Treasury Secretary defends sanctions on Russia
Treasury Secretary Jack Lew.
Treasury Secretary Jack Lew on Friday strongly defended the sanctions the U.S. has imposed on Russia and says the administration "sees many signs" that the sanctions are having an impact, including a downgrade of Russian debt.
"If you look at the conditions since we started imposing sanctions, they're having an impact," Lew told Marketplace in an interview. "Even the Russians are admitting that they are having an impact."
Lew added that the U.S. is working with its allies in Europe on another possible round of sanctions.
"We are working with our international partners to make sure that when we do it, we do it in an effective way," he said.
Lew said the goal of the sanctions is to damage the Russian economy while doing the least amount of damage to the rest of the global economy.
"When you stop doing business with a country as large as Russia, there are effects outside the boundaries of the country," Lew said. "There are American companies that are already feeling some of the pinch and there are European businesses that are feeling some of the pinch. And that's the goal: The goal is to affect the Russian economy."
Lew also talked about the slowdown of the economy in China, but said the slowdown itself shouldn't stop Beijing from reforming its economy.
"I have a sense that [in] the short term they will be able to manage through," Lew said. "I'm more concerned that they stay on the reform path because in the longer term, if they don't, the efficiency of their economy will suffer. And it will create more tension in the world."
Lew added that in conversations with China's leaders, "they don't disagree with us on what they need to do," it's a disagreement over the pace of change.
Lew spoke to Marketplace from Detroit, where he toured Detroit's Marygrove community Thursday, observing a government program to remove blighted and abandoned Detroit homes.
"It is a real problem when you have vacant houses that are stripped and the windows are broken," Lew said. "Everyone knows what happens on the street corner if a hubcap is taken off of a car. Pretty soon, the rest of the hubcaps are gone and the car is destroyed. That happens to neighborhoods also."
He said the broader U.S. economy is recovering, but housing and construction are still "slower than other parts of the economy" in coming back.
"Families don't forget quickly if they lost their home or lost their job," Lew said. "I view it as an opportunity – there is going to be pent-up demand that needs to be met."
Finally, when Lew's predecessor appeared on Marketplace, Timothy Geithner talked about changing his signature because "on the dollar bill I had to write something where people could read my name. That’s the rationale."
And Secretary Lew also famously tweaked his signature for the dollar bill.
"I've been working on my handwriting for over 50 years," he said in today's interview.
KAI RYSSDAL: Detroit has been in trouble for a while, sir. Can't help but wonder why you picked now to visit.
TREASURY SECRETARY JACK LEW: Well, look, Detroit has had challenges over the last decades, but in the last several years in particular, it's been a very hard time. We've been working in the administration, across agencies, to do what we can with the tools we have, the regular programs of the federal government to make a difference. In Treasury, we've done a number of things that actually are making a difference on the ground, and I came here both to see the work that we're doing and to work with business leaders, community leaders, and philanthropic leaders and elected officials to talk about what we're doing and how it's helping in the city. So I'll give you a couple of examples –
KR: Well, I'll tell you what. Actually... So let's do this. Speaking of on the ground, one of the things you're doing there is you're giving federal money to knock down some houses, right? You're actually taking down houses as a way to ... what?
JL: Yesterday afternoon, I visited the Marygrove neighborhood in Detroit. It's a neighborhood that was solid middle class housing, but now, like many neighborhoods in Detroit, vacant properties are causing a blight, and if they're not torn down, you see how it spreads to the neighborhood. We made available several months ago through what is called the Hardest Hit Fund federal funds to be used to demolish houses so that the properties in the neighborhood don't go underwater or come out from being underwater. I was with the mayor yesterday as the first houses were torn down using that funding. The strategy is to stabilize neighborhoods by going at neighborhoods where there's a house here and a house there to stop it from spreading, and then to move on to the neighborhoods where there's a larger problem already. I was impressed with the strategy and the execution, and it was a creative use of a federal program to make a difference. And I think it will make a difference.
KR: "Creative use of a federal program" is a great phrase, but I can't help but wonder how many people are out there listening to this saying, "Wait a minute. We're spending money to tear apart the city of Detroit?"
JL: Well, just to be clear, it is a real problem when you have vacant houses that are stripped and the windows are broken. You know, everyone knows what happens on the street corner if a hub cap is taken off of a car. Pretty soon, the rest of the hub caps are gone and the car is destroyed. That happens to neighborhoods also. It doesn't help the people who are trying to save their neighborhood to leave a vacant building that becomes a blight on the neighborhood. It is a big challenge. There's a lot of abandon properties. The ones that can be used, the city is going to put up for auction -- they have an auction this weekend -- or try and restore. The ones that are beyond restoration do need to come down, and it is an important thing to stabilize a neighborhood because if you have 20 houses on the block and there are a few that are abandoned, you don't want the other to be damaged, either in terms of value or condition, because of the blighted housing.
KR: On the bigger topic of the housing market and real estate in this country, it has been recovering, as you know, from the depths of the recession, but it does seem to have stalled a little bit. It's getting a little flat. I wonder how worried you are about the future of the larger economy if housing gets stuck. It's such a huge part of what we do.
JL: Well, I think if you look at where we are in the recovery, we've seen month after month of steady progress. We're seeing a recovery that's taking hold. And, yes, housing and construction is slower than other parts of the economy to come back. Manufacturing is coming back. Other forms of investment are coming back. I view it as an opportunity. There's going to be pent up demand that needs to be met. It will require access to capital, it will require confidence, both of which are improving. So, I actually think if you look at the recovery we have, before, we've seen a robust recovery in terms of new construction. There is progress still to be made. If you look at property values, they're coming back. If you look at existing home sales, they've been doing pretty well. Our problem is we need more new construction, and we need more new household formation. I think we're going to make more progress and we're going to stick to it, because you know, the progress we've made is important. But until every American who can work is working, until everyone who could qualify for a home mortgage is able to get a mortgage, we still have more work to do –
KR: -- About that, Mr. Secretary. I grant you that the economy is recovering, and jobs are being created, and GDP is growing – we talk about that on this show all the time. Why then, when we talk to regular people out there, and our reporters go out and talk to regular people, why does it feel so soft? Why isn't it more tangible?
JL: You know Kai, the recession of '08-'09 left deep scars. We are seeing a healing, but it's a long process and families don't forget quickly if they lost their home and they lost their job. Businesses are cautious to make sure that demand is going to be there not just now, but in the future, before they make investments and hire people. You know, when I go to international meetings, this is not just a U.S. challenge. There is an issue around the world that we need to worry about promoting more demand in the major economies of the world. I think that there is a growing confidence, I think there is a lot of money on the sidelines that is prepared to come back as the confidence deepens –
KR: – You sound like my stock broker friends: "There's money on the sidelines."
JL: Well, when you're seeing companies retaining earnings and holding back on making investments, it means they have capital to invest. The question is what does it take to get them to make the investment? There's no substitute for order books. When companies are seeing steady improvements in their order books, they tend to be much more inclined to invest.
KR: Yeah, but Mr. Secretary, with all respect, we've been waiting for companies in this economy to start hiring and start doing things with the money they have for literally years now.
JL: Well, we've see progress. While I think there is much more to be done, I think to compare the economy today to the economy just a few years ago, it's a world better.
KR: It is, and that's not what I'm doing though, sir. I'm comparing what companies can do and what they are doing.
JL: But even companies are making investments. We're seeing in the manufacturing area, investments. There are challenges for smaller business to get access to capital. I just came this morning from a firm here in Detroit which stamps out car parts. They have taken a facility that would have been one of the vacant, blighted properties, and through our state small business capital initiative, they've been able to create a business that has 200 jobs, mostly local Detroiters, and they're producing car parts for American companies in Detroit. So, there are things we can do to help small companies get the access to capital they need. I think it's mostly larger businesses that have the retained earnings. You know, I meet with CEOs all the time, and I'm actually hearing quite a bit of optimism when I talk to CEOs. That is the kind of thing you need before you see big investments.
KR: Couple of things I want to touch on with you Mr. Secretary, before you have to run. The first is international affairs. As the guy whose name goes on a lot of the economic sanctions' documents against the Russians for their activities in Russia, Crimea and Ukraine, I wonder when you expect sanctions might start to have an effect, if at all, on President Putin's actions, because so far sir, as you know, it hasn't done much.
JL: Well, I think first of all, sanctions have the effect of creating conditions and then leaders make decisions whether they change their policies. I think if you look at the conditions since we've started imposing sanctions, they're having an impact. Even the Russians are admitting that they're having an impact. We've made it clear, President Obama has made it clear, that Russia cannot continue to violate Ukraine's sovereignty and it cannot continue on the path that it's on without facing additional and more stringent sanctions. We are prepared to take action, and we are working with our international partners to make sure that when we do it, we do it in an effective way.
KR: You are just back from continuing with your international duties. You're just back from the meetings with the World Bank and the IMF – lots of talk about China and developing economies. What do you expect out of the Chinese economy as it slows, as growth there is not what it once was.
JL: Look, China is facing a number of economic challenges. Obviously they are facing some slowing down of their economy. The longer-term challenges – they have to open their economy more to competition, their markets have to be more open, their exchange rate needs to be market-determined. They know they need to move in that direction and its going to be a process that is somewhat disruptive but they need to stick to it and move step-by-step in order to continue to have the kind of future that they want for China and that the world needs for China to have. Now I have a sense that in the short term that they will be able to manage through. I'm more concerned that they stay on the reform path, because in the longer term if they don't, the efficiency of their economy will suffer and it will create more tension in the world. I have those conversations with the Chinese regularly. I do believe that they understand what they need to do and they don't disagree with us on what they need to do. What I worry about is the pace of change there, and to some extent the short-term economic pressures make it more difficult because disruptive change is always harder when your economy is a little bit softer than it was. But they have challenges that they can't put off dealing with and when I meet with my counterparts in China, I'm struck at how much they understand intellectually what they need to do and how hard it is. And I've made it clear that on issues like exchange rate; it is just not sustainable or acceptable to be on a path where the exchange rate continues to fall and create unfair advantage. So we do have challenges, they have challenges. I think that the world economy needs a strong United States, it needs a strong China, it needs a strong Japan, it needs a strong Europe and as I've said many times, the world can't look to the United States to provide all the growth and demand that is needed for a healthy world economy. And China is big part of the world economy as the second-largest economy in the world.
KR: You know, it seems to me sir that you and the President and Secretary Kerry do a lot of saying that things are unacceptable, that things have to change and if they don't, well, the United States is going to be really upset. But you look at the Russians, and the sanctions aren't doing anything there either. You look at the Chinese and they're doing what they want with their exchange rates. What then are you left to do?
JL:Well I don't accept your characterizations. I don't think the sanctions are being taken lightly in Russia. Whether or not a government changes its policies is separate from the question of whether or not sanctions are doing what sanctions can do. We have sanctioned some of the most significant people in Russia close to the president. We have sanctioned a bank that's the bank where they all bank at. We see many signs that it is having an effect. So just to be clear, sanctions – we've seen in the case of Iran, that governments can absorb sanctions for a period of time, but they don't ignore them in the long term if they care about their economy. We don't know the outcome, in the end, of the negotiations with Iran, but we do know they're at the negotiating table because sanctions have had an impact. Those sanctions have had an impact because the U.S. took a leadership role with very tough sanctions and worked with the world to impose effective sanctions. That's what we're doing with Russia: Working with the world. The President this morning is working with the G-7. I think there will be united action, and I think Russia knows that. So, I actually think in a world where you can't compel another leader how to make a decision, the economic sanctions are being used with a kind of refinement and direction where they're having an impact. And frankly, the goal is to hurt the Russian economy while doing the least damage necessary to the U.S. and the global economy. And I think, we've made clear we're prepared to take tougher actions and prepared to absorb the consequences of that if we need to. But it has to be done in a careful way and it has to be done in an effective way and that's what we're doing.
KR: Do you think the consequences of American and Western sanctions on the Russians might mean damage to the American economy?
JL: Look, there's no question that when you stop doing business with a country as large as Russia, that there are effects outside the boundaries of the country. So there are American companies that are already feeling some of the pinch, and there are European businesses that are feeling some of the pinch. The real burden is being felt in Russia. And that's the goal: The goal is to affect the Russian economy. You look at what happened with the rating agencies in Russia just over the past day? It's not a thing to be taken lightly to be one notch away from a junk rating. You look at the exchange rate of the ruble, the value of the Russian stock market? Russia's economy is not doing well, and they acknowledge it's doing worse because of sanctions. So sanctions are doing what sanctions can do, and we will ratchet them up if we need to in response to Russia's behavior. Ultimately President Putin needs to reevaluate his policies and he needs to take a step back.
KR: Last thing sir, and then I'm going to let you go. It's the same question I asked your predecessor when we had him on a couple of years ago. He, like you, had a famously illegible signature – yours has come to be called the "loop-de-Lew" – you had to change it to get it on the money so it was legible. How long did you have to practice that new signature?
JL: I've been working on my handwriting for over 50 years.
KR: (laughs) You and me both. Jack Lew, he's the Secretary of the Treasury. Sir, thanks very much for your time.