Business

Obama puts a trusted man at the Treasury

  • 9 January 2013
  • From the section Business
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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.