Paulson: We've Turned the Corner

We've turned the corner on the credit mess, says U.S. Treasury Secretary Henry Paulson.

"We're closer to the end of the credit crisis than we are to the beginning," Paulson told Bloomberg this week.

Despite many signs to the contrary, including a first quarter GDP growth of a feeble 0.6 percent, Paulson was optimistic about the future of the U.S. economy.

"We've got a diverse economy in the U.S. Short-term trouble, but the long-term fundamentals are strong," he said.

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"I think it says something that despite these headwinds and despite some of the things we're going through, that this economy is still growing, albeit modestly," Paulson observed.

But, he was quick to add, "We're not satisfied with it."

That dissatisfaction was likely a principal motive for the latest federal funds rate cut to 2 percent from 2.25 percent.

Paulson believes the latest cut and the federal tax rebate now arriving in people’s mailboxes should start things moving again. He doesn’t believe a second stimulus plan in the works in Congress will be needed.

"We started making direct deposits this week," he said. "We will have pumped more than $50 billion out in the month of May. Another $50 billion plus in June. By the time we get to the end of June or very early July, we'll have reached well over 100 million people, close to 120 million, [with] over $100 billion."

Some analysts have expressed concern that the latest rate cut would further damage an already weakened U.S. dollar, but Paulson disagrees.

"Our long-term fundamentals compare favorably with other countries, nd that will be reflected in the value of our currency," he said.

But the ongoing credit crisis, despite indications that it's moderating, still concerns the Secretary.

"We're making progress," he maintains. "But the markets still aren't performing as normal. They're not performing as we'd like them to perform."

Among the encouraging signs Paulson cited are a continual re-pricing of risk, ongoing de-leveraging, and more asset sales.

"I'm [also] encouraged by the fact that whenever an institution needs to raise capital, there's capital there. I'm encouraging them to continue to do that."

Still, Paulson says he won't be satisfied, "...until every institution that needs to raise capital, raises it."

And while Paulson was generally upbeat in the face of some fairly grim economic news, he warned that, "...there will inevitably be more bumps in the road before we get through this. But again, I'm positive.”

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