 Ladies and gentlemen, welcome to a very special session with a very special person. Tim Geithner is, of course, the Secretary of Treasury of the United States. We're going to do this because it will be on television as well in a slightly different format where we're going to have a conversation, then open it up to questions. So if you could just – if you – for those of you who watch the Republican debates, hold your applause and your booze. So if he says something particularly controversial, don't boo. It's a great pleasure to have Timothy Geithner, the Secretary of the Treasury on. Nice to see you, Fred. Let me start with an easy question. What is the United States economy going to grow at this year? There are no oracles in economics, and it's still a pretty uncertain world. I think the conventional view of the U.S. now is that we're growing between two and three percent. And I think that's a realistic outcome for the United States economy, as long as we see a little more progress in Europe, and as long as we don't see a lot of risk come from Iran on the oil front. That scenario of two to three percent growth seems a little different from what Ben Bernanke thinks growth is going to look like. If you read the statement the Fed put out, it was very bearish statement. I mean, to be willing to almost guarantee that rates will be kept where they are until the end of 2014 suggests they don't see any growth of any robust growth for a long time. Are they wrong at the Fed? You know, I'm not a forecaster, so in my view it's not worth much. But I think actually if you look at both the Fed's forecast and the consensus of private forecasters in the business community among economists, people are pretty closely clustered in that area. But it's still very dependent on how the world unfolds. Again, I think it's worth recognizing that we still face tremendous challenges as a country. We're still repairing the damage caused by a devastating financial crisis that still has huge lasting impact on the basic fortunes of most Americans. Unemployment is still very high, housing is still very, very weak, construction is very weak. People still have too much debt. They're bringing that down, and that's still going to take a while to repair. That crisis came on top of a decade, as you know, where we saw virtually no growth in median income, very high levels of poverty in this country, very high levels of inequality, and a erosion in people's confidence in their mobility, their prospects go over time. And on top of that, of course, we face a more challenging world. You know, just last year, the combined effects of oil, Japan and the crisis in Europe were and the damage, the debt limit debate caused the United States to confidence. Those things were very, very damaging, and they slowed growth everywhere around the world at a time when, again, the world was still healing. So we have a lot of challenges ahead in the United States, and we're working very hard to try to lay the foundation for the political consensus that's going to make progress in those things possible. You know, there is a very well-established narrative now among the business community in the United States that there would be a much more robust recovery. The U.S. economy would be growing much more vigorously if there were greater certainty and businesses could invest, and the reason they're not is a kind of tsunami of regulations, uncertainty about tax policy, uncertainty about the deficit, but perhaps above all the sense that the economy is being thrown, this huge new wave of regulations in healthcare and finance and energy, and that that's what's keeping the economy back. I don't think there's much basis for that view, although it is true that we are putting in place very tough reforms in the financial sector. We're trying to improve how the U.S. healthcare system works, and we're trying to change how Americans use energy. And those are necessary, desirable, very important long-term reforms in the United States. But I think if you look at the evidence we have about how the economy is doing and how the business community is doing in particular, the reality does not justify that sense. So just look at the things you can use to measure basic health, business health. You know, profitability across the American economy in the business is very, very high. Profits are higher than the pre-crisis peak. Look at investment as a measure of confidence. Private investment in equipment and software is up more than 30% since the trough in the first half of 09. Exports are up 23%. There's broad-based strength in energy, in agriculture, in manufacturing, not just high-tech manufacturing, but even heavy manufacturing. I was at a Siemens plant, a new plant in the United States in North Carolina this week, which is building steam and gas turbines and generators for export. And they're doing that because they see in the basic fundamentals of productivity in the United States, even with all our challenges, pretty compelling competitive advantage relative to where else they produce. So I think if you look at the basic health of the American business sector, it's much stronger than I think anybody would have thought at the peak of our crisis and stronger than many of us hoped. What's holding the U.S. economy back still is the echoes after shocks of the financial crisis, the damage that's done to the household sector, to housing construction, and the fiscal pressures on state and local governments in particular, which are a drag on growth globally. That combined with the shocks we saw globally is why growth has not been stronger than it has been. But I really don't think we could have realistically delivered a better outcome for the American business sector than has happened. And although we recognize that these reforms are tough and they're going to change the economics of business in this case, we think their overall effect on the economy is still going to be positive long-term and we think there's no, I don't think there's any basis for evidence that the impact of those things are hurting growth now. Just to give an example, the Heritage Foundation, which is a Republican think tank, one of the strongest critics of the impact of regulation so far, estimates the cost could be $20 billion over time. That's a dramatic exaggeration of the potential cost. But remember, we're a $14 trillion economy. And I think on the evidence we have, profitability, what the markets think about future profit growth and how companies are behaving, I don't think there's any merit to that argument. While business profitability is up, productivity is up, unemployment still remains a huge challenge and many businesses have become more productive because they've taken costs out of the system, they've managed very efficiently. How do you get the American jobs machine going again? Well, the biggest driver of how fast the unemployment rate comes down is how fast we grow. And the biggest determinant of how fast we grow now is really going to depend on these two fundamental factors. One is what happens in the world, meaning in Europe and in the Gulf and because of oil and frankly just to be directed about it, whether Republicans in Congress decide they want to legislate things that are good for growth in the short term. So what we think the right economic agenda for the country is for us to legislate a set of investment incentives, investments in things that matter for long-term growth, rebuilding America's infrastructure, more education, more spending on innovation, basic science and research, better skills for Americans, is tied to long-term fiscal reforms that restore sustainability. And if we were able to legislate progress in those things in the short term, that would make a big difference for confidence, it would make a difference for the rate of growth of the American economy in the short run. But to be realistic, it's going to take a long time still for us to fully repair the damage, particularly unemployment that came as a cause of the crisis. But the private sector has created 3.2 million jobs since job growth resumed. That's actually pretty strong job growth in the private sector compared to the last two recoveries and it's pretty strong given the aftershocks of the crisis. We all want it to be stronger though, but the fundamental reality is how fast we grow is going to depend on those two factors. Is Europe successful in stabilizing the crisis in Europe? And can we help build the political foundation in the United States for the type of pro-growth investments tied to long-term fiscal reforms that are the obvious imperative for our future? You negotiated with the Republicans. Do you think there's any chance that they would pass some of the things the President talked about in the State of the Union? I think you have to wait and see. I think they're talking a little bit about infrastructure now for the first time. They've said they're going to pass this peril-tex cut, of course, which has a positive but modest impact on income, which is important. We feel like there's a compelling case for a targeted set of investment incentives that would be good for improving the economics of investing in building the United States. Those things have not typically been partisan issues. They've had very broad support among Republicans in the past and our view is there's nothing standing in the way of progress in those things even if it's going to take some time to work out the bigger fights on tax reform and entitlements. But that's a calculation they have to make. Most people who look at the American tax code, which is with regulations and rules, 10,000 pages, one of the most complicated in the world, believe that the key to reforming the tax code is broaden the base, eliminate deductions and loopholes, lower rates. Isn't the President's proposal in the State of the Union taking us in exactly the opposite direction? Not at all. In fact, I don't think you're going to see... Well, let me put it differently. The President's proposals, which are focused on a set of investment-favorable reforms in the corporate tax system, manufacturing and investment, and on a modest but necessary increase in the effective tax rate paid by the richest Americans, those two things are only going to come, I think realistically, in the context of broad reform. And what we're trying to do is lay the foundation for tax reform so that we can produce a more simple system, lower-race, broader-base, more simple, less distortions. Why not just propose tax reform? Well, because I think you have to start with principles for a framework, and what we're trying to do is to be specific to which areas we think should dominate the debate. So, again, I wish it were different for us, but the basic crude fiscal realities of the United States now, and we have to recognize we have to govern within those limits, means that when we do tax reform, we're going to have to be helping contribute to deficit reduction. We don't have the ability to offer the American people or the American business people community a net tax cut. That is beyond the capacity of anybody realistic about our constraints. It is also true that fundamental to any resolution of those long-term fiscal problems is going to have to be a modest increase in the effective tax rate, again, of the richest Americans. And the balance of pain and adjustment and burden that's going to have to come is going to come with those tax reforms on individuals combined with some pretty substantial changes in the trajectory of growth and benefits that will affect many middle-class Americans. Realistically, that's what's going to come over time, but it's not going to come without figuring out how to change that basic constraint Republicans have put on the American economic policy debate. And I think if you listen carefully, it's starting to change. If you look at polls, polls are not very reliable. Economic policy is a guide to economic policy, but majority Republicans now, majority of independents, very strong majorities, support a long-term fiscal reform package that has as part of it an increase in the effective tax rate for the richest Americans. That helps a lot. And again, if you listen carefully, you're seeing Democrats show more pragmatism and realism and creativity in recognizing that our long-term and title-and-convince are unsustainable and you're going to need both. But again, to be realistic, we're going to have a big debate on those basic choices and it's unlikely we're going to make significant progress with those things out of the election. Those funds aren't going to go away. And at the end of this year in the United States, you know that the ex-breef, a bunch of tax cuts and the impact of an automatic cuts and spending are going to be a big motivator to try to make progress on the fiscal front going forward. But again, just to put in perspective, our fiscal problems are daunting for us in the long run, but they are much more manageable problems than faced by almost any major economy around the world. And it's important not to lose sight of the fact that given the high-level unemployment, given the very bad outcomes for median income in the United States over the last 30 years, 20 years, 10 years, given the just appallingly high rates of poverty in the United States, given the competitiveness challenges we face that's going to require pretty significant investments in infrastructure and education and innovation, you have to take a much broader approach and we're not going to solve our problems as a country by thinking there centrally about how we restore fiscal sustainability. That's part of it, but it's not the dominant challenge we face as a country. Now, we have the luxury, because we're in a relatively strong position despite our challenges, for doing this over a period of several years, not just a period of weeks and months. When you look at your, Mr. Secretary, you look at the growth projections that are coming out and they are all lower than were projected, which means that the deficits are larger, which means that the debt to GDP is larger. The debt to GDP is larger in almost every case, not because the debt has gone up, but because the GDP has gone down. That is the, not that the numerator has gone up, but the denominator has shrunk. Does that suggest that austerity is not a path to growth? I think the debate about austerity and stimulus is mostly divorced from a much more practical reality. The proponents of stimulus, I think, today now are probably exaggerating its power and its reach now. And I think the people who talk about economic problems as mostly problems you can solve with austerity get the big things wrong. It is true, however, though, for parts of Europe for a long period of time, there is going to be no alternative to very substantial adjustment in budget deficits in the size of the commitments governments made. There is no alternative to that. For those to work, however, they need some support and some financing, and they need to be complimented by reforms that are also helpful for growth and competitiveness over time. But they will not work if there is not a stronger commitment of financial resources standing behind the European endeavor. And without that, those reforms will never work. And you are right, countries will face the risk that every disappointment in growth will be met with a austerity that will feed the decline. And that is a cycle you have to arrest if you solve financial crises. Europe is making some progress, though, and I think that over the last two months in particular, they are laying the foundations for a more credible framework. They are making progress on reforms. They are changing the institutions of Europe to put better discipline on fiscal policy. You have three new governments doing some very tough things. You have an ECB doing what central banks have to do. You see them move to try to strengthen, stand behind the financial sector. But I think the Europeans recognize the sort of unfinished piece of that framework is building a stronger, more credible firewall, because without that you will be caught in that trap that you referred to. But if you need a stronger and more credible firewall, at the end of the day there are only so many funds. And one proposal has been to get the IMF more involved and to ask the IMF to draw lines of credit from its existing members, particularly obviously it would be the United States, but it would be China, which is sitting on $3 trillion of foreign exchange reserves. The news reports say that the United States is not enthusiastic about this proposal. Is that true? Well, let me describe our position for you. And I think it's a reasonable position, and I think it has very broad-based support even in Europe. Our view is that the only way Europe is going to be successful in holding this together, making monitoring union work over the long run, is for them to build a stronger firewall as a complement to the rest of the comprehensive strategy they have. And that's going to require a bigger commitment of resources. And I think that my sense of the Europeans recognize that, and they know that's the sort of unfinished piece of this framework for the moment, and they're going to have to fix that. If Europe is able and willing to do that, then we believe the IMF can play a supportive, constructive role. It can't substitute, though, for the absence of that European commitment. So if Europe is able to find the political will consensus to build a more effective firewall, then I think you're going to see the IMF, and the major shareholders in the IMF, and the emerging economies very supportive of trying to reinforce those efforts, but not as a substitute for a more effective European response. You were in China recently. I'm guessing you talked about many things, but two among them, Chinese support for sanctions on Iran. It seems as though the Chinese are willing to cooperate much more than they have in the past on this issue. Is it your sense that in the next year there will be a tightening noose as it were on Iran? I absolutely think so. I think even over the last six months, eight months, two months, a few weeks you're seeing a substantial intensification of not just the financial sanctions, but a broader effort to wean the world of the dependence on Iranian oil, those countries that use Iranian oil. And my sense is also that China wants to be part of that effort because China views it as very much in China's interest not to see Iran undo the delicate balance of power there is in the Gulf. But we'll have to see. We're still at the early stage of this next wave of intensified financial pressure, both on oil and the financial side, and we're seeing, I'm actually quite encouraged by the extent of the support we're getting. From Europe, of course, Europe's been excellent on this, and major emerging economies, Japan, and I think China, as far as we can tell now, want to be part of this effort and don't want to undermine it. If the price of oil goes up and Iran does not make significant concessions, wouldn't it be fair to say the policy has failed because you will have created a situation that actually strengthens Iran with the higher oil prices, and at the end of the day they haven't made any concessions? Well, again, what we're all engaged in, again, this is an international effort that's very broad support, is trying to maximize the incentives we've created for Iran to alter their nuclear ambitions, to deter them from their nuclear ambitions. And that is the most important thing, not just for the broad strategic interest we have in stability in the region, but also for the security of energy, which is why it's so important to so many countries around the world, and that's why we're finding so much support in building pressure. One final question. When you were in China, did you talk about U.S.-China trade in a way that you think you will see results, because the President and his State of the Union was pretty tough on China? Do you think that there is a path here, a constructive path forward? Well, again, we'll have to see. We measure people by their actions, and China does present a really unique and formidable challenge to the global trading system, because the structure of its economy, even though it has more of a market economy now, is still overwhelmingly dominated by the state, by state and enterprises, and China systematically subsidizes the cost of key imports, energy, access to credit, capital, price of land, its skeptics exchange rate below fundamentals for some time, although it's appreciating gradually. So what that means is China, even though in many ways it's starting to have a world-class manufacturing sector, is supporting that ambition with a set of policies that are very damaging, to not just the commercial and economic interests of its trading partners, but to the political support around the world for sustaining a more open trading system. And that's why it's very important that we get China to move comprehensively on that front, not just in the exchange rate, but on dialing back those set of subsidies and distortions. I think they're going to have to do it. We'd like them to do it faster and harder in a more compelling way. And they are moving on some fronts. We just like them to do more. And we'll just have to see. I do think China believes that it's in its interest to try to make this broader system work. Of course, it depends a lot on its access to our market, other markets around the world. And we hope that provides enough incentive for them to make more progress in these reforms. Let's say we have a little time for questions. Let's take some questions. Because of the lights, if you can put your hand way up so that I can see it. Sir. Do you believe today very, what's your view on the tension between the relative value of currencies? With all central banks engaging in quantitative easing, one with another between the yen, the euro and the dollar, and the commodity producer linked to the dollar, basically there is a raise to the bottom. At the end of the day, as all are raising to the bottom, you create more uncertainty globally on the fiat currencies and paper currency. What's your view regarding this and the dollar relative to the rest of the currency? I'm not sure this is totally responsive, but I think it's basically right. If you look at the broader exchange rate system, monetary system, and the constellation of exchange rates, there's really one big compelling reality, which is that China's currency and the currencies of a bunch of other countries who have tied themselves out of the dollar and therefore to China's currency is still below almost all measures of fundamentals. Over time, those currencies are going to have to continue to rise significantly further against the major currencies, against the dollar, the euro, and the yen. It's not principally a dollar thing. It's about those currencies against the major currencies, and that's just because of the strength of growth, productivity growth that's happening. That's going to happen no matter what. China's got the interest of making sure that it happens less through higher inflation over time and more through that adjustment. That's why they let the exchange rate move gradually, not just over the last 18 months, but if you go back five years against the dollar, the Chinese currency is 45 percent, 40 percent higher in real terms against the dollar, but it's got some ways to go, and it would be better for the system, the stability of the system, for that to happen more gradually. Now, you're also right that for the major economies that have very high unemployment and very large output gaps, the unused capacity, for a long period of time, the basic thrust of macro policy where people have the room for maneuver should be at strengthening growth and demand, and that's true in the United States, and it's true in large parts of the continent. Now, not everybody's got the room to do that, but the people who have the room to do that should do that, and that's necessary and desirable and healthy for the broad interests of emerging economies, too, because, of course, their strength and their future is still substantially dependent on how fast the rest of the world grows. One more question here, gentlemen, in the front. You talked quite a lot about unemployment. Are you concerned in the long run about the rise of protectionism as countries try to protect their markets and to show their people from an unemployment rate? Thank you. Absolutely. I mean, I think anybody who sits in positions of policy at a time where there's that much basic damage needs to worry about that, and the political pressures around that thing are very high, and I think we've been very successful and very fortunate that relative, you know, not just to the 30s, but even relative to the 1980s, last time U.S. had a pretty deep recession, we've been able to prevent that huge political pressure translating into a material increase to protect the United States and around the world. If you can just compare the 80s in that context, that's a good thing for the world, a good thing for the United States, but there is a huge pressure out there, and in the United States, as you know, it's very bipartisan. It unifies Democrats and Republicans, and that's why, again, why, in some ways, why it's so important that we're able to demonstrate, not just with China, but generally, that countries are playing by the same rules that we play by, because that goes to the heart of what drives a lot of the political pressure. Let me ask you a final question. You were surprised that you made news a couple of days ago when you made clear that you were not going to serve in the second term of the Obama administration. Is that his choice or yours? That's an excellent way to pose that question. Generally, anybody who takes these jobs serves at the pleasure of the president, and at a time when we face so much challenge, so much pressure, if the president asks you to do these things, you have to do them, and when he asked me to stay, when I thought it was the right time to leave, I agreed I would stay, and I agreed I would stay to the balance of his term, and he accepted that aspiration of mine, and that's where it's going to come out, I think. What are you going to do next? That feels like a long way away. Again, we're in Europe, I know the eyes of the world are in Europe, but we are living with terribly challenging and hugely consequential economic policy choices. We have a lot of unfinished business, even on the financial reform side, and a lot of foundation laying for better policy outcomes on the things that are good for growth, investment for options in the United States, not just for the long-trip fiscal. I feel like we've got a long year of hard work, and I know it's a political moment in the United States, and people are skeptical about whether we can do anything, but our judgment is that we still have a chance in some of these areas to make some progress, so I'm going to focus on that as long as I can. Tim Guyton, a pleasure to have you. Nice to see you. Thank you all.