Posted on Monday, February 7, 2011
When President Obama delivered his second State of the Union  address to the American people last week, he boldly proclaimed his plan to “win the future” by making investments in industrial innovation, education and infrastructure. As he charged the nation to “out-innovate, out-educate and out-build the rest of the world,” the president also stressed “the need to take responsibility for our deficit and reform our government,” offering proposals such as streamlining government and a five-year freeze on domestic spending outside of Medicare, Medicaid and Social Security.
Obama shared his vision during a week that produced a number of economic reports, both promising and troubling. The good news included the Commerce Department  revealing Friday that gross domestic product – a broad measure of goods and services produced – grew at a 3.2% annual rate in the fourth quarter, regaining the level reached before the Great Recession. The Conference Board, an industry group, reported that consumer confidence  in January rose to its highest level in eight months. And a day after the president’s address, the Dow Jones Industrial Average crossed the 12,000 threshold for the first since 2008. The bad news, on the other hand, was alarming. The nonpartisan Congressional Budget Office projected that the federal budget deficit for 2011 would hit $1.5 trillion , almost 10% of GDP. The bellwether S&P/Case-Shiller index  of home values in 20 cities fell 1.6% from November the prior year, the greatest 12-month decline since December 2009. And real estate market researcher RealtyTrac found that high unemployment drove up foreclosures in 72% of 206 leading metros in 2010. With U.S. unemployment at 9.4% -- 15.8% for African Americans – all eagerly await release of the US Department of Labor jobs report this Friday.
The man who will help President Obama put the American economy back on track is Treasury Secretary Timothy F. Geithner . For the past two years, the nation’s chief financial officer has been pivotal in every major economic and financial policy decision, from stabilizing the financial system and averting Depression 2.0 to helping thousands gain foreclosure relief. In our exclusive interview on Jan. 26, a day after the State of the Union, BLACK ENTERPRISE Editor-In-Chief Derek T. Dingle was the the only media company to sit down with Geithner and talk about the delicate balancing act of making investments to increase American competitiveness while putting the nation’s financial house in order. As the interview began, Geithner characterized the administration's response to financial crisis and recovery: “We were fire fighting, defusing bombs, using a little battlefield medicine, triage but now it’s about rebuilding.” The following are edited excerpts from that session:
BLACK ENTERPRISE: What is the current state of the American economy?
Timothy Geithner: The economy is growing and it’s getting a little more momentum now. We’re seeing exports stronger, private investment is stronger, you’re seeing manufacturing come back, the agricultural economy is very strong now, the strongest it’s been in a long period of time. The economy has created about more than 1 million private sector jobs in the last 12 months or so which is much more, much more quickly than coming out the last two recessions which were much milder recessions. So we’re making progress but we have a lot of challenges. We have very high levels of unemployment still and we’ve got these very large, unsustainable long-term deficits. What the president did [at the State of the Union] was to lay out a very optimistic, very confident vision for how we meet those challenges and what we need to do in the United States to make sure that we’re making more progress, creating a stronger economy and going back to living within our means.
In the State of the Union, the president discussed making investments in innovation, education and rebuilding infrastructure. Given the deficit, how can you pay for that?
The things we need to do to make sure that we are creating more things in the United States, that we’re rebuilding infrastructure and we’re educating our children, those are things that we can afford as a country. Of course, we have to make sure we can demonstrate to the American people we can spend less on less important things [and] spend their taxpayer resources much more wisely. If we do that we can afford to make those targeted investments, and those investments have a very high return. They have huge returns to the American economy in terms of higher growth rates, more opportunities for Americans, more income growth for Americans, you’ll see more jobs. That’s why it’s so important to do.
How will the president’s plan impact the current unemployment situation?
The best thing we can do for the unemployment rate today and the next two years is to make sure the economy is growing more rapidly. That’s the most powerful way to get people back to work. It’s important for people to understand that growth has to come before you see job creation at a much more rapid pace. So what the president is trying to do is make sure we’re investing today in things that are going help strengthen not just short-term growth but long-term growth. I’m very confident that’s the best strategy for the country.
You’ve put out the financial fire, corporate earnings are rising, the Dow just crossed 12,000 [last week]. Why does the corporate sector still have a lack of confidence when it comes to hiring?
The economy went through the worst crisis we had seen since the Great Depression. It was a shattering blow to the basic confidence of Americans and American business. It’s going to take some time for people to be more confident that it is definitively behind them and make them believe that they can take a risk again on the strength of the American economy but that’s happening now. If you look at how businesses are spending their resources now, private investment grew at a roughly 10% annual rate last year, a little faster than that. That’s pretty rapid growth, much more rapid growth than the overall economy as a whole. So you’re seeing businesses start to put their money to work again, start to take a risk again and in doing that they’ve added back 1 million jobs in the last 12 months. I think you’re going to see the pace of job creation now start to accelerate as growth gets stronger.
What is your jobs forecast for 2011?
I don’t do forecasting but if you look at what the best private forecasters say about the American economy they think the economy is going to be growing roughly somewhere between 3% to 4% this year and that will translate into a substantial, meaningful increase in the rate in which we’re getting people back to work.
Even though the administration initiated measures like targeted tax incentives, increased SBA loan guarantees and developed a $30 billion fund for community banks  to lend to small business, most institutions are still not providing such financing. What can be to be done to get small banks to boost their lending?
The president did put in place a sweeping, very creative comprehensive set of measures and a bunch of tax incentives for small businesses, too. They are starting to help now. You’re starting to see for the first time the rate of growth of lending by banks to small businesses starting to strengthen. If you talk to banks across the country, they’re starting to see more demand from small businesses for lending which is good. That’s a sign that they think there’s going to be more demand for their products. They want to be able to put more resources to work, bring people back to the job and will need to borrow to do that. And you’re going to start to see that happen on a greater scale.
Are there any other measures to shore up small businesses?
We have a program in place that gives states substantial resources for them to put more ammunition into their lending program for small businesses. We want to make sure that if someone has an idea [and] want to create a new business, they can get funding. If someone has an existing business and want to expand, we make sure they can find the financing to do that.
There's still a high incidence of home foreclosures. What is the administration doing to curb that trend?
The principle thing that’s driving the rate of foreclosures across the country, and it’s not surprising, is the high levels of unemployment. If someone loses [his or her] job or your spouse loses his or her job, you’re going to find it hard to meet your monthly payments on your house until you get back to work. Until we get the economy to grow more rapidly and until we get the unemployment rate down more definitively, it is going to be hard to get the housing market back on its feet more quickly. The president is doing everything he can to try to do that. Now as we do that, we’re trying to make sure we reach as many Americans as we can and give them a chance to save their house. We can't reach everybody.
So you're trying to help those who were responsible and found themselves in a tough situation due to no fault of their own.
Exactly. Not only that, you had people who were taken advantage of and we need to help them out. You have people who were completely innocent victims, who were responsible in how they borrowed, bought a modest home but who saw all their neighbors lose their homes, saw house prices in their neighborhoods fall very, very sharply. That hurt them a lot, too. That's why it's so important that we do what we can to get the economy growing again, get house prices start rising again and try to reach people who really deserve to be helped stay in their homes.
The Center for American Progress  recently released a report that communities of color have been the most devastated by the Great Recession and the Obama administration should develop targeted programs to help them. Is the administration developing such programs?
The Center is absolutely right. This is what always happens in a recession. The impact falls much more brutally, much more severely on African American communities [and] urban areas. That’s the tragic thing of recessions and financial crisis. The programs that we designed are designed to go to where the needs are greatest. One thing we’ve done is to make sure that the states that were hardest hit in the housing crisis or have cities and communities that were suffering the most damage receive more assistance. So we have a program in the housing market which gives 18 states which are at the center of the crisis still a substantial amount of resources that they can use to help people who are unemployed and risk losing their home or give people greater principal reduction on their mortgages. We think that’s a good strategy. We’ve also tried to put more substantially more resources into the community development financing program  and into our New Markets Tax Credit Program . So we are directing resources where they’re needed most and where over in the past we’ve seen they have huge benefits in helping communities get back on their feet more quickly.
By Derek T. Dingle, BLACK ENTERPRISE