John Snow

Deficits, while understandable in current circumstances, are nonetheless unwelcome and should be avoided. Excessive deficit spending can lead to higher interest rates, and slower growth.

Social Security is on a financially unsustainable path. Reforming the system will address some critical long-term economic issues. It will help address the looming unfunded obligations which threaten the fiscal outlook. Another key to reform is stopping the practice of the government writing itself IOUs, while spending dollars intended for Social Security on unrelated programs. This has to stop.

In light of the recent events at the GSEs, the need for meaningful reform has become even more clear. As we originally outlined in detail in 2003, the regulator for the GSEs should have powers comparable in scope and force to those of other world-class financial supervisors and fully sufficient to carry out the agency's mandate. The regulator must have clear general regulatory, supervisory, and enforcement powers with respect to the GSEs. These powers must include the authority to set both minimum capital standards and risk-based capital standards; the power to assess the entities for independent funding outside of the appropriations process; and the ability to place a failed GSE in receivership.

In order to protect against the systemic risk posed by the housing GSEs' mortgage investment business, the Administration also recommends that limitations be placed on the size of the housing GSEs' retained mortgage investment portfolios.

Fundamental to our economic strength has been the pro-growth policies the President has championed. Lower tax rates for all taxpayers put money back in the hands of consumers. An increase in expensing for capital investment gave a boost to small businesses. It's important to continue this growth that we make the tax cuts permanent.  It is also important that we exercise fiscal discipline. The increased spending required for hurricane recovery efforts make this all the more important. We are currently on the path to cut the federal deficit in half by 2009, and while economic growth has helped the growth of Treasury receipts quite a bit, spending restraint is the necessary other-half to the deficit-cutting process.

A priority for national policy makers must be to resist policy proposals that would introduce rigidity into the economy and instead to press on every front for policies to make the economy even more flexible.

China and the global economy will both benefit from greater currency flexibility. We will continue to press China to continue to make progress on reforming their foreign exchange regime.