[Congressional Record (Bound Edition), Volume 153 (2007), Part 1]
[Extensions of Remarks]
[Page 1181]
[From the U.S. Government Publishing Office, www.gpo.gov]




    WISE WORDS ON THE ECONOMY FROM THE PRESIDENT OF THE NEW YORK FED

                                 ______
                                 

                           HON. BARNEY FRANK

                            of massachusetts

                    in the house of representatives

                        Friday, January 12, 2007

  Mr. FRANK of Massachusetts. Madam Speaker, Tim Geithner, President of 
the Federal Reserve Bank of New York, combined economic and political 
wisdom in a recent speech to the Council on Foreign Relations in which, 
according to the report of the speech in the Financial Times, he told 
that influential audience ``that the `political challenge' of 
sustaining support for integrating global economic integration `may be 
the most important economic challenge of our time.'''
  Mr. Geithner came to his current position with significant experience 
in the Treasury Department during the Clinton Administration, which 
makes him very well-positioned to understand how economic and political 
forces interact, and even more important, how they should interact if 
we are to achieve what is our national goal economically--significant 
growth that is widely shared.
  I very much appreciate Mr. Geithner's thoughtful words, and I hope 
that people concerned about economic growth will accept the validity of 
his point so that we can all act together accordingly.

                       [From the Financial Times]

             Wages Gap `Undermines Support for Free Trade'

                    (By Krishna Guha in Washington)

       The widening gap between the rich and middle-class 
     Americans is undermining political support for free trade in 
     the US, the president of the Federal Reserve Bank of New 
     York, warned yesterday.
       Tim Geithner told the Council on Foreign Relations that the 
     ``political challenge'' of sustaining support for further 
     global economic integration ``may be the most important 
     economic challenge of our time.''
       The New York Fed chief also warned that the inflow of 
     surplus savings from abroad could be distorting US asset 
     prices and keeping risk premiums artificially low across 
     financial markets.
       His comments were made amid growing concern in US political 
     and business circles over the risk of a populist backlash 
     against free trade caused by rising inequality and a 
     protracted period of stagnation in median wages--the wages 
     earned by the average US worker.
       While recent data show real wage growth has at last picked 
     up, many economists fear this could be short-lived.
       Mr. Geithner said maintaining support for open markets 
     would be made more difficult ``because of what has happened 
     to the distribution of income and economic insecurity''.
       He cited as big political problems the ``long-term increase 
     in income inequality'', the ``slow pace of growth in real 
     wages for the middle quintiles of the population'', increased 
     volatility in income and the greater exposure of families to 
     risks involved in financing retirement and healthcare.
       Echoing views expressed by Larry Summers, his former boss 
     as Treasury secretary in the Clinton administration, Mr. 
     Geithner said it was ``not enough to explain that 
     globalisation is inevitable'' and protectionist policies were 
     self-defeating.
       Better education and an improved safety net were a 
     ``necessary part of the solution to this challenge''. But, he 
     warned, ``these reforms will have a long fuse and they may 
     not yield the hoped-for increase in support''.
       Mr. Geithner cautioned that the low level of risk premiums 
     across asset markets was ``unusual'' and might not prove 
     lasting.
       He said there were many sound reasons why risk premiums 
     might be low, including better monetary policy, strong 
     underlying productivity growth and better risk-sharing across 
     more globally integrated financial markets.
       But he warned that the inflow of surplus savings from 
     abroad--including ``very substantial official accumulation of 
     dollar reserves'' by countries seeking to maintain fixed 
     exchange rates--could be distorting asset prices, sending the 
     wrong signals to savers and investors.
       Mr. Geithner said these forces were ``surely transitory'' 
     but could ``mask or dampen the effect on risk premiums in 
     financial markets that we might otherwise expect'', given the 
     huge US trade deficit and its long-term fiscal challenges.

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