WASHINGTON, D.C. – Interest rates are at historical lows, for the fourth year in a row. The federal deficit is at or above $1 trillion, for the fourth year in a row. The economy is growing at the rate of 1.8% a year. Unemployment is 7.6% … and that’s not counting an undetermined number of Americans who have given up looking for work, out of lack of success.

But if you think the economy is not coming back, you’d be mistaken. Growth is back. Even if long-term economic challenges are stout, in the estimate of Mary John Miller, Under Secretary for Domestic Finance in the U.S. Department of the Treasury.

“We are seeing good cyclical improvement,’’ she told the general membership meeting of the Investment Company Institute in its policy forum Wednesday afternoon. “Now e need to tackle longer-term structural improvement.’’

Even with low economic growth rates, she told ICI president and chief executive Paul Schott Stevens that that’s a big turnabout from what she said she hopes “is the worst downturn we ever see.”

At the end of 2008 and start of 2009, as the credit crisis burst in full view of regulators, investors and the taxpayers who would be on the hook for whatever recovery mechanisms were instituted, the economy was contracting at the rate of 9 percent a year.

So the Obama Administration took two basic steps, she said, to reverse the tide.

1. Put out a safety net. This ranged from the $182 billion bailout of the American International Group to guaranteeing the assets held by individual investors in money market mutual funds. And more. To make sure financial institutions and markets didn’t just dry up.

2. Inject stimulus.The Depression-era-like construction projects and similar measures are what caused the “unacceptable debt and deficit” the nation faces now. But at least it can face those twin problems.

These moves, she said, have led to 15 consecutive quarters of economic growth, a contraction of government spending in 10 of the last 11 quarters and 37 straight months of job growth.

Out of 8 million jobs lost in the Great Recession, 6.5 million have been restored. The current 7.6% rate of joblessness is too high, she said, "but we have covered a lot of ground from 10% unemployment in 2009."

The trick now is to find a way to reduce deficits with a “mix of revenue increases and spending cuts.’’

So far, in that twin endeavor, she also said, the administration has found $2 of spending cuts for every $1 of added revenue pulled in to close the budget deficit. Private industry forecasts, she said, put the deficit this year at 5% of the gross domestic product, as opposed to 10% in 2009.

"The economy feels certainly better,’’ she said.

Now, comes the hard part, she said. Finding ways to cure long-term structural problems. Like stubbornly high base levels of unemployment. “Legacy” housing issues, leftover from the subprime mortgage fiasco that debased the nation’s housing stock. And the United States is not immune from the economic problems faced by its trading partners, particularly in Europe.

Those partners, she said, were not so friendly a couple years ago when their heads of government were promoting fiscal austerity as the right way to fix their own deficits.

"We took a lot of heat for our approach of not putting on the brakes too hard," she said.

But the approach here was to “secure growth first,’’ then fix the long-term problems over the long term.


Among the actions remaining: Finding a way to learn to live with debt ceilings, she said.

These are nothing new, having existed since 1917. Before then, every time the Treasury needed to borrow money to fund government obligations, Congress had to approve the move.

The debt ceiling simply allows Treasury, with one fixed limit in sight, to borrow money on the government’s behalf, repeatedly without repetitive approvals on every borrowing.

And Treasury, she noted, does not make spending decisions. Raising the ceiling does not mean it will go spend the money. That’s done elsewhere – and in a budget approved by Congress.

The debt ceiling is about fuding “historical spending decisions, not future,’’ she said.

Oddly enough, the next witching point is a date, not a dollar amount. Congress has set for itself May 18 as the date by which it must decide whether to again raise the debt ceiling … or somehow balance spending with revenue.

The debt ceiling doesn’t set spending levels, she noted. It just lets Congress and the federal government spend “in an orderly way,’’ she said.

But it gets tied into budget debates, by natural extension. But if senators or Congressmen can’t agree on cuts, there’s almost no other out but to raise the ceiling.

“Every elected official has had to tackle this issue,’’ she said. And the debt ceiling gets raised "because that's what we need to do.''

Also on the Treasury’s reading of the nation’s fiscal health:

  • The August 2011 downgrading of U.S. debt from triple-A to double A-plus did not harm the market for Treasuries. Stock markets fell, credit markets fell. But there was a “flight to quality”: U.S. debt. Which drove down the interest that the Treasury had to promise investors.
  • Increasing taxes on the highest earners in the economy makes sense on two counts. First, from 1979 to 2013, the highest 1% of wage-earners have seen their income increase 400%. Meanwhile, the 60 percent of households with “middle incomes” saw only a 40% increase, which did not keep up with inflation. Second, the nation has “really inefficient tax systems’’ that allow the highest earners to find ways to reduce their tax loads substantially. The tax code is “so laden with exemptions and deductions it makes it very hard for people to really know what their tax rate is.’’
  • Which leads to a broader structural problem that has to be solved. “We can't live with the tax code we have in its present form and satisfy the financial obligations that we have,'' she said.


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