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Geithner jetsets across globe to peddle US debt
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15:28, July 21, 2009

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WASHINGTON: Timothy Geithner, architect of bank, auto and economic rescue plans, has another high-stakes job these days: traveling bond salesman.

The recession, financial crisis and two wars have pushed the federal deficit above $1 trillion, a record level that makes the Treasury secretary's role as chief marketer of US debt tougher than any of his recent predecessors'.

Geithner, who traveled last week to the Middle East and Europe, has to convince foreign investors to keep buying Treasury bills, notes and bonds; they hold nearly half of the government's roughly $7 trillion in publicly traded debt.

"He's a smart guy but it's a very, very big task," said Dean Baker of the Center for Economic and Policy Research.

If foreign demand for US debt sags, that could drive up interest rates and spell big trouble for an economy hobbled by 9.5 percent unemployment. Higher rates would make it more expensive for consumers to buy homes and cars, and for businesses to finance their operations.

In the worst case scenario, a rush by foreigners to sell their US debt could send the dollar crashing and inflation soaring. Because that would also hurt the value of their remaining holdings and the US economy - a key market for their exports - private analysts believe such a scenario is not likely to occur.

With the risks in mind, Geithner last week visited Saudi Arabia and the United Arab Emirates, whose vast oil wealth gets recycled into Treasury holdings.

In March, Chinese Premier Wen Jiabao said his country was concerned about the "safety" of the large amounts of money it had lent to the United States.

Throughout these trips, Geithner very much stuck to his sales script, at least in his public pronouncements. He said the Obama administration was committed to guarding the value of the dollar and, once the economy improves, shrinking the deficit.

The deficit has been driven higher in part by the $787 billion economic stimulus package and $700 billion financial system bailout approved by Congress over the past year.

The deficit-cutting proposals the administration has so far revealed would fall far short of what is needed.

"If the Obama administration has a credible plan to bring the deficits down, they are keeping it a deep secret at the moment," said Michael Mussa, senior fellow at the Peterson Institute and former chief economist at the International Monetary Fund.

With nearly three months left in the budget year, the Obama administration forecasts that this year's deficit will total $1.84 trillion, more than four times the size of last year's record tally.

The nonpartisan Congressional Budget Office estimates the annual deficits under the administration's spending plans will never drop below $633 billion over the next decade. And it forecasts an additional $9.1 trillion added to the debt held by the public - the amount that Geithner has to finance with bond sales.

Source:China Daily/Agencies

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