Obama puts a trusted man at the Treasury

 

No-one in Washington will be surprised by the news that President Obama has nominated Jack Lew to replace Tim Geithner as US Treasury Secretary. He was always the man judged most likely to get the job, after Mr Geithner signalled his desire to step down.

One clear message we can draw from Mr Lew's selection is that President Obama feels more self-confident now than he did four years ago, at least when it comes to picking his top economic officials.

In 2008-09, the president was a considered a political neophyte, coming into office in the middle of a historic economic and financial crisis. Rightly or wrongly, he thought, to maintain confidence he had to surround himself with tried and tested officials from the Clinton era, who were respected by Wall Street, even if he himself had no particular relationship with them.

Four years on, with the economy slowly recovering and no prospect of re-election, the president clearly feels comfortable enough to put a trusted confidant and adviser in the job, rather than a Wall Street grandee or business leader.

Jack Lew also served in the Clinton administration but he has been one of President Obama's inner circle in the White House, in a way that Mr Geithner and others have not been.

The new man at the Treasury (if confirmed) also has a second attribute, which the president clearly values very highly, entering his second and last term.

As White House chief of staff and former White House budget director, Mr Lew understands the US budget inside and out. That matters, because if and when his appointment is confirmed by the Senate, Mr Lew will be immediately engulfed in a battle to get Congress to lift the ceiling on the amount that the Federal government can legally borrow in the financial markets. He also has to work out how to resolve the impasse over spending cuts.

The Treasury says it will run out of ways to get round the limit set by the formal debt ceiling by the end of February, or perhaps early March. As I explained the last time this became a live issue, there is really no chance that the US will default on its sovereign debt. There's more than enough money coming into the federal coffers to pay US debt interest. There just isn't enough to do that and pay all of the government's other bills.

However, no-one at the Treasury Department will ever say that. Instead, they and everyone else in the administration will talk up the risk of a default over the next six weeks in order to put pressure on the Republican leadership to pass a "clean" bill authorising a higher debt limit, rather than insisting on spending cuts in return.

Unlike, say, the vice president, Jack Lew has not spent his career on Capitol Hill. Some say he will not be very good at schmoozing senators and members of Congress, and doing all the other things you need to do to extract budget deals from a reluctant Congress.

But, a committed Democrat, Mr Lew is more party political than Mr Geithner ever was. And he knows the ins and outs of the US federal budget better than anyone else in Washington. That, plus a rock solid relationship with the boss, has been enough to win him the job.

One downside, from the standpoint of the rest of the world, is that Mr Lew has next to no international experience. That is quite a big hole in his resume, for someone who will hold such a critical position in the global economic system and bodies such as the G20.

Some insiders have suggested to me that Mr Obama might plug this gap by promoting Lael Brainard, the Treasury's senior international official, to be Mr Lew's deputy, with an understanding that she would now take the lead in the administration on most international economic issues.

That would provide some reassurance to the rest of the world that the US is not going to neglect international economic diplomacy.

Ms Brainard is not known for having grand policy initiatives or big ideas, but she would be a safe pair of hands. Whatever happens, the world will want some sign that the US Treasury is going to pay some attention to the global economy this year - even as the president and his treasury secretary go forth in battle over the budget.

 
Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this
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    Comment number 29.

    The UK's economic establishment (eg BOE) is colonized by chinless Oxbridge types, whose economic advice is probably worth less than what I could get from watching the Smurfs.

    The US also suffers from a mediocre elite - ithe Bostom Brahmins, Ivy Leaguers who all read the same newspapers and parrot the same platittudes. Lew is part of this establishment. Nothing will change.

  • rate this
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    Comment number 28.

    I am totally outraged at Obama's choice of Jack Lew as the new pick for Secretary of the Treasury. Poacher turned gamekeeper?
    According to Wikipedia: "In June 2006, Lew was named chief operating officer of Citigroup's Alternative Investments unit, a proprietary trading group. The unit he oversaw invested in a hedge fund "that bet on the housing market to collapse."

  • rate this
    -1

    Comment number 27.

    DavidInUSA - that's a pure far right invention. There is no credibility to the statement. Its subjective at best and heavily weighted by right wing media hype as most subjective viewpoints seem to be.

    The infantilised (if that's a word) public are the ones who believe trickle down is anything more than a rather basic con trick swallowed by the gullible. People who would trade morals for dreams;-)

  • rate this
    0

    Comment number 26.

    #25.United Dreamer
    "Obama is the least demagogic president the US has had since Truman"

    No way. Obama drips with demagoguery - far worse than Clinton and Bush Jr, although they were bad too.

    Obama reminds me of Gorgias, as Plato portrayed him in his dalogue of that name: a peddler of intellectual candy to an infantilized public.

  • rate this
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    Comment number 25.

    DavidInUSA - just like Americans and British focused on the war before focusing on the debt. Just like Roosevelt focused on the 25% unemployment before focusing on the debt during the Great Depression.

    A shame Bush never worried about the debt while he was kicking off two wars with one hand and cutting taxes with the other.

    Obama is the least demagogic president the US has had since Truman.

  • rate this
    +1

    Comment number 24.

    #23.BluesBerry
    "I wonder if Lew is intended to balance Hagel for the Israeli Lobby."

    Wow! Israeli- (or Zionist- or Jewish-) conspiracy theorists see Israel behind everything. It really is a pathological phobia, to see Israelis under every desk and bed and decision.

    I suggest you stop drinking the Kool Aid of conspiracy and move on.

  • rate this
    -2

    Comment number 23.

    Lew is an odd choice. No real international experience, not a particularly good shmoozer. Even at Citi, he was mostly involved with Wealth Fund, Hedge Fund sort of finance.
    Puzzling choice.
    I wonder if Lew is intended to balance Hagel for the Israeli Lobby.

  • rate this
    0

    Comment number 22.

    I imagine that Lew, like Obama, doesn't give a hoot about the federal debt (both the declared debt and the unfunded liabilities).

    Demagogic politics focuses on the here and now, not on the next generation, or even the next decade.

    Even Lew's name is uncomfortably like John Law, the bubble financier who ruined the French economy.

    Lots of uneasy feelings about this...

  • rate this
    -2

    Comment number 21.

    And interest repayments are coming down.

    http://www.bloomberg.com/news/2012-10-04/u-s-interest-cost-falls-to-lowest-since-2005-as-debt-soars-1-.html

    The truth is this. The American economy can do and say what it likes to the global financial community because the world relies on the buoyancy of their markets. And the banks will back them even if they lose money on the deal. They have no choice.

  • rate this
    +1

    Comment number 20.

    Lew has spent much of his career in working with Obama's federal budget, including two stints at Office of Management & Budget, once under Mr. Obama & once under President Clinton. Background will no doubt fit nicely with Obama's strategy in upcoming talks with Republicans over raising the federal government’s $16.4-trillion borrowing limit.
    Lew's appointment signals same-ole, same-ole...

  • rate this
    0

    Comment number 19.

    #18 Bluesberry - he wants to raise taxes for the wealthiest. How does that add to the national debt? He wants to cut the cost of healthcare by establishing a single payer scheme. That reduces liability.

    Fundamentally, the debt is not the primary issue here. Growth and employment is. Debt comes after you optimise the number of incomes paying it off. Then you can twist the banks' arms to buy bonds.

  • rate this
    +1

    Comment number 18.

    Senate Budget Committee ranking member Sen. Jeff Sessions, R-Miss., spoke out strongly against Lew's nomination, citing remarks Lew made in 2011 saying president's budget WOULD NOT ADD TO NATIONAL DEBT. Hmmm, seems to me everything Obama does, or wants to do will (or has) add to the National debt/deficit.

  • rate this
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    Comment number 17.

    #16 Stand Up - I agree wholeheartedly with this perspective.

    There are many who would glibly say this is capitalism and we can do nothing about it. But we control the markets. We can decide what goods can be sold here, and under what conditions they can be manufactured/extracted. And we should use that power.

    So much of the world's misery is a direct consequence of this indifference.

  • Comment number 16.

    All this user's posts have been removed.Why?

  • rate this
    0

    Comment number 15.

    He's part of the establishment and will protect the banks (see his opinion on deregulation) :- http://www.theatlantic.com/politics/archive/2013/01/who-is-jack-lew-obamas-nominee-for-treasury-secretary/266982/

    Apparently, he won't work on the Sabbath so let's just hope the US never has a financial crisis that needs to be resolved over the weekend.

  • rate this
    +2

    Comment number 14.

    Obama now has 4 full years without having to spend half of it on electioneering, let's see what he can do.

    Would be nice if he could organise it so that the economic benefits accrued to those who work hard to make the place better for everyone and the disadvatages to those who make life harder for everyone else.

    Good luck to him, he's going to need it.

  • rate this
    +4

    Comment number 13.

    Re 9 DavidinUSA:

    Economists have severely damaged their profession's reputation in recent years. I'm unconvinced law is a great background for the jobs either. Perhaps history? Recent and current events, and forces shaping them, may be better understood in that context


    Re 11JFH:

    Never miss an opportunity to insult someone, eh, John?

    As ever, it shows you don't trust your own powers of reason.

  • rate this
    +1

    Comment number 12.

    #11 JFH - As you'll note if you re read my post I am keen to stay in Europe! Most of my friends & colleagues do not want to! I have never voted Tory, but I feel the question of Europe should be cleared up through an informed debate within the UK - my vote would be to remain in.

  • Comment number 11.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +3

    Comment number 10.

    8.mm81

    1 - looking at backgrounds, both lots are just about as posh.

    2 - looking at performance, both lots have failed.

    3 - looking at policies, both lots basically agree on the economy.

    But appearance is everything. Especially the appearance of a choice for voters.

 

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