Henry Paulson, the 60-year-old former chairman of a blue chip Wall Street brokerage, told a Senate Committee Tuesday that spending cuts and economic growth are the best means of reducing America's large fiscal deficit.

Henry Paulson

Paulson faced mostly friendly questions from senators who are pleased President Bush has chosen a man of considerable stature to be his third treasury secretary. Several members wanted to know what Paulson would do to reduce America's large fiscal and current account deficits. He said economic growth instead of tax increases is the best way to cut the fiscal deficit.

"Like all of us, I wish our deficit was lower," he said. "But as I look at it, I am actually encouraged by the fact that despite the bursting of the [stock market] bubble [in 2000], and the recession in 2001, and the war on terrorism and Afghanistan and Iraq, and the corporate scandals, we're in a situation right now where our economy has been growing.

Paulson echoed the views of outgoing Treasury Secretary John Snow that China needs to move to flexibility in allowing the markets to determine the value of the yuan. David Hale, an economist and China specialist in Chicago, tells Bloomberg News that Paulson's extensive private sector experience working on the Chinese financial system will be invaluable in his new job.

"There's a whole range of issues where his Goldman Sachs background will give him a lot of credibility and an intimate knowledge of the details of how China should perform and modify its financial system," he said.

Prior to accepting the nomination to be treasury secretary, Paulson for over five years had headed Goldman Sachs -America's most respected investment bank. During his long career with Goldman, Paulson had made at least 70 business trips to China.