Geithner: “A Much More Powerful Financial Framework” Needed in Europe

Tim Geithner made some rather bold suggestions for European policymakers in an interview last evening with ABC’s “World News With Diane Sawyer.”

The European sovereign debt crisis is beginning to “hurt growth everywhere, in countries as far away as China, Brazil and India, Korea,” the U.S. Treasury Secretary stated.  ”And they (Europe) heard the same message from us they heard from everybody else, which is it’s time to move.”

Geithner went on to say that the euro zone has “some time, but not very much time,” to remedy the crisis.  ”If you listen carefully to what they said this weekend, not just to us in private, but what they said publicly, they’re foreshadowing now the escalation that’s going to come. And we’d like them to get on with it.”

“They’re going to have to put a much more powerful financial framework behind this,” he added.  ”I really believe that you’re going to see them do that, but we wanted to make sure they do it as quickly as they can and as definitively as they can.”

Geithner’s comments come ahead of meetings next week among euro zone finance minister and the European Central Bank (ECB)  over whether to release the next tranche of bailout funds to Greece.

The Treasury Secretary later commented that the European debt crisis “hurts us not just because it means that growth around the world will be slower and we’ll export less, but it hurts people very directly and very quickly when stock prices fall and the value of their pensions fall.  It makes people more tentative. And that’s why it’s so important to us that they move.”

This last comment by Geithner illustrates the misguided view of policymakers that their efforts to prop up equity markets have a meaningful positive impact on the economy.  The Federal Reserve has engaged in reckless monetary policies in the hopes of stimulating economic growth for much of the past decade, and U.S. markets are no higher than they were ten years ago. Furthermore, the supposed “wealth effect” of a rising stock market – which Ben Bernanke touted during his promotion of QE2 – was shown nearly a year ago by Dr. John Hussman to be essentially non-existent.