Hasty spending cuts can hurt recovery : Geithner

Saturday, 30 April 2011 00:01 - - {{hitsCtrl.values.hits}}

DETROIT (Reuters) - U.S. Treasury Secretary Timothy Geithner said on Thursday it was vital to cut U.S. deficits, but warned that acting too harshly in doing so could send the economy into a new tailspin.

Speaking to the Detroit Economic Club, Geithner said U.S. debts were too big to be solved by faster economic growth alone, but said spending reductions should be phased in over time.

“The biggest mistake countries make in financial crises -- apart from waiting too long to act in the face of the gathering storm -- is they put on the brakes too early,” he said. “Cuts and reforms have to be phased in over time to avoid damaging the economic expansion.”

He said the United States had to get budget deficits down to a level that will put the country’s overall debt burden on a declining path by 2015. But to make that work, some kind of enforcement mechanism will be necessary to oblige future Congresses and administrations to commit to shrinking deficits.

Earlier during his one-day trip to the U.S. auto capital, Geithner met Sergio Marchionne, chief executive of Fiat and Chrysler Group LLC.

Chrysler came to the brink of collapse before being rescued and now is repaying some $7 billion in loans to the U.S. and Canadian governments.

During a question-and-answer period, Geithner said the U.S. government likely will lose money on net from its investments in bailing out the auto industry.

But thousands of jobs were saved as a result and Chrysler is now on a path of recovery with new models and stronger sales.

Geithner, who along with Secretary of State Hillary Clinton , will co-chair an annual meeting of the U.S.-China Strategic and Economic Dialogue May 9-10 in Washington, said the United States will be pushing for fairer treatment of U.S. companies selling abroad. He said the United States wants China “to unravel and walk back the complex network of protections it gives its companies through subsidies and preferences, things that discriminate against American companies.”