UPDATE 2-Geithner: No new U.S. recession, let tax cuts die

* Geithner sees economy strengthening, no double dip

* Let tax cuts for wealthy die, won’t hurt economy

* May need to keep some guarantee for housing finance
(Recasts, adds quotes and background)

By Glenn Somerville

WASHINGTON, July 25 (BestGrowthStock) – The U.S. economy is not
likely to slip back into recession but letting tax cuts for the
wealthiest Americans expire is necessary to show commitment to
cutting budget deficits, Treasury Secretary Timothy Geithner
said on Sunday.

In appearances on several Sunday talk shows, Geithner said
only 2 to 3 percent of Americans — those making $250,000 or
more a year — will be affected when tax cuts enacted under
former President George W. Bush end on schedule this year.

Republicans want to extend the tax cuts and Democrats are
divided but Geithner said reductions for top earners should
end.

“We think that’s the responsible thing to do because we
need to make sure we can show the world that (we’re) willing as
a country now to start to make some progress bringing down our
long-term deficits,” he said on ABC’s “This Week” program.

Geithner played down fears that a slow-paced recovery might
slide into a double-dip recession. He told NBC’s “Meet the
Press” he did not expect that to happen, although recovery from
the deep recession that followed the 2008-2009 financial crisis
will be prolonged.

STRENGTHENING, BUT SLOWLY

“I think the most likely thing is you’ll see an economy
that gradually strengthens over the next year or two, you’ll
see job growth start to come back, investments expanding …
but we’ve got a long way to go still,” Geithner said.

The Obama administration has said it wants to keep tax cuts
in place for Americans earning less than $250,000 a year. Some
Republicans say letting any of the tax cuts expire is
effectively a tax hike that may hurt recovery.

Geithner disagreed, saying it was more important to aim tax
cuts at lower-earning Americans and businesses.

“Just letting those tax cuts that only go to 2 percent to 3
percent of Americans, the highest-earning Americans in the
country, expire I do not believe it will have a negative effect
on growth,” he said on ABC.

Geithner said the Obama administration wants Congress to
agree on measures to help small businesses, traditionally the
main job-creating engine. He said there were signs “critical”
private sector hiring was strengthening.

“We want to see it happen at a faster pace but I think most
people understand that … this was a deep crisis,” he said.
“It’s going to take time to repair that damage, take time to
grow out of this.”

He said the overhaul of U.S. financial rules signed into
law last week by President Barack Obama should bolster
confidence in the economy by giving consumers new protections
and the government more powers to restrain bank risk-taking.

Geithner said no reforms can ward off all future crises but
can mitigate the harm. If the reforms that are now law,
including powers to wind down troubled financial firms, had
been in place before the crisis, the damage to jobs and
fortunes would have been less, he said.

On NBC, Geithner said there is work ahead to repair the
housing finance system that contributed to the crisis and led
to putting mortgage finance giants Fannie Mae and Freddie Mac
into government conservatorship.

HOUSING REFORM STILL AN ISSUE

“We have to bring to Fannie and Freddie, to the GSEs
(government-sponsored enterprises) and to the broader housing
finance market a better set of policies to make sure we can
deliver affordable financing … without leaving the economy
vulnerable to this kind of crisis,” he said.

Geithner said some type of government guarantee to make
sure people have the ability to borrow to finance a house even
may be necessary but said Fannie and Freddie will not be
preserved in their current forms.

“We’re going to have to bring fundamental change to that
market but I think there’s going to be a good case for taking a
look at preserving or putting in place a carefully designed
guarantee so homeowners have the ability borrow … even in a
very difficult recession,” he said.

Geithner said it was encouraging China recently ended a peg
between its yuan currency and the dollar, which should help
correct a trade relationship that enables China to rack up huge
surpluses while the United States and others record soaring
trade deficits.

“What matters to us and to all of China’s trading partners
is that they let that currency appreciate,” he said. “What
matters to us is how fast and how far they let it go.”

Investment Advice
(Editing by John O’Callaghan)

UPDATE 2-Geithner: No new U.S. recession, let tax cuts die