Timothy Geithner tells the forum in Davos that the foundations of the US recovery are in place

AMERICAN JOB growth is anaemic, a supersized deficit is widening and Moody’s triple-A credit rating is now at risk. But when US treasury secretary Timothy Geithner spoke at the World Economic Forum yesterday, he calmly insisted the foundations of recovery were in place.

Noting that the American economy had been expanding for 18 months, Geithner told business leaders in Davos yesterday that the worst of the crisis was behind the US but that job creation would be “tragically” curtailed as companies remain wary after the Lehman panic.

He spoke shortly before the publication of new US commerce department figures which showed that economic expansion gathered pace in the last quarter of 2010, but at a slightly lower rate than forecast.

As the deficit approaches €1.5 trillion, the Obama administration is under fire for not doing more to bring its public finances under control. Geithner, however, made the case that it was too early in the recovery to take aggressive action to bridge the gap.

“I know there are people who would like to make very deep cuts that would undermine the recovery,” he said. The turnaround was “not a boom”, he said.

“The overall output of the US economy is now above pre-crisis level, yet unemployment is still in the range of 10 per cent.”

Interviewed by American broadcaster Charlie Rose, Geithner demonstrated candour and caution as he surveyed the global economic panorama from Washington’s perspective.

Charged with the herculean task of consolidating recovery after the worst crisis in decades, he jocosely said “I hope not” when asked whether he expected to stay in his post for the remainder of his term.

“I would never say that I speak Mandarin,” he said of his relations with the Chinese authorities. “I did study it for a long time – not long enough.”

Geithner, who was chief of the Federal Reserve Bank of New York during the Lehman tumult, said that seismic episode marked Obama’s presidency from the off.

Although the White House has frequently been criticised for not concentrating enough on job creation, Geithner said that was always a priority but was overshadowed by the firefight to tame the banking crisis, the stimulus and healthcare reform.

All told, the US authorities did well, he argued, both in the choice of instruments to contain the banking meltdown and in the campaign to bring recession to an end.

The direct cost to the US of the savings and loan debacle in the 1980s and 1990s was the equivalent of 3 per cent of GDP, he said.

By contrast Washington was confident that cleaning up banks after 2008’s flameout, a significantly larger crisis, “is now going to be under 1 per cent” of GDP.

“There is more confidence now that the most acute part of the crisis is over, absolutely in the US but even true globally,” he said.

Stimulating job growth remains a massive challenge. After a period of brutal retrenchment, companies remain reluctant to start recruiting again.

“That is going to consign us to a tragically more moderate reduction in unemployment as the economy recovers.”

Despite the Republican resurgence on Capitol Hill, Geithner said he perceived an increasing political will to stabilise the American public finances. The White House could not do that on its own, he said. “Political will is not fully manifest at the moment but it’s coming, there’s no alternative to it. We can’t grow our way out of it.”

While confident that European leaders would ultimately succeed in their efforts to control the sovereign debt crisis, he said prolonged political bickering last year over the Greek rescue was “very destabilising to confidence” in the tentative early phase of the American recovery.

It was fortunate that such uncertainty was short-lived, he said, as there was a “significant” slowing of momentum at that time.

The commerce department figures showed the US economy grew by 3.2 per cent in the final three months of 2010. This was up from 2.6 per cent the previous quarter but economists had predicted a 3.5 per cent growth rate. The US economy grew by 2.9 per cent throughout 2010, its greatest expansion since 2005.

According to Geithner, the US would be a big beneficiary of rapid growth in the emerging world.

“I think we are at a beginning, I still think at a very early stage of what’s going to be a long period of exceptional growth in emerging markets around the world.”