Henry Paulson, the US Treasury Secretary, has warned that the American financial system remains unstable and indicated that the world's largest economy will not return to growth until well into the next administration.

Speaking in New York last night, Mr Paulson said that while he was "rooting for the next Administration", the new President faces a long road of "stability, recovery and then repair - this situation is going to take longer to unfold".

Mr Paulson has just over a month remaining in office before he hands over to Tim Geithner, whom the US President Elect has chosen as his Treasury Secretary.

Addressing questions about whether Americans should be concerned that the US Federal Reserve's move to cut the cost of borrowing to between zero and 0.25 per cent this week could stoke inflationary problems in the future, Mr Paulson said: "The biggest mistake we can make is to not intervene enough."

The former chief executive of Goldman Sachs said tthat he did not share the concern of other economists at the level of national debt that America has run up to try to stimulate the US economy.

He explained: "When the economy is growing there is a lot that can be done to reduce the deficit. But the real cost is not the deficit, the real cost would be to not do enough now, to allow the economy to go into freefall. The biggest mistake is not doing enough, not spending enough."

In the last year, the Bush Administration returned $158 billion to taxpayers in the form of rebates to try and stimulate consumer spending.

It also provided a $29 billion loan so that JP Morgan Chase would rescue Bear Stearns; bailed out Fannie Mae and Freddie Mac the mortgage giants, AIG the world's biggest insurer; rescued Citigroup and earmarked $700 billion of taxpayer money to protect Wall Street from collapse.

Mr Paulson was last night addressing the 92Y literary and cultural centre in Manhattan which invites high profile political and artistic figures to speak before an audience that is encouraged to ask questions. While the event was scheduled months ago, the ticket-only event sold out so rapidly that the 92Y broadcast the interview live across the internet.

In Mr Paulson's final month in public office, he is tasked with devising a means of allowing America's near-bust car industry to access the Troubled Asset Relief Programme (Tarp) that had been designed to bail out financial institutions.

General Motors and Chrysler, the car makers, have warned that without immediate federal assistance they wil run out of money by the end of the year.

In his speech, Mr Paulson expressed his frustration at the heel dragging of Congress during the worst hours of economic crisis.

He said even when he and other financiers realised that the US was facing a financial crisis, Congress would not agree to help until it was obvious the country was teetering on the edge of economic meltdown.

He said: "We did not see this happening months and months in advance. But some of us could see it happening. But it was very difficult to get the kind of authority we needed.

"Even if you see that there is a crisis but Congressional leaders do not, it was very hard to get the help we needed," he said.

"We were very pleased to get assistance on Fannie Mae and Freddie Mac but it was only granted when financial meltdown was on its way. Someone asked if we should have gone to get the Tarp earlier and I thought 'what planet are you on?'"

Mr Paulson also described the extraordinary timetable that he had faced when it became clear that the collapse of one Wall Street institution was triggering the fall of another.

He told the audience that the US Treasury only had days to prop up AIG - which was "grossly mis-managed" - before Lehman Brothers published its quarterly figures, sparking another collapse.

Times Recommends

• Both sides blame US for worsening relations
• Stieg Larsson: losing the plot over his cash
• Odd creature paralysed by incompatible parts