Assessing a tough governmental juggling act, Treasury Secretary Timothy Geithner assured lawmakers Wednesday that stimulus spending to spur the economy now isn't in conflict with a need for longer-term austerity.
Geithner told the House Budget Committee that before the federal government can begin attacking soaring deficits and a massive national debt, it needs to increase jobs and ensure economic growth.
"If you care about future deficits — and you have to care about these future deficits — you need to care about economic growth today," the secretary said. He offered a forceful endorsement of administration policies, ranging from expanded health care to tougher banking regulations.
But Geithner focused his comments on the recession relief and job stimulus components of the Obama administration's $3.8 trillion budget for fiscal 2011. Those efforts total nearly $300 billion in proposed spending.
Geithner's testimony came as Obama faces growing pressure to both address stubbornly high unemployment and to confront a rising pool of red ink. But even under Obama's ambitious budget blueprint, unemployment would still be pushing double digits at 9.8 percent and this year's deficit would increase to $1.56 trillion under the administration's accounting. The Senate on Wednesday passed 70-28 legislation aimed at addressing chronic joblessness, providing tax breaks to businesses that expand their payrolls.
Beyond his budget defense, Geithner also:
- Revealed that the Obama administration will wait until next year to offer proposals to overhaul the government's growing role with mortgage giants Fannie Mae and Freddie Mac.
- Declared that the unpopular $700 billion financial rescue fund "has outlived its basic usefulness" because the community banks that could benefit from it found it stigmatizing.
Geithner faced sharp questioning, especially from Republicans, over the president's spending plans, his own stewardship of the financial sector, and the state of unemployment despite a massive stimulus package last year.
"My guess is the American people think enough is enough," Rep. Jeb Hensarling, R-Texas, told Geithner. "When they hear more stimulus all they see is more debt."
At least one Democrat also weighed in, calling on the administration to do more to expand housing and consumer lending.
Rep. Marcy Kaptur, D-Ohio, accused Geithner of making "political choices" in a mortgage assistance program that Treasury has aimed at five states — California, Nevada, Arizona, Florida and Michigan.
"Your administration, compared to the last one, is trying," she said. "But you're not hitting the mark."
Geithner pointed to an administration plan to use $30 billion of unused money from the $700 billion Troubled Asset Relief Program to help community banks increase lending to small businesses.
In so doing, Geithner conceded that the money should be removed from the unpopular TARP program first to assure bankers they will not face the disclosure and compensation restrictions that financial institutions faced when they accepted bailout funds.
"TARP has outlived its basic usefulness because banks are worried about the stigma of coming to TARP, and they're frankly worried about the conditions," Geithner said. He said 600 small banks withdrew their applications for TARP money because they did not want to face the restrictions or the perception that they needed a bailout.
On overhauling Freddie Mac and Fannie Mae, Geithner told lawmakers that the administration wants to make sure that the government plays a less risky but more constructive role in supporting housing markets.
The administration's Republican critics have argued that it should have proposed sweeping changes to Fannie Mae and Freddie Mac when it demanded an overhaul of financial regulations. The two agencies handle the bulk of home loans and are controlled by the federal government.
Geithner said, "We can't do everything right away." He said it was important to wait until more time had passed from what he called the worst housing crisis in a generation.