RTTNews - United States Treasury Secretary Timothy Geithner continued his overseas jaunt Tuesday, stating that while the global economy is on the road to recovery it will likely be a bumpy one, full of minor setbacks. Geithner said that the increase in public debt and a loss of household wealth will work against a smooth economic recovery.
This crisis has been brutal in the extent and severity of damage to economies around the world, Geithner said in Jeddah, Saudi Arabia. Given the extent of damage to financial systems, the loss of wealth, the necessary adjustments to a long period of excessive borrowing around the world, it seems realistic to expect a gradual recovery, with more than the usual ups and downs and temporary reversals.
In terms of the labor markets, Geithner stressed that employment situations will remain difficult until economies begin to grow again and employers gain confidence. In addition, the credit markets - while improved from the height of the credit crunch - will remain unusually tight for some time.
The U.S. budget deficit broke past $1 trillion in June, the Treasury Department said Monday in its monthly budget statement.
The budget is considered as an indicator of budgetary trends and the thrust of fiscal policy. Economists estimated a deficit of $77.5 million for June.
Geithner also pledged to support a strong dollar, recognizing the prominent role the currency plays in the economy.
Given the dollar's role in the international financial system and the significant impact of the U.S. economy on global economic conditions, we fully recognize that the United States has a special responsibility to play, Geithner said.
The policies of the United States are designed to lay the conditions for a strong dollar and more stability in the international monetary system, he added.
Geithner warned Monday that despite progress, there are still significant risks to the global economy. However, the ability and willingness for countries to work together has done much to cushion the blow, Geithner said, and the recession will likely end in the coming months.
In my view there are still significant risks and challenges ahead, Geithner said after he met with British finance minister Alistair Darling and Prime Minister Gordon Brown in London. We have done a great deal domestically... but there is a lot of uncertainty.
He said that in terms of economic stimulus, at least in the United States the amount is sufficient.
Our stimulus package was designed so its maximum impact starts to take effect in the second half of this year, but its total duration of support would extend over a two-year period, Geithner said. We're just beginning to come to point where you will see the largest effect.
I think we have remarkably strong consensus in place on core elements, the Treasury Secretary added.
However, while Geithner said that there is a great deal of uncertainty, he added that there is a very strong chance of the recession ending in the coming months.
We have a powerful set of policies coming on stream, he said. We have a very good chance of seeing the US economy and the global economy get back to the point where [they are] growing again over the next few quarters.
At the G20 meeting in London in April, members pledged to do whatever necessary to end the economic crisis.
Issues that are likely to take center stage at the September's G20 in Pittsburgh include additional efforts at regulatory reform, including capital requirements for banks and increased international cooperation on regulation.
Geithner also praised efforts by the host Saudi government to lay the foundation for future growth by diversifying your economies to build a future less dependent on oil and natural gas.
While overseas Geithner will visit France, Saudi Arabia and the United Arab Emirates. He will return to London on September 4-5 to participate in a meeting of Group of 20 finance ministers and central bankers.
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