The Global Economy and the IMF and World Bank Meetings


October 6, 2016, 8:30 AM to 9:15 AM EDT
PIIE Webcast, Washington, DC

Jacob J. Lew (Secretary of the US Treasury)

Event Summary

US Treasury Secretary Jacob J. Lew discussed the state of the global economy and the US agenda for the upcoming International Monetary Fund and World Bank fall meetings.


Unedited Transcript

Adam Posen: Good morning, everyone. Welcome back to the Peterson Institute for International Economics. I'm Adam Posen, President of the Peterson Institute and it's my great privilege to welcome the 76th Secretary of the Treasury of the United States, 76 being a particularly good number in the US, 76th Secretary of the Treasury of the United States, Jack Lew. Secretary Lew has graciously returned to the Peterson Institute to give us his thoughts ahead of-- on the global economy and the US agenda heading into the annual IMF World Bank meetings. He's spoken to us before. We're very grateful to have him back.

Of course, all of you know that Secretary Lew prior to becoming Secretary of the Treasury in February 2013; served as White House Chief of Staff and previously as Director of the Office of the Management and Budget. We do not have the kind of permanent civil service at the highest levels that our friends in the UK or Japan or France, or even Mexico do.

But Jack Lew comes very close to being a permanent civil servant, public servant I would say. And his distinguished career long before his cabinet appointments including in as OMB Director in President Clinton's cabinet is really outstanding. I'm not going to go through it all.

I will just say that among his many recent accomplishments, for those of us in the international economics sphere, were his final delivery through the Congress of the IMF reform commitments from the US which took both great skill and principle, and which we at the Institute are very proud of him and to be associated with that victory.

And speaking solely in my personal capacity his and his team's excellent management of currency diplomacy over the last year and a half since the Chinese financial turmoil last summer, a year ago summer, excuse me. And we have seen stability and constructive management from the Chinese government, which, of course is to the credit of the Chinese government and in their own interest. But that I do believe that the diplomacy from the Secretary Lew and the Treasury during this period has helped with that, which has been a major source of stability for the global economy.

So, thank you very much Secretary Lew. Today the Secretary is speaking on the record as you all realize. He chooses to do this in a conversational format before taking questions from the audience and it is my pleasure to turn that over to Steven Weissman who is the Vice President of the Publications and Communications here at the Peterson Institute. Just a quick reminder for those of you who don't know Steve, although I think everyone does.

He joined the Institute now eight years ago in 2008. He had previously been Chief International Economics correspondent for the New York Times and had been a member of the editorial board specializing in politics and economics there. He has a distinguished career at the Times, has published numerous articles and books outside of the Times. Bureau Chief in Tokyo and New Delhi.

Last January we here in the Institute published his book, The Great Trade Off: Confronting Moral Conflicts in the Era of Globalization, which got notice even outside the New York Times. And we're grateful to the Stavros Niarchos' foundation for its support of that work. But most of all, he is an expert in thinking about tax issues and American public issues. And we look forward to the conversation he will have with Secretary Lew. Over to you Steve. Thank you again, Mister Secretary.     

Steve Weisman: Thank you, Adam. Thanks for the privilege of having this conversation. Thanks for the book plug, Adam. Secretary Lew, welcome. Pleasure to have you here. Privileged to be with you. We've known each other a long time in my earlier careers.

So, as Adam said, the global economy is on the agenda this week but the outlook is very mixed. The IMF and others here at the Institute have said that prospects for growth are not great. My colleague David Stockton said last week the global economy is like a driverless car in the slow lane. You shouldn't take that personally but tell us your sense of the outlook, and especially what are the prospects for fiscal stimulus, which everyone seems committed to but in the case of the United States it's been challenging to carry that out.

Secretary Lew: Well, first Steven, let me thank Peterson for hosting, thank you for moderating, and Adam thank you for the very kind introduction. I think the global economy has been a challenge to get into high gear, but it's not a recession. I mean, we have to be clear that we're talking about slow growth, not either a financial crisis or a recession.

And the question is how do you go from slow growth to the kind of growth that will really help lift people around the world and deal with the frustration that is pretty broad about feeling the benefits of a growing economy.

You asked about fiscal policy. We have been trying for many years now to make the case that we, the economic policy-makers of the world, have to use all the tools we have. You can't just rely on monetary policy; you need to use fiscal policy and structural reform to have a coordinated use of all the policy tools to get an economy into gear.

You know, when I became Treasury Secretary almost four years ago there was a pretty heated debate about austerity versus growth. And it was as if you could cut your way to growth was one theory or just spend your way was the caricature of the other position. We always have used the model of the US recovery, the US economy is how do you use all the levers. We had a quite aggressive use of both monetary and fiscal policy.

One could argue we should have used more fiscal policy, but without a doubt the Recovery Act and the subsequent enactment of payroll tax cuts repeatedly, and then after a period of I think premature tightening I the short term going back to easing to support growth by putting savings more in the out years, less in the front years.

We did that in conjunction with the FED that used its monitoring levers very creatively and I think extensively. But reforming our financial system, which was a big structural reform we needed to build the foundation. I would say four years ago there was not a lot of support around the table for using fiscal tools. There was an exhaustion with fiscal tools, perhaps it was because of the dead overhang, perhaps it was because of what the immediate spending at the moment of crisis was.

I would say that if you fast forward to today we're seeing a different approach. You look in the last six months not only is it where it communicates to use all policy tools but you look at the actions that governments have taken. You know, from China to Canada. You know, from Japan and South Korea to Europe you're seeing more willingness to use fiscal space.

Now, not every country has an equivalent amount of fiscal space. It has to be a case by case use of the tools. But you look at Japan. Japan could have put more x size taxes in place and thrown the economy back into recession. They didn't. Now, that doesn't mean they don't have a big debt percentage of GDP. They have a long term problem but you don't solve a long term problem by causing a short term recession.

You look in China, China has in its National People's Congress committed to using more of its fiscal space by increasing its deficit and at the same time very much pushing structural reforms. You know, in Europe the spending that Europe has been burdened with to deal with the refugee crisis has quite self-consciously not come at the expense of other spending but it's been additive. And there's even a little bit of a hint in Germany, of a possibility of a tax cut the next year too.

I'm not saying that all the fiscal space it could be used has been used but I actually think that the efforts that we've made to press to use all policy tools has broken through. We've also had political developments that have made it a bit more acceptable in many countries to have this conversation.      

Steve Weisman: You left out the United States. Of course, we'll—that will be determined after November, but it does sound like you're hopeful there too.

Secretary Lew:  Well, look, I think in the United States we did use more fiscal fire power during the recession than other countries did and we sustained it for longer. And if you look at the period between 2011 and 2014 you know, we, because of the political situation in the United States shifted in 2012/2013 into short term cuts and annual spending when we should have been doing long term savings to deal with the longer term fiscal path.

But in the last three years, fairly quietly you've seen a couple of budget agreements that have replaced short term cuts with longer term measures freeing up space so that there's a modest tail wind from public spending now as opposed to a head wind.

I don't want to overdramatize it, it's not a huge gust but it's in the right direction and I think you look at the discussions today about things like infrastructure, things like education and training, things like child care. There are domestic needs we need to address, not all of which should be done at the price of deficits. We have proposed how to pay for a lot of those things, but it wouldn't be the worst thing if we rebuild our infrastructure with a bit more long term credit. 

Steve Weisman: Let me shift focus a little bit. I think in the few square miles around from where we're sitting there's a lot of support for globalization, liberalized trade. But there's no secret that around the world but especially in the United States and Europe these days there's been a backlash.

We're you able to anticipate that, or let me ask you in a different way: shouldn't you have anticipated that and what can be done about it in this very contentious era?

Secretary Lew: First, having worked on trade legislation over a course of four decades, it's never been easy. It's always been contentious and I think in the current economic environment we should and did anticipate it was going to be hard.

What I think we have done is produced an agreement in a form of a Trans Pacific Partnership, which meets the test of improving standards on labor, improving standards on environment, improving business practices, leveling a plain field, giving the US the ability to help shape the terms of global trade. So that it's to our advantage, because we already meet standards and when others come up to our standards we become more competitive.

I think we've produced an agreement that can withstand careful scrutiny. Why is it a challenge? I think it is fair to say that if you win the argument that a trade agreement grows the economy you should be most of the way there.

You should be able to make the case that a growing economy is better than either a shrinking economy or an economy that's growing less quickly. You don't actually have more ability to help people with an economy that's now growing as fast.

Why is it so hard? I think that there is a broad sense of anxiety that growing economies don't necessarily get to people where they live. It doesn't get to a factory worker, it doesn't get to people worrying about their children and the opportunities they're going to have. I don't think this is about TPP. I think this is really about what are we doing to address the concerns that people have that government needs to be meeting domestic needs.

If we were investing more in infrastructure, which I believe we should; if we were investing more smartly in education and training and in childcare I'm not so sure that we'd be in the same place. I think you look around the world and what I've just described is actually not just a US phenomenon, it's a broader phenomenon.

So, our tax policy has to reflect the fact that there is an awful lot of accumulation of wealth and assets and in very high incomes, that is not very heavily taxed. And that gives people a sense that it's not on the level. I mean, I pay my taxes, I'm not getting the services I need and now you're telling me that I'm going to benefit when the economy grows. I'm not seeing that.    

Steve Weisman: So, those are long--

Secretary Lew: I don't think that's an excuse not to do TPP, because I don't think you can win the argument by saying, "Let's grow the economy more slowly." And I think we will prevail in TPP with the quality of the arguments but we can't stop there. We have to focus on these long term issues.

Steve Weisman: Well, those are all long term ideas to build up support for trade but you have an urgent timetable to get the TPP enacted next month believe or not, how are you going to do that?

Secretary Lew: Look, I think that the vote we had last year on trade promotion authority was a harder vote. It was an obstruction. It was giving permission structure for process for an agreement. We now have an agreement. I can point the countries in the world where labor standards are being raised because of TPP.

I mean, it's actually already having the kind of effect that we have predicted it would have. I don't know how you improve competitiveness by stepping back from that. I don't know how you improve competitiveness by saying, "In the fastest growing economies in the world we won't write the rules, we'll leave the space open for others to write the rules."

We have an economic and geopolitical imperative here that's very strong. The arguments that I'm suggesting are not an excuse not to do TPP, but it's a reason why you can't only talk about TPP, because I think we have a habit of talking about things like trade adjustment assistance at the moment of passing a trade agreement, and there's I think a growing skepticism about what happens in between. And we have to make it clear that these are commitments that are important that don't just begin and end with one vote.

Now, I think we can actually show a fair amount of credibility on that because we've put forward very concrete proposals as an administration in these areas for several years. It will ultimately come down as it always does to votes. I think that if you voted for trade promotion authority and the standard was to have an agreement that would raise standards and meet the high bar, I think we can meet that test and we're going to make the case over and over again and ultimately it will be counting the votes. I think we can get there.  

Steve Weisman: Hope so. Let me switch to something that you mentioned a second ago about taxes, and specifically corporations that are going abroad for tax havens. Your administration has been pretty though on wanting to get rid of these tax havens, and yet, in the case of Apple you were upset that the Europeans went after Apple for getting a special tax deal in Ireland. Is there a contradiction there?

Secretary Lew: No. I think if you look at what the European Commission has done let's start with what we agree on. We agree that large multinational corporations should not be able to game the international tax system to avoid paying taxes anywhere, or to pay at such a low rate that it is offensive to our common sensibilities. We agree on that. What we don't agree on is having one sovereign entity reach into another sovereign entity's tax space and change tax laws retroactively, which is what we believe the State Aid decision did.

Now, the solution, I believe, is for us to fix the US Tax Code and we have very clear proposals on that. We actually have built a fair amount of bipartisan support for the idea that US income, whether it comes home or not, should be subject to a minimum tax. If we were doing that I don't know that the pressure would have been as high.

We have a broken business tax system. We have a statutory rate that's the highest in the developed world, an effective rate that's about average. And we have other countries with low tax rates that are essentially a race to the bottom to be a magnet for companies that are looking for a way to avoid paying what is the average rate.

We have to fix our part of the problem, which is not be so far above the average because we have a Tax Code riddled with loopholes and deductions. Others have to feel some international pressure not to run that race to the bottom to create the disparity.

The answer isn't to reach into each other's tax space. I just think that is fundamentally inconsistent with the whole notion of how we work on tax policy together internationally and each of us independently. Over the last four years we've made more progress in the international space on base erosion and profit shifting than people did in 20 years. Dealing with issues like transfer pricing, dealing with how to coordinate our systems. I think the answer is more work like that and less kind of like reaching into each other's areas.  

Steve Weisman: You did mention the bipartisan support, but there seems to be a disagreement about how to handle that two trillion dollars that some of which would be repatriated. Where is the deal there?

Secretary Lew: I actually think amongst the tax writers there is a broad sense that there ought to be a minimum tax on income overseas. I wouldn't say we've all agreed on what the rate should be, but if you could get around the negotiating table and there's a low and a high rate, you're in a place where traditionally our political system is able to find a compromise.

This has not been an opportune moment to see bipartisan agreements on big policy issues but even in that space there have been conversations that have laid the groundwork. There's also a crossover on international tax reform. If you were to apply a minimum tax rate to income that's parked overseas it would produce one-time revenue which can't really be used to cut rates because it's not recurring revenue.

So, you'd end up losing money if you just cut rates. The question becomes what do you do with it? Some people would say reduce the deficit. I think a much strong argument is invest in infrastructure. We've proposed putting several hundred billion dollars into infrastructure. I think the combination of Europe moving pretty aggressively on the State Aid issue, and the I think, bipartisan desire to find a way to pay for more infrastructure creates perhaps the perfect storm where you can overcome the inertia of inaction.

Where you can overcome an environment where making political compromises hasn't always been the popular thing in the last few years, and maybe even overcome the special interests that want to change the status quo because everything that's one person's loophole is another person's treasure. It's not easy to do business tax reform, but it can be done. I actually believe if you put the senior tax writers in a room with an instruction to come out in a week with a bill you've got the intellectual work and the kind of moving towards consensus to do that, it could happen early in a new administration.

Steve Weisman: Let me ask one more question that's also in the news. Deutsche Bank. The Deutsche Bank's problem seems to illustrate an issue identified by the IMF, the FED and many others, which is the systemic risk posed by undercapitalized banks in Europe. How do you see that? Do you see that as a problem that has been unmet that hasn't been addressed?

Secretary Lew: First, I'm not going to comment on any individual financial institution.

Steve Weisman: You notice I didn't ask you to?

Secretary Lew: I think as a general proposition we have been very clear coming out of the financial crisis that we had to make sure our financial institutions were well capitalized. We had to make sure that we had a resolution structure where if there was a problem there was transparency and a process to resolve them. And we had to make sure that we worked globally to try to raise standards because coming out of the financial crisis there was a real clear signal that no country has ability separate itself from global financial risks.

We have worked very hard with international parties in the G20, in the FSB to try and raise international standards. Europe has made a lot of progress. Europe has raised capital. It has moved towards a resolution system that is still in development. It's moved a baby step towards and FDIC-like system.

They still have work to do. I think that they're much strong-- Europe's financial institutions are much stronger than they were and the recent ECB stress test established that. But we've been very clear for years pressing they need to do more. We took very dramatic action in this country and I think it's helped stabilize not just our financial system but our economy and confidence in our economy. And I hope that we see around the world more pressure on that.

The danger right now is complacency. The danger is almost a decade away from the financial crisis, you can hear the United States, "Well, let's roll back Dodd-Frank. Let's ease up on regulations." You hear it in other places as well. This would be the wrong moment to think that you take your foot off the gas or maybe you go into reverse because the one thing that we know for sure is risks don't just stop; they change, they have new manifestations where they're coming from and how you deal with them.

The mistake that we made for the decades before the financial crisis was not thinking ahead. You need to look ahead, you need to keep your eye on what forms of risk could be the challenge of the future, and you need to adapt to it. And sometimes it means changing what you've done but it doesn't mean saying, "We're out of the woods, let's kind of roll back reforms."

Steve Weisman: Thanks Secretary Lew. Let's go to the floor now. Questions, please raise your hand. I think there's a roving mic. Jessica back there. Gentleman here. Excuse me for interrupting, but would you please, identify yourself and also, please keep your question, an actual question and a succinct one.

Tom Ellis: Yes. My name's Tom Ellis, I'm a journalist with Kathimerini form Greece. Thank God, Greece is not the top issue anymore but still somewhere there. The Greek government is pushing for debt reduction.

The Prime Minister met with the Vice President Biden in New York last week and he asked him to use his influence to the German Chancellor, who is calling the shots in Europe, or the Europeans in general. I was wondering is the US working on that? Is it a major issue anymore? Has it subsided? What's the situation with Greece and the debt more particularly? Thank you. 

Secretary Lew: Well, we have been deeply engaged on Greece and issues related to the financial situation in Greece and the debt for a very long time. Happily, we're not in a moment of immediate crisis, and you asked the question at a moment when you can say what should we do to avoid having another moment of crisis.

We've been clear and I think it was important in the last agreement that Greece reached with the partners that debt restructuring had to be on the table. That there's an unsustainable debt and that Greece had to make progress on implementing its plan and that there would have to be a coming together where debt restructuring was part of the picture. I have always believed that you sooner you get to that the better because the only really stable answer for what is an unsustainable debt is to restructure the debt.

And the longer you put it off the harder it gets because you weaken the economy that's supporting the debt. You know, when everyone talks about debt to GDP the thing you got to always remember is the percentage goes down when the GDP grows.

So, even with a stable debt you want a growing economy. If the economy shrinks, the burden gets bigger. You know, I hope that as Greece continues to engage with all of the institutions the issue of debt restructuring very much remains on the table. I believe it was put squarely in the mix the last time. Obviously, with the question as to how it should be executed and the sooner that can be worked through the better.

Steve Weisman: Next question. Yes, right here.

Philip Suttle: Secretary Lew, Phil Suttle from Tudor Investment Corporation. You mentioned the ongoing discussions about corporate tax reform and the bipartisan nature of that. Seems like in the last few days we got a new issue coming on the radar screen, which is the distortions in the personal income tax system and well known issues related to that, which I won't ask you about.

But do you think more as a citizen looking ahead than the Treasury Secretary, do you think in the next administration the issue of broader reform of personal tax system will all come up as an issue given all the distortions in that?

Secretary Lew: Look, our position as an administration is reflected in what the President called for and what was enacted in 2013, where the top tax rate was restored to where it was before they were rolled back in the previous administration.

We don't believe that that's the entirety of what we need to do. If you look at the proposals that we've put forward one of the things that we have been saying is you have to take a hard look at things like asset evaluation increase. We allow assets to be passed on and basis in the assets to be stepped up so that the appreciation of very valuable assets essentially goes untaxed forever.

That's not right. It's not right because a, that's where the wealth is, b, working people don't get to say, "I'm not going to pay payroll tax or income tax on my earned income." And what had we in our budget proposals have suggested is that by taxing the stepped up basis it would give you the resources to invest in education and childcare. And the things that people need to see the government putting much more effort into for the benefits of growth to be broadly shared.

So, I actually think if you care as deeply as I do about both liberal democracy and free market capitalism this is an issue that not just in the United States but around the world we have to attend to. And it's not even a question of kind of populism. It's just simply a question of common sense how do you pay your bills and how do you do it in a way that's fair. So, I think this is at the heart of what ought to be a discussion about balancing where do we need to invest and how do we pay for it.  

Steve Weisman: Next question. Yes, sir.

Question: Thank you. Thomas Melovitas from ABCO Worldwide. Secretary Lew, when talking about the TPP, you said we have to make the case that trade agreements help to foster economic growth but I have the feeling that part of the debate is about the distribution of the benefits of these growths of trade agreements between different categories of people.

And how does the TPP address this issue that it's not just benefiting the wealthier and harming the poor people? And how does the government want to communicate about that? Because there's a very, very strong anger on this issue, frankly.

Secretary Lew: We know that jobs that are related to trade have higher wages. We know that with GDP that is growing faster there is more income in the country. I think the problems we have are the kind of confluence of concerns. Winning the argument that TPP will grow the economy is easier than addressing these longer term concerns that people have about what does my economic future look like.

And it's not all trade. We've got concerns about technology and trade and changed business structure and changed income distribution patterns all happening at the same time. And I think TPP helps by growing the economy and by making us more competitive. It opens up the fastest markets in the world to US goods and services. I think we have to talk in a full voice about these other concerns and separate out what you address through a trade agreement and what you address in other ways.

The worker who is concerned about their job or their kids having a job will not do better if we have a slower growing GDP and we see a decline in high wage jobs. But that doesn't mean that it's not fair for that same person to ask what are you doing to make sure we're dealing with the other problems in our system. And we have to separate the conversations. I think the case for TPP is very strong. I actually think I haven't heard a compelling case that it doesn't help grow the economy. And I don't think that these other issues are being caused by trade agreements per se.

They are part of what we have to deal with in terms of tax equity, in terms of how we invest smartly in the future. It is perfectly reasonable for people to be asking what is the government doing to make sure that my kids are going to have a chance to do better than I did. That's what we always ask in the United States and we have to answer that but it's not by shutting ourselves off and saying by growing more slowly we'll do better. That's not going to answer that problem.

Steve Weisman: Question in the first row back there. Yes.

Question: Thank you. My name is Beijang Wu with Shanghai Media Group US News Center. I have two questions for the Secretary. The first one, in your perspective what do you think are the impacts for the world economy of RNB inclusion into SDR currency basket?

And the second one, can you tell us a little bit about where we are with the US-China bilateral investment treaty? Thank you.

Steve Weisman: Maybe broaden that Secretary Lew to just assess the major challenges facing the US-China relations as well.

Secretary Lew: So, the US-China economic relationship is probably the most important economic relationship in the world. It's the two largest economies in the world. I think that the desire to be included in the special drawing rights basket at the IMF was a very helpful incentive for China to make reforms in how it manages currency, how it manages its economy.

And I think it's important for China to have made those changes. I think you could over read what the immediate impact of being in the SDR basket is. It is not the equivalent of becoming immediately a global reserve currency, nor does it reflect a completion of a reform agenda. It's an important step along the way. It's a recognition that China has made important policy changes and that they meet the standards of the IMF.

I think the challenge for China going forward is going to be to stick with the reform agenda that's been outlined both in the third plenum. And most recently at the National People's Congress to reform the economy so that market forces play a much more dominant influence to deal with the problem of excess capacity, so that China doesn't end up choking on things that there's not a market for and that capital doesn't get where it needs to for the innovation economy to grow.   

Steve Weisman: You're referring to steel I think.

Secretary Lew: Well, I'm talking about steel. I'm talking about aluminum. I'm talking about real-estate. When you don't have market forces driving investment, when you don't have bad investments allowed to fail, you end up with resources being allocated in a way that ultimately chokes the future of economic growth.

So, I think this is fundamentally about China being in a position to do well in the next decade, as much as it is about US-China relations. Now, it is also about US-China relations because for a decade we had fierce debates about exchange rate policies. We prosecuted that case, I prosecuted that case quite aggressively.

China has changed how it's managing its exchange rate so that that's less of a hot issue today than it was five years ago, and that's a good thing. It doesn't mean that we've taken our eye off the ball. We are going to continue to watch, and as I've said consistently the real test is going to be when there's pressure for the RNB to appreciate does China let it appreciate.

They've certainly said all the right things, but the jury will be out until we see the macroeconomic circumstances that test that. It cannot be a good thing if excess capacity becomes the exchange rate issue of the next decade. It wouldn't be good for China, it wouldn't be good for US-China relations, it wouldn't be for the global economy.

And it's not just a US-China issue. This question of excess capacity is deeply troubling around the world, wherever steel and aluminum are made, which is most industrial countries. Fundamentally, it's just not good for China, because China is not going to end up having the economic strength that it needs.

I believe there is still room for China to manage what is the hardest transition from a heavily industrial to a much more consumer driven economy in the second largest economy in the world. They have space, but it's not infinite space. In sticking to the program, implementing it even though its disruptive and it is something that maybe unpopular in parts of the country, is essential.

In terms of the bilateral investment treaty, we had extensive discussions at our strategic economics dialogue on the margins of the G20 meetings. There are ongoing negotiations. There's been exchanges of offers. It fundamentally has to be a high quality agreement that offers access in both directions in a meaningful way if it's going to come to closure. We have made the case that this is the best time to do it.

We are going to continue through the duration of our tenure to try and get it queued up so that it is as close to done, if not done, as possible. Making progress but not there yet and we obviously are looking at a calendar that gets shorter and shorter, so the time to really put a shoulder into it is now.

Steve Weisman: Our time is getting shorter and shorter. I'm looking for a signal from your staff. I wonder if I can exercise the prerogative of asking a final question that's also in the news, sovereign immunity. When the Justice Against Sponsors of Terrorism Act was passed over president Obama's veto, the administration said that it would have disastrous consequences. What is Treasury doing to avert some of those disastrous consequences?

Secretary Lew: So, Steve look, I'm a New Yorker. I was in New York on September 11th, I stood there on the corner and watched the building fall down. I know how emotional the issue is of sympathy for the families of victims and for the victims. JASTA is not a good solution. JASTA is something that exposes the US to great risk, both in terms of US citizens who are working overseas, US business overseas, and obviously there is a question as to whether or not that will have an impact on economic activity. We are keeping an eye on it.

I want to reassure you that we have the deepest and most liquid Treasury market in the world. We're not worried about the Treasury market. But we don't think JASTA is a good thing. We work very hard to have this be a world that's safe for US officials and US businesses to do business in, and we work very hard to make sure that we protect the US from harm. And JASTA is a solution that has many problems, which is why the President vetoed it.

Steve Weisman: But there are other problems that people have raised other than the security of treasuries. I mean, there are other-- What else are you looking at to try and minimize?

Secretary Lew: I think the risks that we focus on most immediately are the kind of sovereign immunity risks that have to do with if other countries were to take actions to retaliate in some way. That has an effect potentially on our armed forces, it has potential effect on public officials and private citizens. I'm not going to anticipate what economic issues arise.

Obviously, we have focused on the treasury markets, because that's the most immediate one, and I'm not concerned about treasury markets. I think if you look at US economic growth from our founding, making ourselves a safe haven for foreign direct investment has been, along with having an immigration policy that welcomes people into our country the two key ingredients to our economic growth. I think closing ourselves off in any way is bad and I think JASTA is something that just puts a warning light out there about doing business in the United States.

That doesn't mean that we should be anything other than dogged in our determination to hold people responsible when they commit horrendous acts. And I think we have proven that in our administration through our actions, not just our words.

Steve Weisman: Secretary Lew you've been very generous to give us time on an especially busy week, but I think we need to live up to our promise to get you out of here right now. Thank you very much for joining us.

Thank you very much for your great answers and wishing you good luck. I'll let things turn back to Adam.

Adam Posen: Thank you Steve for managing this. Thank you everyone for joining us, and again, our thanks to Secretary Lew and the staff of the Treasury Department for including us in the Secretary's busy schedule this week. We will allow the Secretary to leave in peace and I'll keep the rest of you in your seats for one more minute.

We should note that as the Institute for International Economics, as honored as we were to have the Treasury Secretary, we have a couple other people coming through today. So, in ten minutes we will have a presentation by European Commission Vice President Valdis Dombrovskis on the state of the world and state of the European economy. He of course, is the Vice President for Social Cohesion, the Vice President in charge of financial issues and economics and finance at the Commission.

We also later today at I believe, 1 PM, will—maybe it's 1:30, have Governor Federico Struzenegger, Governor of the Central Bank of Argentina discussing issues there. So, we hope you all can join us. And again, our thanks to Treasury Secretary Lew. This meeting is adjourned.