Geithner:U.S. must learn to live within its means

WASHINGTON, Oct 16 - The United States must live within its means once growth is back on a sustainable path to preserve global confidence in America and in the dollar's status, Treasury Secretary Timothy Geithner said on Friday.

In a CNBC television interview, he said the dollar's status as a key reserve currency carried special responsibilities that include keeping spending under control.

"It is very important that Americans understand that we need to do everything possible to sustain confidence in our ability to keep inflation low and stable over time and to make sure we're getting our fiscal house in order," he said.

Separately, White House economic adviser Lawrence Summers said financial firms that helped precipitate two years of economic crisis are going to have to bow to stiffer oversight of their activities to prevent it happening again.

"The time has come for fundamental change in the financial sector of our economy -- both in how financial institutions conduct their business and how they are regulated," he told a New York conference sponsored by The Economist magazine.

A U.S. House of Representatives panel on Thursday approved proposals for tightening regulation of derivatives trading. The Obama administration is pushing for widespread reform to be in place by year-end, despite some resistance from business.

BANKS CAN'T BE CHOOSY

Summers suggested banks had little choice in the matter.

"There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support," he said. "This has direct relevance on the changing nature of the social compact between the financial sector and the broader economy."

Geithner said developments over the past year, when many investors put their money into U.S. Treasury securities and the dollar rose at times, showed there was still a great deal of confidence in U.S. economic management.

"The world wanted to be in (U.S.) Treasuries, in the safest and most liquid markets, and you saw the dollar rose when people were most concerned about the future of the world," he said.

"That is a very important thing. It's not something you can count on. It's something we can understand, and we can continue to foster, and we're going to do that," Geithner added. He said a priority was cutting huge budget deficits that soared to record levels as the government pumped money into the economy.

"When we have growth back in place, we've also got to bring down those long-term deficits, make sure we go back to living within our means." he said. He added, however, that the administration had to be careful not to withdraw stimulus too fast.

BALANCING ACT

"We're not going to make the mistake many countries made in the past of putting the brakes on too early and creating risk that we have a... weaker recovery with even higher levels of unemployment going forward." Geithner said.

He said that access to credit in the overall economy has improved dramatically but many small businesses that typically create many jobs still face borrowing constraints.

"They're more dependent on banks. They're more dependent on credit cards, home equity loans, other types of things that got washed away by this crisis," he said.

The Obama administration is working on measures to help small businesses get easier access to credit -- possibly by diverting some bank bailout funds to them -- but hasn't yet announced a program to do so.

The American Bankers Association this week wrote to Geithner urging him to invest up to $5 billion from the $700 billion bailout fund established for banks into smaller, so-called community banks to encourage them to lend more.

The lobby group said smaller banks, asked to make loans in communities where jobs are being lost and property values are still falling, need help just as big Wall Street banks did.

Geithner indicated he was open to the idea of extending unemployment insurance benefits for people who have been out of work for an extended period and face the prospect of running out of the jobless payment.

He denied that the administration was ready to consider a second economic stimulus program, but said it was "looking at a set of programs like unemployment insurance, other sets of things that ... are set to expire. And there's a good case for extending them."