Geithner Supports U.S. Medium-Term Fiscal Targets at the G-20

We at CRFB applaud Treasury Secretary Tim Geithner’s support of medium-term fiscal targets, in the run-up to this weekend’s meeting of G-20 finance ministers. In the context of correcting external imbalances, Treasury Secretary Geithner sent a letter (excerpts from the Financial Times) indicating three steps that he believes G20 countries should commit to:

  1. Reduce external imbalances. Countries "should boost national savings by adopting credible medium-term fiscal targets consistent with sustainable debt levels and by strengthening export performance."
  2. Don't undervalue currencies. Countries should commit to refraining from weakening their currencies, or preventing undervalued currencies from appreciating.
  3. IMF Involvement. The IMF should monitor progress on these commitments.

As budget wonks, we find the first goal especially important – although history shows that the importance of avoiding competitive currency devaluations should not be underestimated.

Credible medium-term fiscal targets are a way to begin signaling to markets that we are serious about deficit reduction. With a reasonable target path agreed to (a sort of budget constraint), the challenge will be for policymakers to work together with taxpayers to figure out how the U.S. can sensibly meet our fiscal goals so that we can bring our debt back down to sustainable levels. The Peterson-Pew Commission has argued for a fiscal target of a 60 percent debt-GDP ratio by 2018, and other groups have argued for similar goals.

For why fiscal goals are important and how they can help bring down future debt, see CRFB president Maya MacGuineas's testimony from July before the Fiscal Commission. We hope other policymakers join the Treasury Secretary in supporting fiscal goals.

Photo Credit: Chip Somodevilla / Getty.