Drastic cuts 'not responsible': Geithner

28th January 2011, Comments 0 comments

US Treasury Secretary Timothy Geithner said Friday that making rapid, drastic cuts in spending is "not the responsible way" to bring down state budget deficits.

"You've got to make sure that you don't hurt the recovery and take too much risk that you damage the early expansion by shifting too prematurely to substantial restraints," he told the World Economic Forum in Davos.

"We're not going to let that happen. There are some people who like to move ... very quickly to do very deep cuts in spending but it is not the responsible way to do it," he said, in a question and answer session.

"It would undermine the long-term objective of making sure that we achieve a sustainable fiscal position," Geithner argued in front of an audience of global business leaders, adding that that the process should start "more gradually."

On Wednesday, the Congressional Budget Office projected that the US budget deficit will hit a record-breaking 1.5 trillion dollars this year.

Earlier this month, Geithner asked Congress to raise the US debt ceiling, warning that a failure to do so could prompt a US default as soon as March.

Addressing business leaders in Davos, Geithner acknowledged that the United States has a "very tough set of choices to make, a very tough set of reforms to undertake principally in the fiscal side."

But he said the country is in a "dramatically better position to confront those challenges. We are in a relatively strong position to confront them."

Compared to other developed economies which are also repairing the damage done by the crisis, Geithner pointed out that the US is a "younger country" and a more open economy -- elements that could help it smooth out challenges.

Confidence is also back, he noted.

"There is much more confidence now that we've got a sustainable expansion," he said, although he acknowledged that it would not be a rapid growth.

"It's not a boom, it's not an expansion that's going to offer the possibility of a rapid employment rate.

"But here's much more confidence to avoid the risk of slipping into recession or even what economists call below-trend growth. And that confidence is justified," he said.

Federal Reserve chief Ben Bernanke said on January 13 that the output will expand by up to 4.0 percent in 2011.

The world's largest economy recently has shown new signs of life after exiting recession in July 2009.

© 2011 AFP

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