NEW YORK (TheStreet) -- Treasury Secretary Timothy Geithner sounds just as cautious on the U.S. economy as Federal Reserve Chief Ben Bernanke does these days.
"We face additional challenges, with Europe confronting a severe and protracted crisis and the world engaged in a critical struggle with Iran, which is adding to upward pressure on oil prices," said Geithner in a speech for the Economic Club of New York on Thursday night.
The secretary acknowledged several improving aspects of the economy, but said "we still face a "dangerous and uncertain world," highlighting the threat of rising oil prices.
It will take years to fully recover from the financial crisis and the economy is still vulnerable to new shocks, said Geithner.
"This is why it is so important that policy makers continue to work to get the economy growing faster in the short term and not shift prematurely to fiscal restraint or shift the focus of policy entirely to reforms with only long-term payoffs." Later, he added that "severe austerity now would be very damaging."
In a discussion session after his speech, Geithner said the global economy faced significantly less risks than it did last year. He listed several factors behind Europe's progress, including new governments in the region, "creative" actions of the European Central Bank, as well as the new fiscal compact. However, he said that a "greater firewall" was needed in case the debt crisis gets worse.
Geithner also talked extensively about the U.S.'s troubling deficit Thursday night. He said that there is way no way of getting around the deficit challenge without raising taxes coupled with reduction in some spending.
"If you do not raise revenues through tax reform, then you have to find another 1% of GDP or roughly 1.5 trillion dollars over 10 years in additional saving from defense, Social Security Medicare, education, or low-income programs," he said.
Geithner added that tax cuts don't pay for themselves.
"No responsible politician can offer the national fiscal sustainability through trillions in unpaid-for tax cuts ... we can't go back to pretending deficits don't matter and make expensive commitments we don't pay for."
In his speech, Geither also called on encouraging investments and to expand exports through President Obama's strategy of support innovation and education reform. He said that the challenge of building for future growth was more difficult as China, Mexico, Brazil and other nations grow and develop their own market economies.
"Their success, though it brings considerable economic benefits to us, has put a lot of pressure on large parts of the American work force engaged in making things that other countries are getting better at," he said.
-- Written by Chao Deng in New York
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