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Hank Paulson: Hard To Imagine China GDP Grows At 7%

The Honorable Henry M. Paulson, Jr.

Former United States Treasury Secretary Hank Paulson spoke with FOX Business Network’s (FBN) Maria Bartiromo at the Milken Institute Global Conference about the global economy saying, “There’s no doubt, business investment has slowed down,” and he goes on to say “I think some of the questions in the geopolitical situation has a significant impact” on the economy. Regarding volatility in the marketplace, Paulson said, “I think the world is going to be a place where there’s so much uncertainty we’re going to be dealing with volatility for a while.” When asked about the United States dollar Paulson said, “the more time I spend outside of the U.S., the more faith I have in our economy.”

Hank Paulson on volatility in the United States:

“There’s a lot going on in the U.S. regulatory environment.  And I’d always said that we needed more — we needed better regulation, not necessarily more regulation…And we got some of both.  Now, I’m a strong believer in requiring banks to have a capital cushion and liquidity cushion and increasing their capital.  But there have been a number of other changes that are going on that I think hurts the banks; ability to provide liquidity, one of which is the so-called Volcker rule. I don’t think that regulators place enough emphasis or that the rules place enough emphasis on market making, I think that’s a very, very important role that the banks, the big banks need to provide.  So, again, a lot going on and the volatility, I think, is also being driven by what’s happening around the world, you know, what’s happening in terms of our monetary policy and questions about that in the U.S. So I think the world is going to be a place where there’s so much uncertainty we’re going to be dealing with volatility for a while.  And I sure came as concerned about the banks being able to provide the kinds of market making and risk mitigation that major institutions are going to require.”

Hank Paulson on regulation:

“There’s no doubt, business investment has slowed down.  And I think there’s a lot of things that impact that, and I have no doubt regulatory uncertainty is one of those things.  I think policy uncertainty is one of these things.  And I think some of the questions in the geopolitical situation has a significant impact.”

Hank Paulson on whether he is surprised with all the uncertainties in the world that the U.S. dollar is as strong as it is:

“No, it doesn’t.  It doesn’t because the more time I spend outside of the U.S., the more faith I have in our economy.  We have some big problems. We understand them, and we know them.  But everyplace else, every other major economy has got bigger problems. And, you know, our economy is growing.  Real estate markets are recovering.  We’re creating jobs.  Now, we’re not growing fast enough and income disparity is a huge issue and we need some fundamental economic reforms and policy changes in the U.S.”

Hank Paulson on Chinese economic market:

“Well, there’s a lot of different things going on at once, a number of different things.  First of all, the — as you said, the Chinese economic model is going to change, and it’s not easy to reboot a $10 trillion economy.  And it’s not just the switch to emphasize consumption relative to exports.  But this is a country that’s been very reliant on municipal debt to drive growth in the infrastructure.  And that debt has been building up quite quickly and it’s been a cause of concern and rightfully so to a number of people.  Now the Chinese understand this and they realize they need to emphasize, you know, other drivers and they need to open up the economy to competition, have the private sector play a bigger role in a number of sectors where they’ve been precluded.  So the thing that I’m focusing on is the quality of their growth.  The growth has slowed dramatically; it’s now — the leaders have said 7 percent is the new normal; I think that’s really a bit optimistic.  So the quality of the growth is very important.”

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