Treasury Secretary John Snow has a simple message to convey from the administration about the economy: Don't worry about it.

When it comes to rising global interest rates, the disparity between relatively high short-term and relatively low long-term rates here in the U.S. and the country's burgeoning trade and budget deficits, the word from Snow is that those factors are overstated or a matter of shared responsibility.

I spoke with Snow on Thursday during his visit to Silicon Valley about what some analysts view as gathering threats to the U.S. economy. We have indications of a global tightening in money supply in recent weeks. What effect will that have on the world economy?

Snow: Well, one of the things I've made it a practice not to be commenting on is monetary policy in the U.S. or elsewhere ... but I will say that the global economy has benefited from the competence of monetary authorities around the world ... in pursuing stable price policies.

As a result of good monetary policy here and abroad, we've enjoyed low inflation rates, and, more importantly, low anticipated inflation. With inflation and inflationary expectations well contained, it's created a favorable investment climate.

So, you're not worried about rising interest rates?

From the point of view of an economist and the monetary authorities, you want to avoid rising inflationary expectations. If the marketplace anticipates inflation, that will get factored into longer-term interest rates. Sustaining lower inflationary expectations is beneficial to investment and growth.

In terms of the difference between short-term and long-term interest rates, we're starting to see an inverted yield curve, which has been linked in the past to recessions or economic slowdowns. How concerned are you and the administration about that?

I don't think there's much predictive power in the inverted yield curve . And I think most economists agree that there's not much predictive power today in the relatively modest inversions that we've seen. You've always got to ask yourself the question, "What are the conditions that gave rise to the inversion?" to determine whether or not it signals something going forward. In this case, I don't think it does. And I think most economists agree that it doesn't. Because after all, this is a very slight inversion at just a couple of points on the curve, and it occurs at a time when both low-end and long-end rates are low.

So, nothing to worry about at this time?

I don't think it has any great significance for the direction of the economy, no.

The U.S. is facing a record trade deficit with China and the rest of the world. How concerned is the administration with the trade deficit? The emphasis on addressing it seems to be encouraging China to float its currency against the dollar. Beyond that, what steps does the U.S. need to take to deal with it?

The current account deficit is really best thought of ... as a shared responsibility between the U.S. and all of the major trading partners of the globe. We have our part to play and they have their parts to play.

We need to do a better job on savings. That really consists of two things. One is we've got to reduce our deficits, because that's ... a negative savings rate on the part of the government to the tune of about $400 billion a year. We also need to improve our household savings rates, which are too low. And that should naturally correct itself, I would think.

What do you mean by naturally?

You don't continue to consume beyond growth of incomes. People recognize we're an aging society. They're going to want to save for their long-term well-being. They look at Social Security, and they know it's not sustainable. They look at Medicare and know it's not sustainable. They look at their own corporate pensions where questions are being raised. All that is an incentive for higher savings rates.

But what is the current account deficit? It's the difference between domestic savings and domestic investments. Our trading partners are growing much more slowly than we are -- that's Europe and Japan. So they're creating many fewer investment opportunities relative to the size of their economies than we are relative to the size of our economy. Since they aren't creating investment opportunities, their savings don't have a useful purpose in those countries. So they wander out and they come to the U.S., because we are creating these large opportunities for investment. So if Europe and Japan -- the industrialized countries of the world -- would grow faster, there would be an automatic adjustment process mechanism put in place. So higher growth is important.

In terms of the budget deficit, federal revenues are at historically low levels as a percentage of GDP. Given that Congress has done little to control spending over the last five years, why isn't adjusting or forgoing the tax cuts on the agenda?

You want to set ... the level of overall tax rates to achieve an efficient allocation of resources within society, because with an efficient allocation of resources, you get higher outputs. And getting taxes at a level that encourages capital formation, encourages investment, is awfully important, because long term the economy's growth rate depends upon current investments.

But you're right, tax cuts -- I don't know anybody that says tax cuts fully pay for themselves with the feedback through receipts ... But well-conceived tax cuts give you higher growth rates than you otherwise would have. Even if they don't pay for themselves, they raise the prosperity of the country.

It's true, we haven't gotten revenues back yet to their historic level, but we're certainly on a path to. We're going to be above traditional levels. Over a 40-year average ... federal receipts are 17.9% of GDP, say, 18%.

But if spending is at 20% of GDP, then you've still got a deficit.

Our problem isn't that we haven't undertaxed Americans, but that we spend too much ... We really have to get more serious about spending, which is a dialogue we're having right now with members of both the House and the Senate. Controlling spending is crucial here and the president has put forward a budget that -- there's a lot of hollering up there that it's too tight. He's controlling spending.

But it's also a budget that doesn't project war costs beyond 2007. How realistic is the budget?

It's the best we can do given the current state of knowledge.
The above represents an edited version of the Snow interview. For the complete audio interview, click here .

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