Timothy Geithner Says Relax – Financial Problems Under Control

US Treasury Secretary Timothy F. Geithner expressed confidence that Europe will resolve the sovereign debt crisis that is expanding across the region and said the U.S. economy is strong enough to withstand any fallout.

“Europe has the capacity to manage through this,” Geithner said in an interview on Bloomberg Television’s “Political Capital With Al Hunt,” set to air this weekend. “And I think they will.

Haven’t we heard all this before? Geithner’s predecessor, Hank Paulson, expressed full confidence in the US financial system about two weeks before the bottom fell out with the demise of Lehman Brothers. And of course, President George Bush used to brag about the increasing numbers of Americans that were purchasing homes, while failing to mention that many of the homes were being financed by liar loans to people that absolutely lacked the ability to repay.

More recently, President Obama’s financial team, and the President himself, have been talking about how the economy is turning the corner and that soon enough happy days will be here again. As Treasury Secretary, Timothy Geithner, has been one of the Obama’s administrations chief cheerleaders.

There appears to be only one honest man, former Federal Reserve Bank Chairman Paul Volker, giving advice to the present administration. When asked if he agreed with Obama economic adviser Paul Volcker that there is a risk of “disintegration” of the euro, cheerleader Tim Geithner said Europe is “committed to fix this problem.”

Of course, I recognize how difficult it is for politicians to acknowledge and to speak truthfully about problems that confront their countries. No politician anywhere wishes to appear that any situation is beyond their ability to remedy. That is one inherent weakness in the democratic form of government. Politicians fear to say anything that may cost them votes no matter how true the statement may be.

Politicians are unwilling to speak truthfully about difficult situations that would require sacrifice and frugality on the part of voters in order to solve the problems. Politicians seem to prefer to engage in a confidence game whereby no real solutions are offered but speechs proliferate that they have taken appropriate action and that things will soon get better. The belief for politicians seems to be that if only we are confident enough that difficult situations will improve they will in fact improve. That is, with enough confidence problems will be solved, even if we don’t know exactly what caused the problems in the first place or refuse to acknowledge the source of the problem.

Therefore, we have Timothy Geithner responding to skepticism in financial markets about Europe’s efforts to tackle its debt by saying “it’s very natural that people want to see what Europe does. By acting, they will have the chance to earn people’s confidence over time.”

What Obama, Geithner, Summers, and the other administration cheerleaders probably don’t realize is that time is fast running out. The financial bailouts of the last two years have in effect transferred trillions of dollars of bad debt from the private sector, think bank bailout loans to Goldman Sachs, AIG, Citigroup, and others, to the public sector.

Governments around the world have taken on trillions of dollars of additional debt in an effort to revitalize their economies. The debt burdens of nations such as Greece, Spain, Portugal, Ireland, and Italy have probably become unmanageable. In our interconnected world sovereign debt issues are now spreading from these nations to effect stock markets and financial markets in the United States, the UK, Japan, and elsewhere.

Politicians around the world are strong believers in the “kick the can down the road” method of governing and managing economies. However, time is rapidly running out for the politicians favorite game. Not only are they running out of time but they are running out of road. Nations cannot save each other by simply creating Fiat currencies and loaning what passes for money to each other. The idea that you can solve problems of excessive debt by creating additional debt is ludicrous.

In the end, sovereign debt issues can only be solved by the reduction of debt. Nations must reduce expenses while increasing revenues. The problem for politicians and for the citizens of many nations around the world is that the austerity measures necessary to reduce unmanageable debt loads will cause a deflationary environment that will lead to tremendous hardships.

Certainly, it is difficult for any politician to speak of increasing taxes at a time when many people are already struggling just to stay alive. There is the fear, absolutely justified, that austerity measures, including the increase of taxes, will lead to civil unrest and disorder. This has already occurred in Greece and will likely spread throughout Europe and beyond as government cutbacks in expenses and services become more pronounced.

The more vocal that confidence cheerleaders like Timothy Geithner become the more you can be assured that we have entered the end game. Sovereign debt issues are measured in the trillions of dollars. I see no way that the issues can be satisfactorily resolved without going through a long term period of depression, hardship, and despair as the implosion of the Mount Everest of debt leads to a massive scale of bankruptcies and loan defaults, not only among individuals and corporations but among sovereign nations.

When Timothy Geithner says relax, all is under control, it’s time to take cover.