News Column

Markets Await Treasury Chief

January 8, 2013

By Tim Mullaney

US Economy

As Wall Street waits to hear who will be President Obama's pick as the next Treasury secretary, the question is whether the nation's next finance chief needs to be an expert in international economics or a federal budget guru.

The president is expected as soon as this week to nominate White House chief of staff Jack Lew to run Treasury during Obama's second term.

The nominee will replace Timothy Geithner, who has reiterated his long-standing plan to leave by the end of January.

Geithner has been a key administration player on economic policy. His planned departure comes as the White House and Congress confront critical weeks of budget and deficit negotiations.

Last week's deal on tax increases postponed for two months automatic spending cuts that would have been effective Jan. 1. The government's ability to borrow to fund operations runs out at the end of February unless the debt ceiling is raised.

Lew was director and deputy of the Office of Management and Budget in the Clinton administration. He's also run a hedge fund for Citigroup. He has a deep background in the mechanics of the federal budget that would be crucial in talks about reducing the deficit, said Hugh Johnson, president of Hugh Johnson Advisors.

However, Lew, 57, has little experience in areas such as trade and international finance, which are likely to move to the front burner this year, said Steve Blitz, chief economist at investment firm ITG.

"I'd call it an uninspired choice," Blitz said. "That's not to say he's not extremely competent in the nuts and bolts of being Treasury secretary. But I think the story of the next four years is going to be about the dollar, about America's standing in the world, about very tough talks with trading partners."

The Georgetown-trained lawyer spent most of his career in behind-the-scenes roles, running teams that worked on details of budget policy. Since becoming chief of staff last year, Lew has assumed a more public stance and dealt with broader issues.

"I hear skepticism about him from clients -- we don't really know him, we don't know his views on financial regulation," said Priya Misra, chief of interest-rate strategy at Bank of America Merrill Lynch. "But when it comes to the U.S. budget deficit and interest rates, I think he would be the country's best chance to get a deal."

The skepticism isn't fair, says Stan Collender, a partner at Qorvis Communications and founder of the Capital Gains and Games blog. No candidate is likely to be an expert on all issues, he adds. Lew's stint as a deputy secretary of State, overseeing the management of the State Department, gave him the experience to handle the foreign policy parts of the job, Collender said.

"What you need is someone who can see the political and policy picture and put all the details in context," Collender said.

Whether Lew is the best choice turns on how long the budget debate is likely to last, and whether it dominates other issues, Misra said.

The short-term resolution of the fiscal cliff created three negotiations that will last most of this year, Misra said. They deal with the debt ceiling, nailing down the 2013 budget and whether across-the-board spending cuts mandated by the 2011 Budget Control Act should be changed. That makes it more important to nominate a proven budget dealmaker such as Lew, she said.

Source: Copyright USA TODAY 2013

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