Posted By thestatedtruth.com on November 1, 2009

Nov. 1 (Bloomberg) — U.S. Treasury Secretary Timothy Geithner said the country’s economic recovery and job creation hinge on banks taking more risk and restoring the flow of credit to businesses.

“The big risk we face now is that banks are going to overcorrect and not take enough risk,” Geithner said in an interview today on NBC’s “Meet the Press” program. “We need them to take a chance again on the American economy. That’s going to be important to recovery.”

Geithner judged the banking system to be “dramatically more stable” than it’s been in more than a year. U.S. banks have been reluctant to lend as the economy emerges from a recession and unemployment approaches 10 percent.

Loans by the biggest banks receiving the most government assistance from the $700 billion Troubled Asset Relief Program fell by 17 percent in August to $234.7 billion, the third time in six months that lending declined.

Bank of America Corp.’s total loan originations fell 22 percent to $57.1 billion in August from a month earlier, according to an Oct. 15 report from the Treasury. Lending by Wells Fargo & Co. fell 18 percent to $55 billion for the month, and JPMorgan Chase & Co.’s loan originations dropped 5 percent to $43.8 billion, the report showed.

Household and business borrowing have plummeted in the last year. Consumer credit fell in the second quarter by 6.5 percent, according to the Federal Reserve’s flow of funds report. Non- financial business debt fell at a 1.75 percent annual rate.

U.S. Savings Rate

U.S. households are saving more, which Geithner said is a logical response to the economic crisis.

Geithner said he expects the recovery to be “a little choppy.”

The U.S. economy expanded in the third quarter for the first time in a year, the Commerce Department said last week. Gross domestic product grew at a 3.5 percent pace from July through September. Geithner declined to say whether he thinks the recession is over.

“A lot of damage was caused by this crisis. It’s going to take some time for us to grow out of this,” he said. “It could be a little choppy. It could be uneven. And it’s going to take awhile.”

While the GDP report was a “good number,” he said a better measure of economic recovery will be job growth. The unemployment rate rose to 9.8 percent in September. Geithner said the rate is likely still rising, and he noted that most economists expect it to eclipse 10 percent.

October Jobs

A Labor Department report Nov. 6 will probably show joblessness nationwide reached 9.9 percent in October, according to a Bloomberg News survey of 61 economists. That would be the highest level since June 1983.

“This is a tough economy still for huge numbers of American businesses,” he said. “The real test will be when we have unemployment come down.”

The Treasury secretary said it’s not yet time to announce steps to cut the U.S. deficit, which has shot up to a record $1.4 trillion in the last year, triple the previous year, after the U.S. Congress committed billions to bailing out banks and President Barack Obama and lawmakers committed $787 billion to an economic stimulus package.

Geithner said it’s “not yet” time to discuss whether another economic stimulus package should be considered, because only about half of the first one has been spent.

More at     http://www.bloomberg.com/apps/news?pid=20601087&sid=aBG6IqPjtD1k&pos=5

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