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And hello again from Fox News in Washington well it's been quite a week in the nation's capital.
Congressional outrage over those AIG bonuses.
A new west about a trillion dollar budget deficits as far as the eye can see.
And the White House about to finally unveil its financial rescue plan.
Here to discuss it all is Christina Romer chair of the White House Council of Economic Advisers.
And -- drummer welcome to Fox News Sunday.
Great speaker but the nonpartisan Congressional Budget Office came out -- -- its projection it's analysis of the Obama budget on Friday and let's put up the staggering numbers that you concede that right there.
The CBO says the deficit will be nine point three.
Trillion dollars over the next decade a lot of zeroes there that's -- two point three trillion Maurer.
Then the Obama White House's -- the president's budget director says those kinds of deficits.
Are not sustainable will the president scale back to spot.
I when there are a couple of things to say why -- -- -- guarantee some questions about the numbers right -- when you actually say why the Congressional Budget Office numbers different from ours.
A big part of that is their estimates of long run growth when you get out 510 years.
So we know real GDP is only going to grow about two point two -- two point 3% a year and that's just lower than private forecasters at slower than the Federal Reserve and we think it's just too pessimistic so I think.
A big part of why they're getting such different numbers.
I just some of these technical issues.
Under the issue though I think in some sense.
The president is addressing that's right he's actually said he's going to cut the deficit that we inherited in half and that is a commitment that is.
As strong as it is it as it ever was.
Thing is taking on health care and one of the biggest things that he's taking on this on the I would guess the Congressional Budget Office is our biggest fan because they have said for the last.
Many years that the thing that is going to bankrupt us that's going to make that deficit get bigger and bigger is the fact that health care costs are are rising.
Very very quickly -- ms.
-- that the chairman of the Senate Budget Committee and that as a Democrat the democratic chairman of that committee.
Says that the CBO projections mean there must be costs.
Beyond what you -- talked about in the Obama but let's watch.
When you've got a new forecast of this magnitude.
You gotta make hundreds of billions of dollars of changes to make it all work.
Are you just going to ignore him.
The president is -- the beginning as he is actually committed to working with congress.
We've suggested cuts we've suggested changes in revenues he's -- but he's -- about billions of dollars in cuts beyond what you've suggested.
I think again we're going to need senate to work with some I have also just keep coming back to.
The kind of things the president has in the budget right he's got health care reform he's got energy he's got education.
All three of those who set I just too big to wait.
-- to come back to those long run growth numbers that I told you about right what's going to make those.
Beat bigger it's if we invest in -- our kids and do good things with education if we get off foreign oil and get a more vibrant.
System but but ms.
-- let's look at the economic forecast that you're talking about put them up on the screen.
The White House for -- two point 88%.
Annual growth over the next decade.
CBO says two point 5% and in fact the blue chip consensus.
Is even lower than CBO and much slower than yours two point 3%.
So in other words the CBO.
Projection has more in line and is even higher than the private forecasts and certainly much closer to them in the White House says.
Yeah be careful doesn't deficit -- does that those are decade long numbers on what what I should've thought about the growth numbers the that they actually something like the blue chip has very negative numbers for the next year to.
But then when you get back to normal when you get back -- that normal growth.
They're out there at two point six or two point seven where is the CBO only comes back to say two point two I don't get into a numbers below the point is that of their people have criticized that you work -- -- for you were involved and it is ahead of the.
Council of economic advisors for having a rosy scenario -- growth CDL says is gonna be lower than you and the private estimate is even lower than CBO.
Again you gotta be -- it actually has -- the pattern of growth right what we have.
We know that the next two years are going to be rough to that we think we come back quite strongly to a fairly good robust level of growth so like the CB yeah actually follows us they have us coming back quickly but then leveling off at a really I think unrealistically pessimistic.
Long run growth.
Bottom line at this point you don't plan to make any cuts unilateral cuts in the Obama but.
We're committed to working with congress -- doing what the president said he was always going to do it just cut that deficit in half over the over his first term but no new cuts.
Will will we get we're working with congress and was -- where it all comes out of the Treasury Department.
Will announce its planned tomorrow to buy toxic assets to get financial institutions.
Lending again but the plan depends on getting.
Private investors hedge funds private equity companies to partner up with a government to buy those accents.
Those assets question how much damage has this -- were.
Over AIG hauling these members up before congress.
That's 90% tax passed by the house.
How much damage has not done to getting private investors to partner up with the government.
Think we -- to be careful for a minute rates.
And we got to -- to acknowledge that that outrage is genuine it's something that we all feel and absolutely let the president says what happened they had she is completely unacceptable so.
That's crucial to to get on the table.
And what you know I think we're gonna have.
Sensible strategy going forward the -- is very much.
Drawn a distinction we understand firms that at some level are only in existence today because the government has stepped in and supported them.
The kind of of restriction should put on them for executive comp hey that's the taxpayers are are involved an absolutely that -- Make sense.
What we tell you about -- -- private firms they're doing us a favor right coming into this market to help us by these toxic assets off banks' balance sheets and and I think they understand that the president realizes there in a different category and I think they are gonna have confidence that.
That they're gonna be able to come into this in into this program and they will be treated differently.
I think you know we certainly are going to apply all laws that bid.
Now we have to apply.
But but they they should know that the president understands they are in a different category they are firms that are.
I -- and the good guys here coming into a market that hasn't existed to try to help us get these toxic assets off banks' balance sheet.
Are you prepared to say right now that the president -- line.
A 90% tax or even let's talk about the -- 72% tax on these bonuses.
That obviously is that decision for the president what he has said is that he's going to look at any legislation.
And I'm sure he will do that.
I think it's so important it is very been very.
I think very why isn't saying we all feel this tremendous anger towards AIG.
But let's -- that in the sense the way he's already -- to congress to talk about resolution authority about -- The next time we got a company like AIG.
We need a mechanism where there is a judge in control like a bankruptcy judge -- can say -- break in this contract were not going to do this.
And that's really what's been missing this time and that's why we're in this -- It -- what do you say you said well I did that the company should have confidence they're gonna -- a different category they'll in effect be treated differently.
What do you say to the head of a private firm who looks at the last week who looks.
Add at that being hauled before congress who looks at at at that congress changing the rules the house -- the deal that was made and now to put -- and bonuses that 90% and says why on earth would I want to do business with the government.
I think -- -- keep it it should say is let's president has said which is.
-- -- -- Our.
You know they -- it talks about that changing that culture right -- understands where we're fans of the market.
We understand that when -- -- -- and well people deserve to be paid well.
There's gotta be a new culture that win firms are in trouble when the government having to step the end.
In that case that for heaven's sakes don't gone in your same -- -- great big bonuses and so.
I think they're going to understand that that's.
That's got to be that the cultural change that the president talked.
And what do you say to tax payers about why the government should partner rob.
With Wall Street fat cats were talking about private equity firms hedge funds where people make a lot of money.
And allow them to get even richer.
In a situation which the government puts up most of the money and takes most of the -- Because right that the keeping -- we've got trouble and -- let's do the big picture right we've got banks -- a lot of he's toxic assets what toxic means that they -- highly uncertain and because they're on banks' balance sheets.
We think banks not lending they're afraid to land and private equity or private capitals afraid to comment I and so that -- Certainly the big picture here.
And so I think we're we're just that that's going to be the main reason -- -- -- We needed.
We just -- right we simply we simply need them we need them.
You know we've got -- a limited amount of money that that that the government has to go in here so we need to partner not just with with private firms but with.
The FDIC with the Fed to tell leverage.
The money that we -- thing is -- think the private sector is gonna be very helpful here we don't want.
But taxpayers on the hook for -- -- much of these assets is a part of what we're doing is using that expertise is that the private sector has and going and as their partner.
So there are growing calls relatively small I grant you but growing for the resignation of Timothy Geithner what -- the impact be.
On the financial markets in the president's recovery plan if Geithner were to step down and we didn't have a Treasury Secretary for the next few months.
I think -- all of this discussion this is really.
-- Tim Geithner is an excellent secretary of the treasury he has been.
-- an unbelievably difficult hand to deal list.
But he's actually doing a fantastic job right he -- -- back in February an overall.
Plan for Howard -- deal with the financial system and and just remember what what what he's been doing in the last summer months it's just filling in all the pieces -- that the housing program we've had -- Small business program we've gotten -- Us consumer and business lending initiative going just -- -- growing calls -- up in the building up there on Capitol Hill for him to step down to it isn't silly.
-- I think he is.
You know that the crucial thing is he is doing an excellent job -- to complete support of the president.
And he's gonna keep doing an excellent job he's gonna.
Brick painted as you pointed out maybe announcing how we're gonna get.
Toxic assets off banks' balance sheets and every other pieces to come -- -- Couple of.
Final questions or want to get into would you while everyone was focused on AIG it went almost unnoticed at the Federal Reserve -- Is pumping another one trillion dollars.
Into the financial system do you have any worries.
As an economist that -- all of that money into the system is going to drive the value of the dollar down and lead down the line to inflation -- I actually I have to say I think starting back with Paul Volcker and early 1980 is the Federal Reserve has shown itself.
Completely capable of keeping inflation under control.
And I have every confidence that they will continue to do that I think.
What we're seeing coming out of the Fed is -- the same thing we're seeing coming out of our administration and the congress of a sense that.
We have a big problem and we need to take bold actions to deal with them we've done that on the fiscal side and the Fed is done that on the monetary side.
Before you came to Washington you when your husband were experts.
Leading experts on business cycles and the recession you have written.
That monetary policy.
What the Fed does and lowering interest rates and and then pumping money into the economy is enough to and recessions you don't need big government spending programs and you've also written.
The tax increases.
Can reduce -- so my question is given all about.
What's a nice girl like you doing in the Obama White House.
A nice really -- that said that the crucial part of my research is actually said that.
That aggregate demand fiscal policy monetary policy all those things have big effects on the economy and what I've said -- So to historically.
Monetary policy did most of the work in most of our postwar recessions.
It's what and of them.
What we see in this time -- we had aggressive monetary policy that wasn't enough I and that's exactly why it was so crucial that we did the let's say you didn't have enough time that -- always take six months to year and when we get to that point it'll do that do the track that signs where absolutely that the economy is getting worse rather than.
I think getting better and and they think -- again historically.
-- -- tight fiscal policy we never did it the right time and what's so impressive this time is we got that fiscal policy that big stimulus package passed.
Right at the heart of the recession right when it could actually start doing so at fifteen seconds how confident are you that if we sat down here a year from today.
And and -- today.
That you'll be able to say you know what our policies have worked incredibly confident.
I I truly believe that's why we're taking them we absolutely.
Think that they -- going to do the job for the American economy.
And -- so I'm I'm happy to see a year from now and that a year from now we'll see the signs.
We -- I feel very confident we'll be seeing the signs that the economy is.
Has turned around and is is growing again have -- it'll take time before.
We're really back to normal but I think we will absolutely see signs that that everything is working his -- thank you thanks for coming in.
Please come back and it -- hopefully and less than a year but at any year of today is -- -- Up next we'll talk.
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