unstainable, untenable. that created a set of expectations about future performance in the financial sector and other sectors of the economy that was not plauzably sustainable over time. so there's been a bit of gravity and expectations as people think about what it's going to take for us to grow in a more balanced same way going forward. we can't have an economy where we expect growth to come from sustained borrowing by relatives individual income to finance overinvestment housing. not a plausible long-term strategy. again, i think the broad adjustment you're seeing in the u.s. economy we should find encouraging. it's nor investment and export led. it's coming with a improvement in private savings rates. even the beginnings of improvement in public savings, public debt, fiscal debt coming down. bringing down burdens, financial

sector much more stable, and we have a very resilient, very dynamic american economy. you can see that across the broad strength you're seeing, and i think if you look ahead, the world is i think still at the early stage of what's going to be a very long period of pretty substantial rates of growth in the emerging world in the most populous parts of the world, and we are better positioned than most developed economies to take advantage of that, and that's partly why you're seeing the strength you see today. again, in agriculture, in manufacturing, high-tech in the united states. >> let me ask you about the year-end set of interlocking kreis thcrises you mentioned. there are a lot of incertainties that are out there, and you could argue that president by introducing the idea of the buffett tax, 30% minimum tax

tore millionaires is adding to that sense of uncertainty as we head towards year-end. i want to ask you to address that question. is it just unlikely that we'll see sort of a firming of business confidence until these issues are resolved, which probably will be after our presidential election? and on the question of the buffett tax, a lot of people have wondered why the president hasn't looked instead towards more comprehensive tax reform? the u.s. tax system, you could argue equity is part of what's wrong, but by this limited approach it a big problem? >> good questions and thanks for raising them. you know, among the challenge wes face as a country, they're not the only challenge we face, is trying to find a way to build political consensus around a balanced mix of tax reforms and spending savings to restore sustainability to a fiscal

position. it's not the only challenge. not the most urgent challenge we face but it will be critical going forward and at the end of the year we have this huge incentive, huge opportunity to try to get people to come together and again make some progress in that direction. for that to happen, you're going to need some additional revenues through tax reform alongside some significant savings across all parts of government. health care. all the other things, you know, that dominate the spending picture of the government, and, but they have to happen together, because it's untenable to ask people to bear the burden of the significant savings that are going to have to come across the government, which affects all parts of the american economy and middle class families, unless that's accompanied by some shift towards modestly higher burden of taxation on the most

fortunate american. i just don't see how you justify it economically, or politically, unless you have that combined package. as part of that process, what we've been trying to do, lay foundations for the debate that will have to come on tax reform. now, the president has proposed a very detailed, very comprehensive tax changes, higher -- the bush tax code expires for the top 2% of americans, and a significant limitation in the ability of those that 2% of americans to take advantage of deductions and exclusions in the tax code. we think that's the necessary and essential element of tax reform alongside changes on the business side that would lower the rates and broaden the base and clean up all the corporate and tax code and create stronger incentives for investment. the two basic pieces of reform that need to happen are ways to restore a greater degree of tax

code way modest increase in the effective tax rates of the most fortunate americans. that's what the buffett rule tries to do by making it clear as many republicans have said that you need to limit the deductions and exclusions of the tax code disproportionately benefit rich american, have that outside of the business act system, which would lower rates broaden the base and improve incentives for investing in the united states. and what we're trying to do is lay, again, lay the broader foundation for those reforms so that when a better position at the end of this year to set up a process that would move in that direction. those should are alongside of not a substitute for a broader set of savings on the spending side. just one last point on this. all of the bipartisan proposals for fiscal reform share with the president's a basic judgment, they need to have spending savings alongside some modest

increase in revenues. so everybody has looked at this whether it's bowles-simpson, the senate six, domenici or the whole range of other non-partisan and bipartisan efforts out there, all come to the sap basic judgment, there's a no plauzal way politically and no really sensible way economically to try to restore physical cable stability without that and tax reform should be part of that, but it's -- but it's, it requires spending savings, too. >> so just to clarify for our audience, am i right in understanding you to be saying that the president would be interested at year-end in a broad discussion about tax reform, as you address this series of questions that you mentioned? >> well, absolutely. again, you need a -- i think tax reform is coming. it's inevitable. it's necessary. it's all about the shape of it.

and you know, we're going to have to make another substantial contribution on the spending sis'd side, too and they should proceed from parallel and we need a framework for doing those things at the end of the year. >> so let me shift now to -- >> can i say one more thing? it's important. >> yes. >> the important thing about the uncertainty that people see ahead at the end of the year, and i would say i don't think there's any plausible argument that toes in the behavior businesses in the broad behavior of the american economy or in financial markets, you can see much evidence, really, any evidence, of that uncertainty about the ultimate fiscal problems affecting growth or behavior. it doesn't exist today. no evidence. that might come in the future, but not today. but i was going to say the big source of uncertainty around this and i think what people can do to provide a little more reassurance and balance in context is that, around the debt

limit, and the potential scope of changes on the tax side. to some extent the pace of the declining deficit. let me just say the three things reassuring to hear from politicians in washington are the following -- one is congress will pass the debt limit without all the drama and politics and damage that republicans in congress imposed on the country last summer. two is, it's important to recognize that the tax proposals we're debating would affect 2% of american individuals taxpayers. 2%. they would involve a modest increase of tax on those americans. about 3% of small businesses affected. very small fashion of the american economy affected by those changes. the third thing is and this is very important, too, is to recognize that when you restore fiscal sustainability like this you've got to do it in a way calibered to the strength of growth and recovery, because if

you cut too quickly, if you try to bring about too precipitous a withdrawal of fiscal stimulus in a that context, the risk is you do damage to recovery and you undermine the objection you're trying to lay forward. those are important to recognize. if people can emphasize a compliment to those basic three tennants that will help reduce some uncertainty around what might happen at the end of the year. >> i want to turn now to europe, which is a source of great interest and some concern as the imf and world bank gather for their meetings. olivia the imf economist in his latest analysis just out in the last few days notes the problem of investors demanding fiscal consolidation. fiscal cuts, and then getting upset at the slower growth that

results from those cuts. it's a kind of a trap, that if you do what you're required to do, then people are upset with you. and i want to ask you more broadly. looking at the situation in europe, and the risk of very lowered declining growth what do you think what does the united states think, is an appropriate response beyond what's being done now? >> well, excellent question. i think it's a centerpiece of the policy choices europe faces going forward. they have put in place a stronger set of tools for managing this crisis. stronger set of financial tools. stronger firewall to fit the combined force of the ucb and what the governments put together in terms of these funds. better tools and they have governments that are doing some very tough things in the reform side. and i think the governments of europe are helping support the reforms have a lot more confidence in governments of spain, italy, what they're trying to do, which is good. very important to get that

balance right between just to say a more simply growth and austerity, and what you want to do is avoid a situation where since there's a risk of a prolonged period of economic disappointment and weakness on the growth side in many of those countries, want to avoid getting into a situation where since economic weakness produces in the short term larger deficits than you'd hoped for, you don't want to have to offset that increase in the deficits with immediate difficult cuts in spending or taxes right away. the best way to do it is to respond to those with some gradually phased in median turn plans for reform. if you try to do it all up front, then the risk is, again, you're undermining the prospects for some stability and growth and recovering growth, and you may be undermining and setting back the cause of reform. in addition to that, of course, you heard from all the debates, it's very important there be a

clean and unequivocal commitment by the central bank and the broader fiscal stories of europe that they'll provide the commitments necessary for the governments to be able to borrow at sustainable interest rates and for the bank systems to fund and function. those two things are critically important for this very difficult, very protracted process of reform to have any chance of traction, and, again, just emphasize what the governments of italy and spain are doing are very difficult. they're very tough, and i think quite promising in many ways, because you're seeing them confront not just the sustainability problems on the fiscal side, not just the problems in the financial sectors but trying to put in place a set of reforms in the labor markets and over the broader business community that will make it easier for them to grope in the future, easier to start a business, for example, and to hire people. those things are important promising, but very difficult,

tough, long road, very fragile, very tough politically, and important to get a little reinforcement along the way. >> we still seem to go week by week in our monitoring of the european crisis, and so in that context, i'm interested in what you're hearing as you talk over these last days with european finance ministers and with ecb chief mario about the, what's happening in these economies. >> well, again, i would say that the really most important change that you've seen over the last six months is, i would say the governments of germany and france and the ecb have a lot of confidence and what the government, new governments of italy and spain are doing. that's very important. because without that, it's very hard to get anything to come together, and that's very

important. the other thing, they've put in place a better set of tools. they're not, you know, the early process still of building the architecture of a set of things that will make monitoring your work over the long run, but they're in a much better position in terms of this mix of financial tools than they were just you know, six months ago or so, and those are very important things, and the combined effects of those actions have been the calm significantly the tensions in markets that you saw periodically in 2010 and '11, but you know, you can see every day, of course, the recognition that this is going to be a long, difficult, protracted process. politically very difficult. and it's going to just require some reinforcement, sustained effort over time. >> and so to sum up, am i right in taking from what you've said a sense that europe has turned the corner in terms of the severe liquidity problems that were evident several months ago? >> well, i think what they've done is, they've done a better

job of reassures the world that they're going to take the risk of catastrophic failure out of the place plauzal range, cascading defaults by governments or systematic collapse of financial systems or the dismembers of the -- they worked very hard to take those catastrophic risks out of the market. that's absolutely essential, necessary. nothing's possible without that reassurances. they'll have to keep working hard to do that. even when they achieve that, there's much they're left with, formidable, very difficult set of reform challenges, but even there, they have a better set of tools in place to help reinforce the reforms. >> let me ask a final question from me and then we'll turn to the audience for your questions. and i'd like to ask you about the final big piece of the global economy, and that's china.

two things of particular interest now. first, the chinese announced last weekend they were widening the band within which the rmb can move, and i'm wondering whether, whether and to what extent that addresses long-standing u.s. concerns about the value of the wan and the way it's allowed to trade and more generally, there's a growing discussion about whether the chinese economy is slowing. it seems to be, looking it's a the latest figures, and so if it's slowing, whether it's heading for what we'd call a soft landing, soft decline or whether there are concerns your analysts have, that you have, that there could be somewhat more trouble ahead for the economy? >> good question. what they've done on the exchange rate and external side is very significant and promising. so let's review what they've done.

they've allowed the dollar to -- appreciate against the dollar in real terms of ar 14% since june of 2010. if you look back relative to 2005, it's more like 45%. pretty significant adjustment in real terms. they have begun to significantly loosen the comprehensive set of controls they placed on capital movements and the ability of people to use, borrow and lend. they have widened the band to allow the market forces to play a greater role in setting the exchange rate. they have been at least over the last six months or so intervening significantly less. they're current accounts surplus has come down dramatically, and the expected surplus going forward has come down quite significantly, too. so those are important and promising and i think they signal a continued commitment by

the chinese authorities, even though they're going through this political transition, to this broad change in growth strategy, towards a growth strategy less dependent on external demand. more relying on the market and domestic demand and that that's encouraging. obviously, they have a long way to go in that process, including on the exchange rate. not at the end of that process. on the growth front, it's a good question, and i don't claim to have any particular feel for it right now. i think that it's absolutely true that growth has slowed, particularly in the early parts of the first quarter. but i think most people look at china and most people in china with a feel for this are really quite confident that you're going to see this economy growing, you know, in the range of 7 to 8.5, 9% over the median term and i think that's a realistic forecast, as long as europe is still making some progress and working through its

crisis. >> and, again, to clarify, you used some very positive language in describes chinese moves on the currency front. very significant, very promising you said which leads me to ask, if the chinese continue to do the series of incremental steps having significant broad effect, is that sufficient to meet the long-standing u.s. demand that the chinese allow their currency to trade more freely? >> means they're on the right path. >> but if they keep on that path, are they going to get to where we want them to be? >> depends if they stay on that path. you don't know with certainty how far that process should go. that's an assessment we'll have to take ton a rolling base over time. the reality today is they've moved some distance. they're planning to still move further. i think they recognize they have to go further.

i think all the available evidence suggests they have to go further on the exchange rate ux and i think, again, the key think, we like to remind people nations act in their own interests, their own perceived interests. china has made the basic judgment that it is essential to the long-term economic interest of china that they create an exchange rate that gives them the independence to suit chinese conditions. and that requires the gradual loosening of this link to the dollar and that's why they're embarked on this path. as i said, again, significant and promising, but they're not at the end of this process of reform. >> i want to go to the audience for questions. this is the treasury press corp.

best chance to ask the questions. if there's anybody there i want to make sure to reck them. i see a hand. yes, please. >> i'm not sure about the hounding, but given the eu's recent efforts to temporarily raise its fire wire there seems to be a dam breaking on raising imf funds at least in a limited way. what specifically besides pacing fiscal consolidation and more ltrost are you going to press europe for to encourage prospects? >> again, looking forward, these are choices europeans need to make. the challenges are obvious.

it's put to place to set up policies that will provide a better foundation for growth over time. they have to put in place the institutional framework to allow monitoring to work. that means a better developed mechanism for fiscal discipline and it means a more unified capacity to run a fiscal system. that's still ahead of them. they're very much aware of these challenges. i think -- again, i think they've made it a very credible commitment to do what it takes to make this process work. they obviously absolutely have the will and the ability, financial ability, economic ability to make it work. and of course no one can feel more strongly about it than the european themselves because they have such a huge interest in making this broader endeavor of union work. other questions, yes, please. >> my name is michael fineberg.

i'm a student at the george washington university. i had a question about mortgage writedowns if the mx is considering any additional programs and if you believe they would have a significant effect on the broader economy. thank you. >> housing market's still very tough in the united states. still a long way to go to work through the big overhang you're seeing in housing. we think the most promising ways to help facility that process is to one, help americans who have income and can afford to stay in their home. to help more americans refinance and take advantage of historically low mortgage rates and to move this very large stock of unaccompanied homes, the legacy of the crisis to move that into the rental market there there's a lot of damage and shortages. there are many other things we can do. those seem to be the core of

what's happening. part of the first is to give people a chance to face a more sustainable, affordable set of mortgage obligations, we think there's a case in some circumstances for making principal reduction a part of that. we've done that in the programs we run at the treasury. you're seeing a lot of that in the markets as banks and investors make that judgment themselves. it's in their interest to do that. we're working with fannie and freddie and their oversight bodies to make the economic and financial case to them. this will be a useful part of what they're trying to do and would probably improve, certainly improve the overall returns to the tax payers in those companies. the numbers of families that would benefit from that are significant. not overwhelmingly large, but significant. our basic approach at housing is we're going to keep it at until we see a much more durable set of improvements coming.

any place we think there's a way we can help facility that process and help facilitate transitions we're going to keep doing that. i should say that there's -- there's a bill being considered in the house today that would end the government's authority in the housing market. which would be very damaging. to right now at this time with the economy where it is, with unemployment where it is, with housing where it is, with the scars and the damage and legacy and crisis still so damaging and so apparent to many americans to stop the government from having the ability to help ease the transition it's causing would be very damaging to recovery. there's no plausible economic or financial case for doing it. >> since you mentioned the u word, unemployment, i really ought to ask you, given the

growth forecasts that we're, looking at for the rest of this year as i mentioned earlier the imf is projecting 2.1% for the u.s. and consensus forecasts range between that and 2.5%, what does that imply for the likely rate of unemployment through the year? or put in a different way, that doesn't imply much improvement in the likely rate of unemployment through this rate, does it? >> i don't ever talk about forecasts. if you look at what the imf and the broader community of private forecasters say about the economy, they see an economy that's growing between 2% and 3%. and where it comes out in that range will determine the pace at which you see more people get back to work and the pace at which unemployment comes down. for unemployment to come down at a significant pace, you need to be growing significantly above 2.25%, 2.5%.

if the world conspires against that and some mix of oil or iran or europe slow the momentum here again as it did before, then you'll be at the weaker end of that range. still again, just to try to emphasize what's promising, again, we're in a much stronger position to deal with even those challenges, those uncertainties than we were six months or a year ago. most things you can look at and measure in the u.s. economy today suggest, suggest more resilience even though we have a lot of challenges still ahead of us. >> there was a gentleman behind you and then you, sir. >> fred bergsten. the major operational discussions will be augmentation of imf resources to build an

additional firewall to help accusation possible effects from europe. two aspects from that. you have taken i think strong position that the u.s. itself will not contribute to that augmentation of imf resources. i happen to think you're exactly right. this is a liquidity issue. the funding ought to be provided by surplus countries. it's quite appropriate not to contribute and you're right on that. the second issue is the creation of the firewall itself, the increased imf facility and how big it out to be. i think it's fair to say you have not been very enthusiastic about that. in some senses you even discourage creation of a very large, very rapidly available set of additional resource. i'm puzzled about that. i would have thought you would go after the surplus creditor countries to put up as much money as possible to support what the europeans are doing in

order to avoid the spillover to other economies and others. would you explain why you're not out there leading the charge to put together an additional big firewall to support what the europeans are doing themselves. >> let me try to explain our basic strategy in this case. two things the world is doing for europe now, which are very important. one is we are -- and we are very supportive of the imf playing a significant role in re-enforcing the reform process in europe. it's a supplementary role. it's not the dominant financial role. it's the significant financial role. we've been very supportive of that and will continue to be. the segment thing which been happening this is as significant is the federal reserve as it did in 2008 and 2009