U.S. Treasury Secretary Timothy Geithner said Thursday that financial reforms and other actions in response to the global crisis are yielding results, helping the U.S. economy to grow at a pace better than there was reason to expect.
Speaking at a financial conference in Tokyo on Thursday, Geithner said the Obama administration would strive to resolve by the end of the year the impasse with the Congress that threatens to impose a so-called "fiscal cliff" of tax increases and deep spending cuts if the two sides do not reach agreement.
The U.S. has been relatively successful in managing to clean up the mess left by the 2008 financial crisis while not starving the economy of credit, Geithner said. Growth has dragged, though, due to the European crisis and severe drought across the U.S.
"We've been relatively successful in doing these reforms in a way that didn't starve the economy of credit," he said.
Growth has averaged just over 2 percent a year since 2009, lower than the 3 percent to 4 percent that many had forecast, he said. Geithner put the impact from the European slowdown at up to 1 percentage point of GDP growth and from this year's drought at about 0.5 point.
"Those two factors alone explain the difference," he said.
"From my perspective, the U.S. economy is doing significantly better than anybody had reason to expect, not just because of the magnitude of the crisis but because of the size of the force of the shocks that hit the U.S. economy," Geithner said, pointing to the European debt morass and two spells of surging oil prices.
The Obama administration did well to act aggressively and early on financial reforms and recapitalizing financial institutions, Geithner said, though he acknowledged there was much work ahead, especially on reforming housing finance — which was at the heart of the collapse in 2008.
"Mortgage credit in the United States is tighter than it needs to be," Geithner said.
Progress made in getting the economy back on track could be undone, economists have warned, if Washington fails to deal effectively with the so-called "fiscal cliff."
Christine Lagarde, managing director of the International Monetary Fund, urged that the U.S. take "decisive action" on the issue.
Geithner acknowledged the urgency of the problem, saying the Obama administration intends to try to resolve its standoff with the Republican-controlled Congress over spending limits by the end of the year. The aim is to draw up a set of reforms that could be phased in over time.
If the impasse is not resolved by 2013, tax increases and deep spending cuts amounting to up to 4 percent of GDP will take effect, walloping the U.S. economy. The IMF has urged the U.S. to raise the ceiling on the level of debt the government can issue, which is capped by law and avoid a showdown similar to that in August 2011, when a similar impasse went unresolved until the U.S. almost defaulted on its debt.
Deferring the problem is not a "responsible strategy," Geithner said.
"It might feel like an easy path at the moment but it will still leave a set of big questions hanging over the country. I don't think that will help."