Tags: Geithner | Deficit | Reduction | recession

Geithner: Hasty Deficit Cuts May Spark Recession

Thursday, 05 April 2012 11:45 AM

U.S. Treasury Secretary Tim Geithner is telling business and political leaders to be careful about major cuts in spending, suggesting that too much, too fast might lead to a new recession.

Economists have been warning that the United States faces a “fiscal cliff” in the next year as the Bush tax cuts expire and automatic spending cuts equaling $1.2 trillion kick in. Half would come from domestic spending, half from defense.

Some fear that extending the tax breaks again while cutting spending will hurt U.S. GDP growth, prompting a quick decline just as the economy gets back on its feet.

Editor's Note: Obama’s Economic ‘Fix’ is In . . .

In a speech, Geithner suggested that tax increases on the wealthiest might not be the worst consequence, all things considered, reports the Los Angeles Times.

"The changes are very modest, and on the richest Americans the effective tax rate is still very low,” Geithner said in the speech. “Life is about alternatives. If you do not like the plan, you must ask: 'Where are you willing to find another $1.5 trillion?'"

The economy has entered a tricky phase, one in which the markets seem to be discounting further Fed action to ease monetary supply. If a recovery is underway, that would signal higher interest rates in short order to keep inflation in check.

Stocks have fallen in recent days on the presumption that the Fed might be done with at least new easing, although it has stuck to its core message that interest rates will stay low through late 2014.

“We still believe it is possible that signs of slowing growth will accumulate to the point that the Fed provides accommodation," Morgan Stanley Chief Economist Vincent Reinhart told CNBC.

Editor's Note: Obama’s Economic ‘Fix’ is In . . .

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