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U.S.-Japan Cooperation and the Financial Crisis

April 30 - In March I gave a speech at Waseda University and was asked the following question:

"The current financial crisis is at present a focus of attention throughout the world. I imagine that fiscal relaxation in the United States will be accompanied by monetary easing. Cooperation with Japan is presumably important for the United States in this connection, and I was wondering if you could comment about this."

I think this is a very good question; the international financial crisis is obviously very important.

The Obama Administration has three pillars to try and revitalize the American economy. The first thing we need to do is address our domestic economic issues which will have a big impact, obviously, on others. The three things we're trying to do are, first, a very large fiscal stimulus package. In our view, the package will boost GDP – over where it would have been had we not acted – by almost 1% this year and more than 3.2% next year. So it's a very large stimulus.

The second area obviously is financial stability, which will require steps to clean up bank balance sheets, make available additional public capital to strengthen the banks, and improve the flow of credit to consumers and businesses.

The third area is we need to work on regulation of the financial system so we don't get back into the same problems we had before. A lot of this work is domestic work, but of course through the G-20 and Financial Stability Board processes we're very interested in working with Japan and others because we now have a global system, we need to be working together. So it's very natural for us to work with Japan, the EU, and other countries.

But every nation has a different fiscal situation. We're not saying every nation has to have the same fiscal stimulus, but we are very much interested in large economies of the world like Japan addressing their domestic economic issues so that together we can help grow the world economy.

We also want to work with Japan to strengthen the ability of the IMF, Asian Development Bank and other international financial institutions to help emerging market and developing countries that have been hard hit by the crisis.

Until next time,

Jim

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