|November 4, 2008|
Speeches by Secretary Elaine L. Chao
Remarks Prepared for Delivery by
Thank you, Patrick [Muldowney, President of the Central Florida Human Resource Association].
It’s great to be back in Orlando!
This afternoon, let me share some thoughts on America’s workforce and why we must preserve the flexibility and dynamism that are key to our nation’s economy and prosperity. But first, let me share some thoughts about the serious financial situation that is facing our economy and what is being done to address it.
As you know, our country is facing a crisis in the financial and housing markets. The root of the problem is the correction in the housing market and a crisis in the nation’s financial system due to inappropriate lending practices associated with home mortgages. It took a long time for our country to get into this situation. And it will take a while to resolve it. But the United States is a strong and wealthy nation, with the resources to address the challenges we face. With patience, time and effort, we will conquer these challenges as well.
I understand that people are angry about what is happening, and they have every right to be. Although the President’s first instincts were not to intervene, it became clear that doing nothing was not an option. The crisis was causing the credit markets to freeze up, impacting Main Street America. So he supported an economic stabilization package designed to resolve this crisis as quickly as possible.
When credit markets seize up, the entire country is harmed-- not just a few at the very top. Small businesses – from coffee shops to construction companies, packing plants to car dealerships – have been struggling or going out of business because they can’t get credit to continue operating. When credit is frozen, hometown banks become unable to provide new loans that are essential to small businesses, crippling their ability to survive. Families that can afford a new home can’t get loans, prolonging the housing market slump and further dragging down home values and increasing foreclosures. And workers who are near retirement or retired are especially vulnerable and feeling a lot of pain, as their 401(k) and pension plans lose value.
The economic stabilization plan includes a comprehensive set of tools to help address the four key challenges facing our nation’s financial markets: confidence, capital, systemic risk and liquidity. There are many other resources that have been and will be deployed by Treasury, the Federal Reserve and the FDIC. Let me name a few of these and their implications for Main Street America.
Today, the government announced that it will use up to $250 billion of the $700 billion rescue plan for a voluntary program to inject capital into banks by purchasing equity shares. This new capital will help healthy banks continue making loans to businesses and consumers and will help struggling banks recover so they can resume lending and help spur job creation. This is a short-term measure and is carefully designed to encourage banks to buy these shares back from the government when the markets stabilize.
In addition, last week the Federal Reserve announced a plan to provide short-term loans to businesses that need them by directly purchasing obligations in the commercial paper market. This is part of the ongoing effort to get money moving into the system faster. Small businesses especially need short-term loans to meet their expenses until their customers pay for the goods and services they provide. But, with frozen credit markets, these short-term loans dry up and workers may be laid off. So the practical impact of this part of the plan is that it will help employers stay in business and workers keep their jobs.
Also, the FDIC (Federal Deposit Insurance Corporation) and the NCUA (National Credit Union Administration) increased insurance coverage for accounts from $100,000 to $250,000. That means that if you have up to $250,000 in one of these insured accounts, every penny of that money is safe. And today, the FDIC announced that it will extend government insurance to cover every penny of all non-interest bearing transaction accounts, which are primarily held by small businesses. And the Treasury Department has also acted to restore confidence in a key element of America’s financial system by offering government insurance for money market mutual funds.
The FDIC has also been working with troubled banks to protect unsecured claims, guarantee liabilities and adopting other measures to support the banking system. Even with these new authorities, some banks may fail. But let me emphasize once again that the increased insurance limits will guarantee that depositors will not lose a single penny of their assets up to the insured these large amounts. And since the insurance cap has been taken off for non-interest bearing accounts, small businesses will not lose a single penny of their insured accounts, as well.
The Treasury Department has also been using its new authorities to help stabilize Fannie Mae and Freddie Mac, the two giant government-backed companies that purchase mortgages. And Treasury established a program to purchase agency mortgage-backed securities directly. This has proven very beneficial to the housing market: 30 year, fixed-rate mortgages have come down from a peak of 6.6 percent earlier this year to 6.0 percent last week. Taken together with the Federal Reserve’s latest rate action, these changes will help Americans reduce their monthly payments on adjustable rate mortgages and also increase the potential for more homeowners to refinance at lower fixed rates.
Also this weekend, the President met with finance ministers from around the world and they agreed on a coordinated plan to provide new liquidity, strengthen financial institutions, protect citizens’ savings, and ensure the integrity of markets. And last week, the Federal Reserve, along with the European Central Bank and the central banks in Great Britain, China, Canada, Sweden, Switzerland, lowered interest rates. These are welcome signs that central banks around the world are prepared to take the necessary steps to support the global economy during this difficult time.
These are some of the significant steps the government has undertaken to address the financial crisis. But let me emphasize once again that these are temporary steps. The government is not taking over the free market system, these steps are preserving it. We will face some tough months ahead. And while it is unrealistic to think that our economy will skate through this unscathed. It is also unrealistic to think that we won’t be able to get through it. Our economy and our country are remarkably resilient and resourceful. And as I mentioned above, we have the resources to meet all of these challenges. But we must have the patience to allow the medicine to heal the patient, which won’t take place overnight.
Let me also mention a few of the taxpayer protections that are part of the economic stabilization plan. It includes limits on bonuses for executives and bans golden parachutes for participating companies. The plan also protects about 26 million Americans from a big, unwelcome tax increase called the Alternative Minimum Tax. Originally, the AMT was supposed to prevent very wealthy taxpayers from avoiding taxes. But as more Americans reach the income threshold defined by the AMT as “rich,” many middle-class American families will find themselves stuck with a tax bill that could average about $2,200 higher. The plan also protects tuition deductions up to as much as $4,000. And it includes a property tax deduction of up to $1,000 for families who do not itemize, including many who are struggling to pay their mortgages.
While we work to turn the economy around, we must always look forward, not backwards. I, for one, have faith in the ability and the ingenuity of the American people. Our citizens have over 232 years of experience in bouncing back from all manner of adversity. It is a basic determination to succeed that drives our economic in good times as well as bad. Over the last few months, our financial markets became more volatile, but we remain anchored by our basic values and principles.
So now is not the time to turn our back on those principles and make matters worse by raising taxes and returning to the protectionist policies of the past. It is worth noting that 2nd quarter real GDP increased due in large part to strong growth of exports. Exports have been key to helping our economy remain resilient during the current financial turmoil. Right now there are 13 goods-producing industries that have posted particularly strong export and job growth, accounting for 83,000 net new jobs over the past 12 months.
Florida exports jumped 16.9 percent in the 2nd quarter—faster than the national average—to $14.1 billion. From 2002 through 2007, the state’s exports have grown by 82.7 percent.
Some of you have mentioned the equalizing role that tourism—“the invisible export”—has played in lessening the impact of slower growth. That, too, is worth noting. In the greater Orlando area, job growth in the important leisure and hospitality sector has helped offset a nearly 10-percent year-over-year decline in construction employment, as well as declines in retail trade and manufacturing.
Let me mention another key issue for our country in the years ahead. As the very first U.S. Secretary of Labor in the 21st century, one of my highest priorities has been to help ensure America’s competitiveness in a worldwide economy. And the Labor Department plays an important part in that mission. That’s because the Labor Department is one of the most ubiquitous regulatory agencies in the federal government. As you know, if a company employs even a single worker engaged in interstate commerce, certain Department of Labor rules apply.
Now, these rules and regulations can be written and enforced in a way that hampers growth and job creation. Or, they can be written and enforced in a way that empowers workers and employers to succeed in the 21st century economy—the oath taken by this Administration. Both the updating of the outdated overtime regulations and the Department’s proposed changes to the Family and Medical Leave Act are cases in point. They represent smart attempts to clarify communications between workers and employers. And their intent is squarely on bringing regulations in line with the realities of the modern workplace. Let me once again thank SHRM for its insights during the comment periods of these significant rulemakings.
Our country’s flexible and productive workforce is the foundation of our economic strength. And it is imperative as our country moves forward in this young century, we continue to empower workers to succeed in the global economy. It is critical that government only interject itself in the relationship between workers and employers when it is absolutely necessary.
Unfortunately, there are those who would prefer that government play a much larger role in the workplace permanently. They believe the United States should be more like Europe, and adopt European-style entitlement programs and more rigid labor laws. On the other side are those who value opportunity over predetermined outcomes. They value the American work ethic and the desire to succeed.
Congress has already begun to push our labor market towards Europe. Proposals have been offered in which the government would dictate to employers what leave policies they must offer, who can be promoted, which benefits their health insurance plans must offer, what types of investments can be included in their pension plans and how they can handle even the most basic business operations. And this is the short list! This Europeanization of the American labor market would have dire consequences for our country’s ability to compete abroad. And it would disrupt the traditional labor relationships here at home.
What is ironic about this push towards Europeanization is that Europe itself is abandoning many of these very same policies. France recently ended its 35 hour work week. And, without fail, at every international labor conference or summit I attend, labor ministers from Europe and especially the Scandinavian countries approach me asking advice on how to make their labor laws more like the United States. Just last week, the World Economic Forum released its global competitiveness survey, and the United States was still #1. The rest of the world recognizes that America is the most competitive nation in the world. With so many other problems in our economy to fix today, why fix something that isn’t broken?
Rather than embrace a regulatory and labor-management regime from the Old World, our country should pursue standards in keeping with the values of the New World--the unique American way forward. That means keeping taxes low, enacting regulations that promote rather than stifle job creation, and ensuring free and fair trade. Public policy should also focus on advancing a new model of labor-management relations in which both sides work together, recognizing that the true competition isn’t sitting across the bargaining table—it’s around the world.
America faces serious economic challenges right now. And that is why it is so important that you, as workplace leaders, add your voices to the national conversation about labor market flexibility.
Working together, we can continue building a stronger, even more competitive America that is fully prepared for the challenges and opportunities ahead. And we can continue to ensure that America’s workforce is the most productive, safest and skilled in the world.
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