sgl welcome to our program. tonight, from the world economic forum in davo, switzerland, a conversation with the u.s. secretary of the treasury, tim geithner. >> as you do this, you've got to make sure you don't hurt the recovery and take much risk that you do a lot of damage to an kperl expansion pie shifting too prematurely to substantial restraint. >> sort of putting the brakes on. >> and i'm not going to let that happen. i know there are people who would like-- they don't want to hurt the economy, but they would like to move very quickly to do deep cuts in spending. it is not the responsible way to do it. t would undermine their long-term objective to make sure we obtain a sustainable economic

system. we have to start more dpraully. and i think we can do that. again, for that to work as a strategy, you need to try to lock in politically, things people can count on and be comfort will bring down those long-term deficits. >> that is the political debate in washington today. >> well, it's starting. the -- you know,, the hard thing in thinking about fiscal reform is not the accounting question of how you narrow the gap and how low you need to get it, but how to do it in a way that's not going to hurt growth incentives, growth fundamentals and it's going to be fair, judged fair to the broad community of citizens, and that is always a political challenge. in the u.s., again, it's magnified by the fact under the system we have we need to find a way to get congress to commit itself to a multi-year framework and bring down those deficits. >> tim geithner for the hour from the world economic forum in davos.

funding for charlie rose was provided by the following: additional funding provided by these funders: captioning sponsored by rose communications

from our studios in new york city, this is charlie rose. >> rose: what i'd like to begin with is welcoming tim geithner, the secretary of the treasury of the united states ( applause ) >> thank you, charlie. and we will have an hour but i would like to also get your questions involved in this, and so let what he says resonate and we'll have an opportunity to include your questions. question per se-- some times define what's on the minds of people. so what are you hearing he recall at this conference? what do people want to know? >> you know, i haven't been here in several years, but it feels very different. obviously, it feels different. there's-- i think there's more confidence now that the most acute part crisis is behind us.

absolutely in the united states, but i think even-- i think that's even true globally. and i've only been here for, you know, 24 hours. but what people have been asking me about are how is europe doing what about the u.s. and china? and how confident are you that the american political system will be up to the very substantial challenges we still face as a country? >> rose: i want to touch on all of those. tell me how confident are you that the american political system can look at the challenge of economic growth to reduce unemployment and a long-term, very difficult and very large debt? >> i spent a lot of time, you know, around the world, talking to my counterparts, and i would not trade their challenges for ours. i would not trade our challenges for theirs. we have a very tough set of

choices to make, very tough set of reforms to undertake, principally on the fiscal side. but we are in a dramatically stronger position today to confront those challenges, and we are in a relatively better position to confront them. you know, we're still a younger country than the other major economies. we are-- we are-- our underlying growth rates are more rapid, more diplomatic. productivity growth, uniquely among the major economies, was very strong through the crisis. you know, we-- we have a much more open economy, still much more open immigration, and i think, therefore, must better position to benefit from the extraordinary talent that exists around the world. so even about the challenges we face, i think we're really in a much stronger position today to deal with those challenges.

and i think the great strength of the american political system is it has always risen to the challenge. sometimes it takes a little time. it's always a bit messy. it's never perfect. but america will act and always does act ago and even if you think about just the last two years, and even if you-- if you try to put in context that underlying concern that i began with about whether washington will really move soon enough on these long-term things, i mean, washington at a time of crisis and with a very divided country, did do exceptionally important things over the last two years, you know not just in financial reform or even in health care reform. but in terms of starting i think the most promising set of reforms of education in the united states we've seen over a long period of time, and beginning to see a very substantial increase in investment in basic science and

research. and those were changes in reforms -- you know, i know they're messy, but reforms that were necessary, and it was the american system that delivered those reforms-- again again even at a time of a deeply divided country in the middle of a crisis. i'm, of course, very confident about america, very confident about the united states. and even with acknowledging the formidable name of our challenges ahead still with unemployment so high, i prefer ours to those of many countries. >> rose: any regrets about the last two years in terms of-- from, "a" even before 2008, but from 2008 to 2010, in terms of whether you did enough, in terms of whether the stimulus should have been changed, whether the stimulus should have been larger? >> you know, we did what we thought what we thought was necessary at the beginning. we looked at the experience of

countries around the world, and president, to his enormous credit, decided, at substantial political cost, that he would try to move very aggressively at the beginning and use the basic full arsenal of financial, economic policy, alongside what the fed did very early in the crisis. and because of that, we broke the back of the financial panic really quite quickly. it started to turn even in march of 2009, and you saw growth come back really extraordinarily quickly, given the magnitude of the financial shock. and we knew that, again, looking at experience, that the typical mistake governments make in crisis is to stop too soon, to shift to restraint too early at the first signs of life and we were not going to make that mistake. so we knew even with what was still an exceptionally strong set of policy measures at the beginning, we might need to come back, and change their shape. that's exactly what we've been doing. as the nature of the-- as the

crisis receded and the nature of the challenge shifted, we tried to shift the thrust of policy to things focused more on things like investments and long-term investment in infrastructure, and those are things you need for long-term growth, not just to reinforce the recovery. >> rose: you mentioned the recovery. that recovery seemed to stall in the eyes of some people. they ask now, in the recovery that seems to be taking place, are you sure in your assumptions as to where we are and where we're going with respect to the u.s. economy? >> let me tell you what i hear from-- what you hear from business in the united states and outside of the uts and from investors. i think there's much more confidence now that we've got a sustainable expansion. you know, it's not a boom. it's not an expansion that's going to offer the possibility of a rapid decline in the unemployment rate, but i think there's much more confidence that it's sustainable, much more confidence we're able to avoid the risk of slipping back into recession or even a long period

of time of what economists call beyond-trend growth. if you look at how sentiment has changed in the last six months-- in terms of the numbers it began really in august and september, you've seen, i think justifiably more confidence that we're going to be growing now at a reasonable rate. i think private economists think the u.s. in '11 and '12 is going to throw groe 3%, 4%. >> rose: you think that's reasonable? >> i'm not a forecast or -- >> you have to make assumptions as treasury secretary. >> we do. but what matters really is what's the average expectation of the market, and what's its distribution, how strong are the pessimists in that context. i think most encouraging about sentiment these last few months and the people who have been most concerned about the risk of a long period of low-trend growth and slipping back in recession, they seem much more confident now that we're going to be growing at a reasonable pace. our job, though, is to make sure

that happens and make sure we don't risk leaving the economy with unacceptably high levels of unemployment. for a long period of time. >> rose: what do you think the business community and the community that will be feeding consumer demand are looking for? are they looking for certainty? are they looking for something else that will say to them it's time to make an investment in capital allocation, time to hire people? >> well, i think you're seeing that happen already. again, just for perspective, private investment in the united states in capital equipment and software grew in the first half of last year at roughly 15% annual rate. it's still growing quite rapidly. i think you're seeing businesses decide they need to start to bet on-- if to bet on the fact the world is now going to be growing. and, you know, we've hay million private sector jobs in the last 12 months or so. that came earlier more in number than what happened in the last two recessions, and i think you're seeing both those trends

start to gain momentum. i think it's worth, charlie, just looking at the big strategic imperative for the united states. you know, i think we're at the beginning of a-- i still the investigator early stages of what member a very long period of exceptionally rapid growth in large part of emerging economies around the world. they're going to be a much larger share of global output, of global growth, of demand, and the united states is exceptionally well positioned to take advantage of that. the things those economies need to grow, american companies are still really uniquely good at. and what policy in the united states should be doing is try to make sure u.s. companies and foreign companies invest in the united states are going to be a-- are going to-- are going to be a substantial participant in that huge wave of growth ahead. and you're seeing that happen now. you see u.s. exports growing

rapidly, exports to china growing. and the things that have beenlet traditional strength of the american economy, the quality of high education, the basic dynamism of the economy, the speed with which we adapt to change, i still think they seem encouragingly strong. we want to reinforce that and that's why the president in the state of the union was putting attention on education, innovation, investment and the broader reforms to make that possible. that's the right agenda for the united states, and i think, again, the early shape of the recovery should be encouraging. >> rose: the global economy, some of those figures have been revised for next year up to 4.8%, and that include 7%, 8%, or 9%. do you worry about inflation in those emergeing nations? >> i think anybody who is a central banker -- >> emerging. >> in emerging economy is not-- not anybody but in those countries that have been growing quite rapidly earlier, coming

out of the crisis, are seeing more pressure, and they're facing a more complicated set of challenges in making sure they can contain inflation and deal with the if capital flows to the country driven by optimism about how strong growth is going to be. but those are world-class challenges to have. they're familiar challenges for policy makers. countries have had decades of experience managing those challenges. they're up to doing that. i think it would be easier for them to manage those challenges if you saw countries like china and other emerging economies soen their link to the dollar because if they-- if they do that, they'll have a little more flexibility to manage those inflation pressures. and not risk, you know, getting behind accelerating inflation. but for the global economy, given that two-thirds of the world, the major economies, are still in early stage of coming up on the of this recession, i would not put inflation on the

global level at the high list of concerns. >> rose: what do you worry about with respect to the global economy? >> i think, just to start, just to start where you began, i think that the most important thing now, apart from the united states doing what it needs to do to repair the damage caused by this crisis-- i should say and i am always the first to admit, the u.s. made some very substantial mistakes in how we ran our financial system. those caused enormous damage, not just it our credibility and to the american economy-- and we're going to be living with the echoes of that shock, those mistakes for a long time-- but they cause a lot of damage to the world -- >> when you speak of that you speak to the failure of the enforcement of regulatory authority. >> we just ran an indefensibly, antiquated-- i would say terrible financial oversight system, and it wasn't the only cause of the crisis, but it was a substantial cause of the

crisis. and i-- it is the obligation of anybody in policy in the united states to acknowledge that mistake and make sure we are doing everything we can to fix our challenges here. but apart from what we do, which is still, of course, enormously important to how the world fares i think that it's very important to see europe-- and they will do this. i have no doubt they're going to be able to do this-- to make sure they put in place a framework that allows the countries that have such difficult fiscal and reform challenges to let those reforms take hold. to allow-- and i'm very confident they'll be able to do that. >> rose: you are confident that they will be able to manage this problem. >> i do. i'm very confident. they have no alternative but to deliver on their unequivicable commitment to make sure they're standing behind those expriz-- because i think they recognize there is no alternative to the reforms undertaken. but for those reforms to work

they need a period of time and they still need to be able to fund-- funding is the oxygen of economies in the financial system, and it requires that kind of commitment of the rest of europe to deliver. so that's, obviously, still a dom mant concern, appropriately so, not just for europe. >> rose: let me stay with that for a second. are you convinced they have done enough so far and they will be prepared to do, in your conversation with central bankers and finance ministers, that they are prepared to handle the problem of sovereign debt, whether it's greece or spain or portugal or italy or ireland? >> i don't think anyf them would say they've done enough. and they're now in the prospect of trying to shape the next stage of-- you might call it escalation on the reform side othe financial side. but that's really a question for the europeans. i think the important thing is they've made it clear that they're going to hold it together and not take risk that

you'd see reignight,. >> rose: what impact did it have on the u.s. economy,let sovereign debt issue in europe? >> i think it hadda a significant impact in slowing the momentum of recovery at a delicate point and the reason why that happened is, you know, most of the world was still, understandably, quite scarred by the trauma of the crisis. the memories were still quite raw, and when they saw this broad erosion in the capacity of the political system outside of the united states to manage what were a very complicated set of challenges, that was very destabilizing to confidence. and you saw equity prices in the united states fall. that was a substantial shock to the american economy. but in part because europe moved to fix it, that was relatively short-lived. and after that brief loss of momentum, the u.s. economy began to regain a little strength in august and september and that has built momentum since.

>> rose: president sarkozy and chancellor merkel said they're confident the euro will survive. >> i will leave that to them but i would share that confidence. >> rose: when you look at the biggest issue-- let's take japan for instance. standard & poors lowered its rating for japan's long-term debt. what does that say to you, and what does it say about other countries and industrialized world who are not part of those we already mentioned and what does it say about some possibility of the united states? >> i think i'd rather speak directly to the u.s. question rather than coming at it through japanese. japan -- >> were you surprised, though, at the japanese? >> japan is a very high saving economy. it's true they have a very high level of debt but japan's main challenge-- and this is true, really, everywhere-- is how they're going to grow in the future, how to make sure they can achieve a level of growth as

the population ages, that can support those obligations and that's going to be a challenge for them, like many countries. let's come to the united states because it's so important. i think that americans in policy understand that-- and i think it is a if-- it is the dominant-- much greater recognition across the american political system that our fiscal position is unsustainable ov the long run, and it's going to require a substantial set of challenges to the balance between our resources and commitments to bring that under control. and we're in the process of trying to figure out how we can build a consensus to make that happen in a way that's going to be farm, and preserve strong fundamentals for future growth. our system has a lot of strengths in terms of how we make fiscal policy and it has some important weaknesses and

challenges. our strengths are that the president is obligated to put out a budget that lays out policies for 10 years, and those are evaluated by an independent authority-- in this case the congressional budget office-- which has to judge what they produce in terms of deficits over time relative to the economy as a whole. and when the president lays out his deficit, his budget in a few weeks, you'll see our view of the best way to bring those deficits down over time to a level that's sustainable and how we can do that without hurting not just the near-term expansion but make sure we're strength ling the underlying fundamentals for growth in. education. the fact that we have to do that-- it has to be evaluated independently-- is an important strength of our system. our challenge, of course, is that is just the beginning of the process. congress under the constitution has to legislate policies.

and our real problem now is we do not have a device in the american lil plil system now to allow congress to commit itself credibly over a multi-year period to policies that will offer an enforceable commitment to bring down deficits to a sustainable level. and that is our challenge to figu out how we can build that turnpike of framework that allows a multi-year commitment. just to come back to a question you asked a couple of minutes ago. what business and individuals need is the ability to understand over time how we're going to solve that. we know we have to solve it, but the ideal thing for incentives and for confidence for certainty is to lay out a path for how we're going to solve those things, allow people to plan and to adjust. the earlier you begin those reforms, the more time you give people to plan for their impact and adjust to them. these are within our capacity to solve. again, our challenges on the

fiscal side -- >> it is our political if-- >> no question. >> rose: there is a political will to deal with the long-term entitle ams that are at the core of our deficit issues? >> i would say the political does not fully manifest at the moment but it's coming. ( laughter ) there's no alternative to it. there's no way to avoid it. we can't grow our way out of it. but again if you look at our position relative to that of the rest of the world, it is going to be easier for us to bring ourselves down to a more sustainable level without hurting growth. it will be true for many countries. we just need to make sure we can start the process soon. >> rose: do we have here a real conflict between the necessity of growth because you want to deal with unemployment and a deficit issue and a debt issue that goes to the long term. are they in conflict so that you have to say to everybody, "we're trying to spend, over the the

next several years, get the growth thing going, and then we'll deal to the deficit and the debt?" is that the sort of mantra of what you're saying? >> yes. i think that as you do this, you've qot to make sure that you don't hur the recovery and take much risk that you do a lot of damage to an early expansion by shifting too prematurely to substantial restraint -- >> sort of putting the brakes on. >> and we're not going to let that happen. i know there are some people who would like-- sorry, they don't want to hurt the economy, but they'd like to move very quickly to do deep cuts in spending. it's not the responsible way to do it. it would undermine their long-term objective to make sure we achieve a more sustainable fiscal system. we have to have the process start more gradually, and i think we can do that. again, for that to work as a strategy, we need to be able to try to lock in politically things people can count on and

be confident will bring down those long-term deficits. >> rose: that is the political debate in washington today. >> well, it's starting. you know, the hard thing in thinking about fiscal reform is not the accounting question of how you would narrow the gap and how low you need to get it, but how to do it in a way that's not going to hurt growth incentives, growth fundamentals and is going to be fair, judged as fair so the broad community of is it thes, and that is always a political challenge. in the u.s. it's magnified by the fact that under the system we have we need to find a way to get congress to commit itself to a multi-year framework and bring down those deficits. >> rose: when you have a congressman call you up and say convince me public works is the thing to do when i feel so strongly about spending, and that's what got me elected in the first place. and my second big issue is the long-term debt. >> well, you know, no one who

lives in the united states or sits in washington can avoid the fundamental reality of the fact that. you know, we have this unsustainable gap. we don't have unlimited resources. and i think people recognize that now. when we talk about things like invest in education or in basic research and science or even in infrastructure, we need to do that in a way that is affordable and is responsible and is consistent with the imperative of bringing down those deficits. and we need to be sure we're paying for things that cost money not ignoring their basic costs or hope they don't in the end or hope they pay for themselves. those are the constraint we have to live with. and i think the reality is much more widely accepted in washington than it was, for example, over the last 10 years or so. you don't hear people in washington-- you do hear some people but not as many people say, you know, tax cuts pay for themselves. or that we can grow our way out

of these things, or we don't have to live with some set of constrants. i think that's changed and it's helpful. but again, the critical test of credibility for us should be can we find a way to lock in multi-year commitments to a responsible path to restore sustainability so we can allow people to adjust and do that in a way that's going to preserve basic incentives for investment so that we're not hurting what have been the classic fundamental strengths of the american economy in innovation and higher education, things like that. >> rose: what is the most important thing that is going to grow the u.s. economy? >> just those things. the basic fundamentals of growth are going to be-- are universally accepted. the quality of talent you produce through your education system. they are the capacity of government to make sure it's investing in things only governments can do. the market will not produce on its own the right level of

investment in basic science and research. it's improvements in the basic quality of public infrastructure, which have a lot to do with the cost of running a about in the united states, and they are in making sure your financial system does a better job of allocating capital to where the returns are highest. >> rose: the reason i ask that is there's still money, i understand, from the original stimulus program for infrastructure that has not been spent. >> it's actually-- the overwhelming majority of the initial resources in the recovery act have been committed >> rose: they haven't been spent. >> well, a substantial too some are still ahead of us. but that will not be sufficient to repair and rebuild. the basic public infrastructure that all economies need operate more efficiently. so there's a very strong case, as the president said, for a long-term multi-year commitment. we have to pay for it, to make sure that roads, highways, "et

cetera, are brought more into the modern era. >> rose: david cameron as he left here this morning stopped to say hello to secretary geithner, and he said tell your president that i. i have great admiration for his state of the union speech, and in fact i'm going to recommend our speechwriters take a look at it. my question is, my question is what happened? i mean, in terms of competitiveness-- these are a lot of the things that the president ought to have been thinking about. did he simply say this is a way to connect the dots, connect the dots, in terms of growth, in terms of the economy, and at the same time, do things that we need to do for the long-term health of the united states? or did he wake up one morning and say, "by god. i've read all these things, we really are in trouble here in competition with new worlds of emerging nations?"

what happened? >> these were part of what he began at the beginning of the administration, but, of course, they were eclipsed in the public mind by the chalnges of putting out the financial fire and the early traffic of designing reforms to make sure americans could enjoy health care -- >> but eclipsed in terms of his preoccupation or eclipsed in terms of his public attention in the united states? >> i really think the later. remember, it wasn't just a-- it wasn't just a financial crisis with an economic recession much deeper than most americans had seen in generations. you know, it happened in a country that is still quite divide, deeply ambivalent about what the right role of government is, and with a very determined, quite formidable political opposition that chose as a matter of strategy to-- to stand apart from those early

imperatives of managing the crisis and reform. and that-- i think that made it harder. but these basic core things about education, innovation, investment were part of the early design of the recovery act anding what he's doing now is building on those. i'll just say one more thing-- and, again, if you think about the level of change in the last six weeks i think you can see evidence of this-- i think it is really important, the confidence in the u.s. generally-- not just among americans but people outside the united states-- to see examples of people in washington trying to solve basic problems. some of them from the central center, ideally. you did see in the last few weeks of the year-- not just in the tax package but other things-- a pretty encouraging capacity to actually get some things done that matter a lot. i think that helps confidence. what we've been trying to do-- and we started this process in september when the president proposed a series of new reforms to investment incentives-- to

try to find things that republicans have supported, that they'd be willing to do with us, for example, a korea free trade graerjt or perhaps corporate tax reform to if. create if. investment incentives, to build more confidence in the united states. again, there are people in washington willing to come together and solve some problems. again, there's a-- there are a lot of things that will divide democrats and republicans for awe long period of time. and there are people in both parties that are going to want to make sure those contrasts are sharp and compelling to their constituents. and we have to find a way to still rebuild the capacity to act because we cannot legislate now without democrats and republicans and the things that matter to how we grow in the future, they do require congress. there are not things we can do, just the executive branch. >> rose: that raises two questions, number one-- have there been changes in at the

white house in terms of chief of staff, in the head of economic advisors. it is said many of them work-- those two, the chief of staff-- worked for president clinton. it is said this economic team is more centrist than the previous team and you are now the captain of the team-- if not already the captain of the team. but these are more in line with the views of tim geithner. >> that is true, but all of-- all of what you said is true-- no, i'm just kidding. ( laughter ) i don't think the center of gravity -- >> which part you're in charge of the team or that they're all centrist like you. >> the following is true-- it is an excellent, talented group of people, me excepted-- but i think the basic from of gravity around team reflects the president's basic values in these things. i don't think they've changed. i think the-- what's changed is we've been able to put the worst part of the crisis behind us, and we can now focus attention on things that matter a lot to long-term growth.

>> rose: part of the message of the obama administration, we've been struggling to make sure we just survived, and now we can focus on the future. >> well, we -- you know, the immediate, urgent, overwhelming priority for us-- nothing was possible without it-- was to break the back of that crisis and do it as quickly as possible. and the president was willing to spend a huge amount of political capital without much support, frankly, in making those changes early. but we've been growing now for six quarters? >> rose: right. >> and it is right now to try to shift the center of the political focus, the things that are about-- again, about education, innovation and investment, because those things matter not just for the here and now but for the long term. >> rose: it was said in a piece by peter baker of the "new york times", a very interesting piece about jobs which i want to talk about, that you and the president had ponded. therefore, it gives you a unique place to define him.

christina romer said he's a moderate middle-of-the-road guy. is he a centrist? a pragmatist? is that where he is in your judgment? >> absolutely. he roses like we all do that the test of policy is what is going to work to make a difference in people's lives, the things that matter to how we do as a country the quality of opportunity we give people. and his test-- and i think the test for all of us should be what is going to make a difference? what's the most effective way, stepping back from politics, with a fair amount of flexibility that is going to make a difference? but, you know, this president is doing fundamentally necessary, important reforms to-- how any market economy functionsike in education or the incentives you create for how people use health care, energy, those things like that. but he's doing so in a way that

recognizes the job of government is to help shape the incentives and make sure that there's the basic infrastructure if, network that economies needs to function. and if you want to call that centrist, that's fine. other people would call it other things. >> rose: what would you call it? >> i don't think i can characterize it. at least, i leave that to him to do. but -- >> i'll give you-- >> i'll give you one other endorsement of our president. since i get to help make policy. advise policy, there's a huge gap. you can see it all across the world now, between what the economy requires and what. political systems are comfortable trying to do. and it is the basic test of leadership and heads of state is to figure out how to make possible politically things that are essential and necessary economically, be willing to take

risks on those things not let what seem to be the political constrants out there prevent you from moving on things that matter hugely, and that requires a willingness to take risk politically and spend a lot of capital. and he has been enormously supportive from the beginning of recognizing that you have to be willing polically to take those risks early, or you're going to be living with much longer term damage in costs to things that matter for economic health, and that's enormously important, and we're really fortunate in that. >> rose: would you say most of the measures that took place. to create a rorch out of this threat, the greatest depression since the great depression, simply were matters of things that worked and not a question of an-- of a philosophy about. government and the economy? >> well, you know, people tend to look at the competing

strategies for dealing with a financial crisis and try to characterize them as two extremes. there's sort of a-- you might call it the liquidation strategy to say let the market solve it. and there are some people who say, you know, to use the pejorative i think unfairly is to say you should choose the broader-- you might call it the nationalization strategy. have the government massively socialize, take on those risks. we tried an approach in the united states that was very different from that and it was enormously successful. we said we would try to recapitalize the financial system as quickly as possible with a framework that maximized the chance that private capital will come and do that work for us. and the things we put in motion in the stress test were designed to make that much more likely. and alongside that, we try to

take the catastrophic risk out of the broaderinancial marks by making a lot of commitments to make thur sure there was more liquidity, less-extreme risk in the broader funding securityization markets. those were untested strategies, but they were enormously effective very quick plea. and i think we were lucky that we move so quickly to adopt them and it allowedly us to bring about a very substantial restructuring in our financial system and to get out of the investments we had to make early on much, much more quickly, at a much higher return financially than otherwise would be the case. i'll give you an example. the s & l crisis several decades ago was a crisis much more mod nest scale, a much tamer type of financial challenge. that cost the united states directly about 3% of g.d.p. the similarly measured financial

cost, direct financial cost of the crisis, across the feds programs, the g.s.e.s, tarp, the f.d.i.c.. are now going to be under 1% of g.d.p. that is an exceptional outcome relative to expectation and it was possible not just because of the early choices on strat jeep-- whatever you call them, whatever you label them-- but because you had such powerful support from monetary and fiscal policy early on. >> rose: clearly we have an economic recovery in the public sector. clearly in terms of unemployment we do not have an economic recovery. tell me what you think will be done over the next two years. and some people-- i think the congressional budget office among them-- believe that unemployment may drop by the end of 2012 to 8%. do you believe those figures? >> again, the private forecasters would say that on

the expectation, the u.s. economy grows between 3% and 4% over the next years, and that unemployment will be below 8 in 2012. i think there is a consensus on that now but these things are inherently. unemployment starts to fall when you see economies start to grow again. economies have to grow again, and we're about a year and a half into positive growth now. as the economy continues this process of recovery, you'll see more people put back to work. what's interesting about the united states is g.d.p., the overall output of the united states, is now above the precrisis level. but unemployment is still roughly in the range of 10%. >> rose: why is that? >> it's partly because of the way the u.s. economy works as a whole. where you saw in the crisis because people were, frankly,

panicked, that the world was going to come to an end, you saw american companies cut deeply into the payroll base, the employment base, with just brutal force. and they have been more tentative because of the scale of-- because of the aftershocks of that trauma of bringing those people back to work. you've seen hours start to increase early. the more hours they asked people to work, part-time work came back early. but you saw people tentative of. permanent. we had job growth faster than the last two recoveries. so i think that's encouraging. we're healing now, and that's going to start to improve. but a recovery that follows a crews like this, you know, a crisis that is the legacy that resulted in part by too much borrowing by households and the

nation as a whole. those recoveries by definition, by necessity are unavoidable. there's no way to avoid that. and that does confine us to a much more if-- if with a tragically more moderate path of reducing unemployment than any of us would like. >> rose: some suggest it will be 2016 until we get back to 5% or 6% unemployment which is considered full employment. do you agree with that? >> you know, charlie, i don't do forecasting. i don't believe much in it, but i don't think its record is particularly good and i am not an economist. what we can do is try to make sure we're making sure that people who are responsible in washington and in congress in the executive branch are doing things that are going to make it more likely that we grow and we bring the unemployment rate down as quickly as we responsibly can. that's our obligation.

and, again, i think what is happening is encouraging, but we have a lot of challenges ahead, not just the level of unemployment, the trauma you still see in the mouz markets and these long-term imperatives. >> rose: what are you going to tail us you're going to do about freddie mac and fannie mae. >> in a very short period of time, in a few weeks-- i'm glad you raised that. again, even though i think the core of the u.s. familiar system is much stronger, and i think the basic framework reforms we legislated last year with the barney frank and chris dodd leading the charge, you know, is a very strong framework of reforms if, addressing the core challenges in our system. but we still have a mess in the housing finance business. it's now almost completely dependent on the dpft. and we're going to lay out reforms to kraut crowd private

sector back in. and layoff us with a system that will not be vulnerable to the really tragic colossal failures not just in freddie and fanny but more generally, in oversight -- >> more consumer protection. >> absolutely. >> rose: do you worry that one of the 50 state or more may go into bankruptcy? >> i don't personally know, and that's not to understand state the gift. if you're a governor or mayor in the city or states now, it's still going to be very hard fair long period of time. but because the. economies are growing and revenues are starting to improve. the. if-- there is a long period of reform. congress did a lot in the first two years of recovery, of trying to ease that burden, but the put

the force of the pressure is remember diminishing not intensifying. >> rose: all right, china, you mention the it earlier. hung jun to you said this is not a zero same game. we can do well. you can do well. you have been a long-term observer of china. you may speak mandarin. >> i would never i just studied for a long time for a long time. >> not long enough. >> rose: you both have been part of the security and economic dialogue that has taken place here in chine and the united states. so where are we after this state visit and what came out of it, and do the chinese reallyy have the right to say upon we have shown that we are, you know, as

strong as the united states on the world stage and there's no bigger player than we are? >> i don't think they would ever claim that. >> rose: they wouldn't say that? >> they wouldn't say that. some of the what kinda has done in the last 30 years it's amazinging, rationalable, the most basic. transformation thannive think you've seen and they have this remarkle capacity to set the long-term goals and basically am if-- the chinese in power would be the first to tell you they're one-third the size of the u.s. economy. >> some people think there won't be familiar the other side to the growth of the u.s. economy. one by one, they're replacing who they have ahead of them. but nave-- in the just demographically, because the labor force is going to stop growing relatively seen. they are stillt the stage.

they will still have an economy overwhelmingly dominate bide the state where resources are alkayed by the state, not by the market, and they are committed to that path of reform but they're in the early stage. but to come to your question, i think what -- you know, what you saw is both president obama-- acknowledge that the world depends a lot on how effectively we together manage this basic relationship, mao we fig fur a way for us to be growing together, stoob seeing policies will of what we have to do domestically but the broader interest of fay global world economy. and i think that recognition is very important. what we feept to do is try to strengthen the incentives china faces to continue on the bath of reform to rebalance the economy

and move-- and to help join us in trying to shape a system that will work for both of us going yard. you know, china was not there when i p the u.s. and parts of europe built the post-war economic system. they are not present at the table then. they took advantage of that but that system is going to have to adapt and change, and what we want to do is-- we were going to have our interests we're going to pursue, and they're going to have their interests they're going to pursue, but we want to make sure those people recognize those interests are in many ways closely at aed. they were largely complementary, and we want to make sure they're comfortable that we're going to be able to build a system that's going to accommodate their interest not just ours. >> rose: any risk of state governments being a model for

the rest of the countries around the world? >> no risk of that. >> rose: i want to finally say as we plook at this, you expect to be the secretary of the treasury through the four years of this administration? >> i only answer-- there's only one way to answer that question. >> rose: as long as the president wants me there. >> i'm tempted to say, "i hope not." ( laughter ) but i will serve as long as the president would like me to serve. >> rose: if the president wins reelection? if if the president wants you to be in his government, you would be follow-- find hard to turn him down, whether secretary of the treasury or secretary of the state. >> the president will have a chance to make sure he -- you know,, has good people working with him to shape-- to shape our future. and it's been a -- you know, it is a great -- >> the most important lesson you've learned? ( laughter ) >> oh, there are so many. ( laughter )

it will take a long period of time. in. but there is no -- you know, i say to -- you know, when you talk to people in the university or people who are just coming out of college now, what i say to them is that, you know, you have to come work for your country. sometimes there is no-- there is no greater experience, no greater privilege, nothing more interesting or challenges in economic and financial policy today in the united states, no better time to do it. >> rose: thank you very much. tim geithner. wait one second. we started as i look at my watch maybe five or six minutes late. any questions you have before we close off this, anybody who wants to ask. i can't see the house lights up. >> i have one quick question. in many places in this forum we've been asked whether we should have more or less government. but the question of effective government has not been addressed. i think it's not about more or

less. can youcracy how the u.s. government is making itself more effective and efficient. >> i think you phrased it right. it is true in many parts of the world, had it's too large and its commitments are unsustainable. when people say those commitments have to be brought back down to earth, restore gravity to the aspirations of government, they're completely right. you're absolutely right. what matters is the effectiveness with which governments do things only governments can do. there are basic things-- again, in education. what you do for basic research. those are things that governments have to do. they have to do them well. they have to do them better than they been done in the past, not just in the united states, of course, but i thought you said it right. it's about-- it's about comp tins and creativity and care and.

the capacity to act and it trivial ideses the challenge to say it's just about the math. >> rose: thank you all very much and special thanks to secretary of the treasury, tim geithner. tim geithner, the secretary of the treasury in davos, switzerland. when we come back to our studios on mondaybill gates talks about global health and how he sees the progress as he releases his annual letter from the gates foundation. >> it's a real mind shift. you've been making money, giving away is a bit different. and you're not sure if you're going to find your way in it, and you're going to find something. so it requires taking a little bit of a leap. and you don't know how fulfilling that's going to be. you know, you need to pick your scope because otherwise you're going to get more requests than you'll know how to deal with.

you need to think think about the structure anhow you involve people. but it is fulfilling. and these are very talented people. society is better off if they choose to take some of their insights, you know, some of the great people they know who also want to work in a philanthropic way and draw them in. in they're collaborating with others. even though there's no agenda in the giving pledge, we do expect that people meet each other and find common causes to work on together, no matter what it may be. and we saw a little bit of that in the after-dinner conversation so we want more critical mass around this. we want more lessons. we want more, hey, think about it now. get involved in an earlier way. the people at the dinner said, yes, this is very straightforward, but it's something they felt that really should be done.

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