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Obama Administration Promises to 'Reverse' Economic Rescue Measures

April 23, 2009

By Michael Lipin

Washington (RPRN) 23 April 2009-U.S- Treasury Secretary Tim Geithner says the administration plans to reverse the major economic steps it is taking to deal with the financial crisis as soon as a recovery begins. He said maintaining the current measures longer than necessary would create political and economic risks.

Geithner says the Obama administration is committed to reversing its rescue plan for the banking sector and other emergency responses to the economic crisis.

Geithner made the promise Wednesday in a speech to business leaders and government officials in Washington. He said the administration's fiscal and monetary actions to address the crisis are "temporary" and must be undone once a recovery is firmly in place.

"With this in mind, this administration has presented a budget plan that charts a path to achieving to sustainable budget deficits in the medium term, so that recovery is not impaired by concerns about excessive government borrowing in the future," said Geithner. "We are designing our financial programs so that we can reverse them as soon as practical, and avoid the risks that come with sustained government intervention in the financial system."

The Obama administration indicates that it will inject $800 billion into the U.S. economy by the end of next year, pushing its budget deficit to a record-high. The U.S. Congressional Budget Office predicts the national deficit will hit $1.8 trillion in 2009.

Opposition Republicans have strongly criticized the administration's stimulus and budget plans, saying they waste taxpayer money and burden future generations with too much debt.

But Geithner says the administration is determined to bring spending under control in the coming years.

"The American people and investors need to understand that we will have the will and commitment as a country to go back to the point where we are living within our means, and that is going to require very substantial adjustments to bring our resources and expenditures more into balance," he said.

Another economic rescue program the Obama administration wants to unwind is a $700 billion bailout of struggling U.S. banks that Congress adopted last year.

The Troubled Assets Relief Program, or TARP, was aimed at propping up banks that suffered huge losses from bad loans linked to the ailing housing market.

Mike Englund is an economist at Action Economics, a U.S.-based financial analysis company. He says spending taxpayer money on supporting banks is not a sustainable measure.

"The short run benefit of the policies is that it helps dampen the downturn in the business cycle, but the long run risk is that these actions are likely to contribute to inflation two, three, four years down the road," he said..

Englund says the U.S. government needs to reassure investors that it will not end up nationalizing banks - a move that could depress stock prices and aggravate banks' problems. He says maintaining control of banks also poses other problems for the government.

"There may be political risks also for Washington to have a stake in the nation's banking industry to the extent that each problem that each individual bank faces, increasingly looks like a problem the administration has to face - how this TARP money is being spent, how bankers are compensated, are problems the White House probably does not want to have," he said.

Englund says another dilemma for the government is deciding when to sell its bank shares.

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