's happening to spending. That private measures demand are getting stronger, and that's encouraging. Still very tough. Long way to go. It's going take a while to heal a lot a while to repair the damage.
STEPHANOPOULOS: Should Americans be prepared for unemployment to go up before it goes down?
GEITHNER: You know, it's-- it's possible you're going have a couple months where it goes up because, you know, one-- one thing that happens in recoveries, George, is that people start to come back into labor force. When they see a little hope that there may be jobs out there, they start to come back in again.
And that can cause the measured unemployment rate to go up -- temporarily. But what we expect to see and I think most forecasters expect this, private forecasters expect this, is an economy that's gradually healing, gradually strengthening, businesses starting to add people back. Of course, we want to do what we can to reinforce that process-- because it's not growing back as quickly as we'd like.
STEPHANOPOULOS: You say you want to do-- you want to reinforce that process. A lot of-- observers, partisan and not, look at the President's -- commitment to -- ending the -- allowing the tax cuts on the wealthiest Americans to-- to end as a job killer. I was speaking to Newt Gingrich. He said it's "crazy" to go through with this plan.
Some non-partisan economists agree. And your own CEA head put out a paper in June that said tax increases are highly contractionary. So how do you respond to those who say you're putting this fragile recovery at risk?
GEITHNER: Well, let me tell you what we're proposing because it's very important to start with that. We're proposing to extend tax cuts that go to more than 95 percent of working Americans, more than 95 percent of small businesses across the country. We want to provide targeted investments for businesses so they're increasing investment, getting people back to work again.
We think that's the best approach for the country. Now, to make that possible, to do that in a way that's responsible, we also think it makes sense to let those tax cuts that only go to two percent of the highest earning Americans in the country to expire as scheduled. If we do that then we can ensure the Americans, ensure the world we're willing to-- we're going to start to make some progress bringing down a long-term deficit.
STEPHANOPOULOS: So you reject the argument that those are contractionary?
GEITHNER: We do.
STEPHANOPOULOS: Even if it's just two percent?
GEITHNER: You have to look at the overall mix of those things. First of all, those tax cuts are not that large. They're very bad stimulus. And we think, you know, if the Republicans think the economy needs more -- more support and stimulus, there are much, much more effective ways to do that for the country. The Senate is about to consider, for example, a bill to give small businesses some new tax incentives and some help getting access to credit. That is good policy for the country.
We're hoping Congress acts to give states a little bit more assistance that keep teachers in the classroom, keep firemen and cops on the street. We think that's good for the economy. So there are things we can do still that'll be helpful. But right now what's happening is the economy is starting to transition away from the exceptional things we had to do to fix the financial crisis to a recovery that's going to be led by the private sector.
STEPHANOPOULOS: But it's still a fragile recovery. And -- and the mayor of New York, you met with him on your visit here -- put out a proposal -- over the weekend where he said, "Why not extend all the tax cuts for a year or two, tied, coupled with a solid commitment for-- for deficit reductions in the future?" Why isn't that a good idea?
GEITHNER: Well, I think here's the challenge in that, George. If you extend particularly these tax cuts that only go to two percent of the highest earning Americans then there would be a much higher probability they'll be extended indefinitely. And that would add $700 billion to our ten-year deficits.
That would be a deeply fiscally irresponsible act. If you extend all these tax cuts just for two years or so, you're going to leave the vast bulk of Americans, again, more than 95 percent of Americans, 95 percent of small businesses, with uncertainty about what the rules of the game are going to be.
What we're proposing is to extend those tax cuts for the middle class. Extend those tax cuts for small businesses. Make clear that we're going to keep dividends and capital gains rates, the taxes that go to business, to-- capital investment, at a modest rate going forward. That'll give people more certainty. We think that's a better strategy for the country.
STEPHANOPOULOS: How firm is the President's commitment to this proposal? If, for example, the Congress passes an extension of the tax cuts for the wealthy, will the President veto it?
GEITHNER: Again, what the President believes is the best strategy for the country is to extend the tax cuts that go to more than 95 percent of Americans, more than 95 percent of small business. Keep taxes on capital income low going to moderate. Give people the certainty that's going to be the world they're going to live in. But to do that responsibly, we let those tax cuts for the highest earning Americans expire as scheduled, as they were predicted to do. And I think that's the better strategy.
STEPHANOPOULOS: I know that's what the President believes is a better strategy. What I'm asking is is he going to veto-- any bill that extends those tax cuts for the wealthiest –
GEITHNER: He believes this is what makes sense. It's what I believe. And we're going to make the case for that.
GEITHNER: I think it's -- and I think it's the best strategy. And I think that we'll get support for this. Again, it's a sensible, practical –
STEPHANOPOULOS: I know you think it's the best strategy. But I talked to some of the President's supporters who agree with him on Capitol Hill. And they say unless the President comes out firmly and strongly and makes that veto threat, we can't hold back --
GEITHNER: President's going to be firm and strong because he believes this is the best package. Now, of course, Congress--
STEPHANOPOULOS: But no veto --
GEITHNER: No, I'm not saying that. I'm just saying that we're going to do everything we can to maximize the odds as the way we come out because we believe strongly it's the right thing for the country. Now, of course, Congress is Congress. They're going to have to legislate. And you're going to see-- see people with lots of ideas.
But you've seen Republicans now say the responsible thing for the country is to let those tax cuts expire. And I think that-- that demonstrates the fact that if you look at the practical reality of what the country needs now, it's that balance of tax cuts for the middle class, tax cuts for businesses. That's the best strategy--
STEPHANOPOULOS: I know you don't wanna give a veto threat right now. That's pretty clear. But here's --
GEITHNER: I -- I would be happy to give veto on so many things, George. You have no idea.
STEPHANOPOULOS: But not this.
STEPHANOPOULOS: But here's the problem. Speaker Pelosi has said she wants this to come before the election. I assume that's the President's preference as well?
GEITHNER: Well, they'll -- they'll have to decide. The leaders of the House and the Senate have to decide when they move. Some people think the House should move before the election. Senate will follow. Some people have other ideas. But most people don't think you're going to see the legislative outcome finished on this until after the election.
STEPHANOPOULOS: That's right. And here's the danger. You then are playing chicken up against the deadline of a January 1st increase in taxes. And we've all seen the possibility of gridlock -- in the Senate -- which could lead to -- what a lot of people would consider the worst outcome, tax increases for everyone.
GEITHNER: That would be -- I believe that would be a very irresponsible act for the country. And it is the responsibility of the Congress to make sure that does not happen. The best way to do that is to go ahead and move and pass the tax cuts that go to middle-class Americans and these extensions of tax cuts for businesses and for -- for capital income. That would be a good strategy.
If you do that and there will be the votes for that, no doubt about it, then you can let people decide they wanna have a fight about the tax increases that go to two percent of Americans and the estate tax. And-- so that's the strategy for getting --
STEPHANOPOULOS: That's the strategy, but, as I said, no -- no veto threats today.
GEITHNER: Don't -- don't -- don't interpret it as not a veto threat. I'm just saying we feel very strongly about this. And we think we have a very good shot of making this happen because, again, we think it's the best thing for the country.
STEPHANOPOULOS: Well, but I asked you the direct question. I mean, will the President veto--
GEITHNER: I'm the Secretary of the Treasury. I don't go out-- even though it's your show -- your show, George-- I think we'll-- I think we'll get there--
STEPHANOPOULOS: Let me ask you also about the President's -- relationship with -- with Wall Street. Alan Greenspan was asked about it -- over the weekend. Here's what he had to say.
STEPHANOPOULOS: Now, there -- there does seem to be something of a cold war between the President -- and Wall Street right now. And I spoke to several Wall Street executives recently, some who supported the President in the past. And they all use exactly the same phrase. "He turned on us."
GEITHNER: We had a financial crisis that caused devastating damage to the fortunes of hundreds of millions of Americans. Now, that happened partly because of failures in Washington. It happened partly because, again, millions of Americans were borrowing more than they could afford, living beyond their means.
But it also happened because people running some of our largest institutions made some terrible mistakes of judgment in how to manage risk and -- the consequences of those mistakes were terrible for the economy, terrible for businesses across the country and for the average American.
We had a deep obligation, the President did, to reform, to fix what was broken. There's nobody here or across the country that would argue that our system worked, that would argue it was not broken. And so our job was to make sure we put reforms in place to prevent a crisis from happening. And we're going to do that quickly as we can to bring clarity to people about what the rules of the game are going to be. And we're going to do so in a way to make sure that this economy is more stable in the future, our financial system is more stable.
People get the protections they deserve. But we're also going to do it in a way that preserves choice, freedom for innovation. So we restore this financial system to its great strength, which is making sure we take the savings of Americans and channel them to finance the best companies, the best ideas for the future.
That was our great strength. We lost our way over time. And what the reforms that the President signed into law two weeks ago will do is to make sure that we have a pro-growth, pro-investment financial system that --
STEPHANOPOULOS: -- no apologies for the reform --
GEITHNER: No apologies for this.
STEPHANOPOULOS: -- the rhetoric?
GEITHNER: Look, this is a, you know, we have -- we're in a moment where people are still deeply unhappy about what happened to this country. The scars of the crisis are still ran very, very deep. And it is perfectly understandable still that people are both angry about what happened and uncertain, frankly, about whether the government's going to do enough to make sure it doesn't happen again.
We have to earn back, all of us, the confidence of the American people that where you need oversight, the government's going to do that job. And where you have people -- running the large institutions in the country, that they're going to do a more careful job, too, of managing --
STEPHANOPOULOS: -- one of the things you're dealing with and the President and the administration has really been caught in some ways in a vise between Wall Street and Main Street. And one of the things you're -- it sounds like I'm hearing here is that you believe Wall Street has to understand how deep that anger is out in the country.
GEITHNER: I think that's important. But what our job is to try to do what is in the broader public interest, what's in the interest of the customers of our major banks and of our financial system and the business customers and consumers overall. And, again, what our job is, is to try to make sure that the government is doing what it needs to do to give them the protections they need against excess, against fraud and predation and because that happened on a appealing scale and the consequences were devastating.
But we have a responsibility, also, to make sure that, as we put these reforms in place, we're going to do so in a way that's going to make the economy stronger over time. And we preserve the necessary freedom for choice, for innovation, for competition because that is the great strength of our country.
STEPHANOPOULOS: Do you feel any need -- to deal with at least the -- the perception problems on Wall Street? Do you feel a need to reassure Wall Street that the President's not their enemy and to deal with what they consider to be an anti-business attitude?
GEITHNER: My view on this, George, is people wanna see what you do. They're going to judge you by the quality of the judgments you bring to these questions. And we've got some very important choices to make going forward. For example, how to may -- how conservative to make the constraints on risk taking that are a financier's needs where people are going to judge about -- judge us by where we get that balance.
And we're going to try to get that balance right. But I think that it's by seeing-- by looking at what we do that we can help earn back the confidence of the business community about the American people as a whole, that we're going to get the right balance.
STEPHANOPOULOS: And a lot of people believe that that will unlock-- a mountain of cash the businesses -- -- you say they're starting to spend, but they have about $1.8 trillion in cash. And
GEITHNER: And you should view this -- I think this -- a good thing. It's a promising thing --
STEPHANOPOULOS: Explain that.
GEITHNER: --because-- because the financial condition of the American business community is exceptionally strong. The financial condition of our largest banks in the country is much stronger today because of the actions we took. That means we're much more likely to have an economy that's going to be growing led by the private sector.
Now, we put in place these important reforms, necessary reforms, that'll help reduce uncertainty going forward. But you can see in effect that private investment grew at an annual rate of about 20 percent in the second quarter, that businesses are starting to invest again because they see the improvement coming.
STEPHANOPOULOS: Here's what else they -- they -- they say they need to unlock that investment -- an understanding that their taxes are not going to go up over the next two years and that this is it on regulation. There's not going to be another new layer of costly regulation.
GEITHNER: Again, we wanna move very, very quickly to make sure people have clarity about what these-- the details are going to be. And I'm committed to do that. And, again, we're going to do it with the right balance, strong protections, but preserve the capacity for choice and innovation, creativity that's so important to us.
Again, and I -- we think the best strategy on the tax side for the country is to give people certainty now that those tax cuts that go to more than 95 percent of the people who work in this country and more than 95 percent of small businesses, that this is going to be the taxes you're going to face going forward. If we just delay, we put it off, which Washington likes to do, then they'll be living with a huge amount of uncertainty going forward. That would not be good for the country.
STEPHANOPOULOS: And no more business tax increases?
GEITHNER: Well, the -- the business community always wants their taxes lower. They do. It's -- it's understandable. And you could say that's what their job is, to argue for lower taxes. But our job is, again, to make sure we have-- an economy that is stronger, that a private sectary that's going to grow in the future, and we -- you know, the although for this, that's our-- that's our responsibility. Our responsibility is looking out for that public interest.
STEPHANOPOULOS: We're just about out of time. Couple more quick questions. Everybody's waiting to find out who the President is going to pick to head the Consumer Financial Protection Agency called for in the new legislation. And there's been a lot of reports about whether or not Elizabeth Warren-- you're opposed to her -- appointment. I know you-- you said you think she's a fine choice, but is she your choice?
GEITHNER: She -- I -- I should -- I believe this strongly. I want to say this very clearly. She I think would be a very effective, very capable leader of that new entity because she, more than almost anybody else in the country, was early and strong in pointing out the need for better consumer protection.
She's an incredibly effective advocate for reform. She played a major role in help making the public case for this bill as a whole. And I think she could play-- and the President has said this and I believe that she could play a very important role in helping get the thing up and running and moving. Now, the President hasn't decided yet who's going to lead this. But, of course, she-- he understands-- how effective and capable she is. And he'll make-- he'll make a good decision.
STEPHANOPOULOS: Finally -- your own future plans. I know you've -- you said many times that you -- you serve at the pleasure of the President. So if he asked you to stay the whole first term, you'll stay?
GEITHNER: I will stay as long as he asks me to stay.
STEPHANOPOULOS: Okay. Mr. Secretary, thanks very much.
GEITHNER: Thank you.