Next Treasury boss must be thrifty diplomat
President-elect Barack Obama’s Treasury secretary must be a regulator, diplomat, defender of the dollar and master of depleted coffers, all while figuring out how to escape a nasty recession.
The past 14 months of market turmoil have dramatically changed the job description, perhaps more so than at any time since William Woodin was appointed to Franklin Roosevelt’s Cabinet during the Great Depression in 1933. He resigned after less than a year due to ill health and died in 1934.
Filling the top Treasury position will be among the first critical decisions that Obama will make, most likely very soon after Tuesday’s presidential election.
The economy was the top issue for many voters as Obama defeated Republican Sen. John McCain.
High on the next Treasury boss’s to-do list is rewriting the rules of finance to prevent another credit crisis like the current one that threatens to trigger the worst U.S. downturn in 30 years, derailing global growth in the process.
That may explain why the list of likely candidates for the Obama administration includes Timothy Geithner, the president of the Federal Reserve Bank of New York, who has been at the center of efforts to stabilize financial markets.
Obama’s short list is also said to include former Treasury Secretary Lawrence Summers and former Fed Chairman Paul Volcker. He has spoken favorably about investor Warren Buffett as well.
Regardless of who gets the job, “the first two years are going to be horrible,” said Andrew Milligan, head of global strategy at Edinburgh-based Standard Life Investments, which manages assets of roughly $210 billion bad credit pay day loans.
“At the moment, I would assume that probably Geithner is as well-placed as anybody. You need someone who is really au fait (familiar) with the financial crisis.”
BILLS, BILLS, BILLS
The Bush administration and Fed have committed trillions of dollars to try to avert a financial system meltdown. That will push the national debt well above $11 trillion.
Deutsche Bank economist Peter Hooper thinks the budget deficit will exceed 7 percent of gross domestic product next year, more than double this year’s and the highest in the developed world.
That will constrain the next administration’s spending capacity and require some delicate diplomacy with countries such as China and Japan that hold hundreds of billions of dollars worth of U.S. debt. They have grown increasingly wary as the credit crisis intensified.
“They will have to care a lot about foreign investors,” said Harm Bandholz, an economist at UniCredit in New York. “Without foreign investors, none of these government rescue programs would work because the U.S. wouldn’t be able to finance them.”
How the new administration tackles regulatory reform will be a critical factor in where overseas investors decide to put their money. Current Treasury Secretary Henry Paulson has largely set the course for the rescue operation with the $700 billion bailout plan approved by Congress earlier this month.
Filed under: term by Wolf