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Geithner to China: "We'll Stop Printing Money Someday, Really..."

U.S., China Pledge to Ensure Recovery Is ‘Secured’ (Update3)
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By Rebecca Christie and Rob Delaney
From Bloomberg.com

July 28 (Bloomberg) -- Policy makers from the U.S. and China, the world’s largest and fastest growing economies, pledged to keep their stimulus efforts in place until an economic recovery is “secured.”

“We agreed it is vitally important for China and the United States to see through their commitments to repair the financial system and lay the foundation for recovery,” Treasury Secretary Timothy Geithner said in remarks at the conclusion of two days of talks with Chinese officials today.

The two sides also looked beyond the crisis to address trade and investment imbalances that officials have said contributed to what became the worst global recession in the postwar era. The Obama administration pledged to rein in the federal budget deficit and encourage higher saving by American households, and China signaled it will bolster domestic demand.

In a speech late today to the U.S.-China Business Council, Geithner said China has undertaken a “remarkably ambitious set of reforms” to help its economy move forward from the global financial crisis and recession. The U.S. needs to get on a more “sustainable” footing, he said.

“We’re going to have to go back to living within our means,” Geithner said. At this week’s meetings, he said, both the U.S. and China have made clear that “we will do what is necessary to bring the world back to a path for growth.”

China’s ‘Troubleshooter’

Geithner praised Wang, his Chinese counterpart, as a “pragmatic person,” a “troubleshooter” and a “firefighter” who tackles hard problems and finds a solution. This makes him a “remarkable partner” for the U.S., Geithner said.

China and the U.S. will aim to “bring about more balanced and sustainable global economic growth after a global recovery is firmly established,” the two sides said in a fact sheet on the economic side of so-called Strategic and Economic Dialogue talks in Washington.

For now, stimulating economic growth is the “top priority,” China’s Vice Premier Wang Qishan said in remarks closing the two days of discussions. He also said that the two nations are “firmly opposed” to trade protectionism. The joint statement called on all World Trade Organization members to conclude the current round of global trade talks.

While the U.S. is showing signs of “bottoming out” and “will start to grow” in the second half of this year, and China has already begun to rebound, “both countries pledged to maintain their strong policy responses until recovery is secured,” the Treasury said in its own fact sheet on the talks.

Rescue Efforts

“Forceful policy responses by China and the United States have helped pull the global financial system back from the edge of failure and provided support for demand at a critical time,” Geithner said today.

Once a recovery is “firmly established,” the U.S. will take steps to reduce its current-account deficit, boost private savings and cut its budget deficit, Geithner said.

The U.S. savings rate reached 6.9 percent in May, the highest level since 1993, as Americans consumers curtailed spending.

Geithner said he expects those gains to be part of a more permanent shift.

“We’re more likely to decide that these changes we’ve seen in private savings already are durable,” Geithner said. “That’s because I think we’ve learned some tough lessons as a country. I think the basic lesson, the importance of living within our means, is best for the country, and at the household level, is an important, necessary lesson.”

U.S. Deficits

Obama administration aides yesterday explained their strategy for reducing the budget deficit to the officials from China, which is the largest foreign owner of U.S. government debt.

The administration’s record $787 billion fiscal stimulus was necessary to get the economy out of its worst recession in half a century, the U.S. delegation said.

David Loevinger, the U.S. Treasury’s senior coordinator for China affairs, said on a conference call with reporters that the deficit, which is on course to reach $1.8 trillion this year, will be made “sustainable” in part through future spending cuts and an overhaul of health care.

The U.S. presented “credible” steps to narrow the shortfall, China’s Finance Minister Xie Xuren said at a press briefing today.

China’s Assets

China’s holdings of Treasuries reached $801.5 billion in May, about 100 percent more than at the start of 2007.

China will aim to increase domestic-led growth and pursue policies that “enable adjustment of demand and relative prices,” Geithner also said.

In a speech late today to the U.S.-China Business Council, Geithner said China has undertaken a “remarkably ambitious set of reforms” to help its economy move forward from the global financial crisis and recession. The U.S. needs to get on a more “sustainable” footing, he said.

“We’re going to have to go back to living within our means,” Geithner said. At this week’s meetings, he said, both the U.S. and China have made clear that “we will do what is necessary to bring the world back to a path for growth.”

Geithner praised Wang, his Chinese counterpart, as a “pragmatic person,” a “troubleshooter” and a “firefighter” who tackles hard problems and finds a solution. This makes him a “remarkable partner” for the U.S., Geithner said.

To contact the reporters on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net; Robert Delaney in Washington at robdelaney@bloomberg.net