For Immediate Release: January 12, 2007
REP. FRANK EXTENSION OF REMARKS ON WISE WORDS ON
THE ECONOMY FROM THE PRESIDENT OF THE NEW YORK FED
(Extension of Remarks - January 12, 2007)
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Mr. FRANK of Massachusetts. Madam Speaker, Tim Geithner,
President of the Federal Reserve Bank of New York, combined economic and
political wisdom in a recent speech to the Council on Foreign Relations in
which, according to the report of the speech in the Financial Times, he told
that influential audience ``that the `political challenge' of sustaining support
for integrating global economic integration `may be the most important economic
challenge of our time.' ''
Mr. Geithner came to his current position with significant experience in the
Treasury Department during the Clinton Administration, which makes him very
well-positioned to understand how economic and political forces interact, and
even more important, how they should interact if we are to achieve what is our
national goal economically--significant growth that is widely shared.
I very much appreciate Mr. Geithner's thoughtful words, and I hope that people
concerned about economic growth will accept the validity of his point so that we
can all act together accordingly. [From the Financial Times]
WAGES GAP `UNDERMINES SUPPORT FOR FREE TRADE'
(By Krishna Guha in Washington)
The widening gap between the rich and middle-class Americans is undermining
political support for free trade in the US, the president of the Federal Reserve
Bank of New York, warned yesterday.
Tim Geithner told the Council on Foreign Relations that the ``political
challenge'' of sustaining support for further global economic integration ``may
be the most important economic challenge of our time.''
The New York Fed chief also warned that the inflow of surplus savings from
abroad could be distorting US asset prices and keeping risk premiums
artificially low across financial markets.
His comments were made amid growing concern in US political and business circles
over the risk of a populist backlash against free trade caused by rising
inequality and a protracted period of stagnation in median wages--the wages
earned by the average US worker.
While recent data show real wage growth has at last picked up, many economists
fear this could be short-lived.
Mr. Geithner said maintaining support for open markets would be made more
difficult ``because of what has happened to the distribution of income and
economic insecurity''.
He cited as big political problems the ``long-term increase in income
inequality'', the ``slow pace of growth in real wages for the middle quintiles
of the population'', increased volatility in income and the greater exposure of
families to risks involved in financing retirement and healthcare.
Echoing views expressed by Larry Summers, his former boss as Treasury secretary
in the Clinton administration, Mr. Geithner said it was ``not enough to explain
that globalisation is inevitable'' and protectionist policies were
self-defeating.
Better education and an improved safety net were a ``necessary part of the
solution to this challenge''. But, he warned, ``these reforms will have a long
fuse and they may not yield the hoped-for increase in support''.
Mr. Geithner cautioned that the low level of risk premiums across asset markets
was ``unusual'' and might not prove lasting.
He said there were many sound reasons why risk premiums might be low, including
better monetary policy, strong underlying productivity growth and better
risk-sharing across more globally integrated financial markets.
But he warned that the inflow of surplus savings from abroad--including ``very
substantial official accumulation of dollar reserves'' by countries seeking to
maintain fixed exchange rates--could be distorting asset prices, sending the
wrong signals to savers and investors.
Mr. Geithner said these forces were ``surely transitory'' but could ``mask or
dampen the effect on risk premiums in financial markets that we might otherwise
expect'', given the huge US trade deficit and its long-term fiscal challenges.
