The United States carries a substantial share of blame for the current economic crisis but the world must work together to ease the strains, Treasury Secretary Timothy Geithner said on Wednesday.
Speaking to the Economic Club of Washington, Geithner said that in the face of the worst financial conditions in decades, it is essential to aim for a new and better balanced model for growth that relies less on exporting to U.S. consumer markets.
We must set ourselves on a path so that one country, or group of countries, does not consume in excess while another set of countries produces in excess, he said.
Geithner spoke before meetings on Friday of finance ministers from the Group of Seven rich countries and a session of the Group of 20 that includes key emerging markets like China and India, which the Obama administration is urging to stimulate demand at home.
President Barack Obama similarly laid out a theme, after attending a G20 meeting in London earlier this month, that the United States can't be counted on as the market for the rest of the world's goods because U.S. consumers can't keep spending.
SPENDING CONTROL COMING
Geithner stressed that, while the United States is prepared to incur big budget deficits now to spur economic activity, it is vital to set out a path for getting spending under control over the medium term.
That is very important to do, because the American people and investors (around the world) need to understand that we will have the will and the commitment as a country to go back to point that we are living within our means, Geithner said.
To get to that point we have to get a recovery in place, he added.
The International Monetary Fund, which with the World Bank will hold semiannual meetings in Washington this week, said on Wednesday the global economy was in severe recession, likely to shrink 1.3 percent this year in its deepest swoon since the end of World War Two.
Geithner said global economic chiefs must cooperate to try to restore growth, because the current downturn is much more than a typical business-cycle recession.
EXCESSES TO BLAME
Instead, it is an abrupt correction of financial excesses that has overwhelmed economies' and markets' self-correcting mechanisms, and so can only be ended by extraordinary policy responses, he said.
We bear a substantial share of the responsibility for what has happened, Geithner added.
Political leaders at the London G20 on April 2 agreed to bolster the IMF's resources and to boost trade financing by a total of $1.1 trillion as well as to try to tighten restrictions on tax-dodging.
Finance ministers from the G7 -- the United States, Britain, Canada, France, Germany, Italy and Japan -- will try to put more flesh on the bones of these proposals on Friday and set out their conclusions in a communique in late afternoon.
The G20 meeting to follow will be relatively brief but acknowledges the role that countries like China, India, Brazil, Russia and South Korea can play in becoming stronger consumers and in financing the IMF and other global institutions.
Geithner pointed out that U.S. recovery depends on reversing a decline in its exports, commenting: We need the world to provide growing markets for our goods and services.
In response to a question whether China was manipulating its currency for unfair trade advantage, Geithner said he would go no farther than to repeat the conclusion of a Treasury report last week that once again gave Beijing a pass.
China is playing a very important stabilizing role in the global economy today, he said, adding Beijing was committed to a path of further evolution in their exchange rate regime, which is so important to China and to the rest of the world.