Now that we’ve gotten the excitement about the nomination of U.S. senator John Kerry out of the way, we’re still a long way off from knowing who will succeed Timothy Geithner as U.S. president Barack Obama’s treasury secretary.
Although in terms of protocol, Kerry will undoubtedly remain the top American diplomat, the next U.S. treasury secretary will be just as important — if not more important — than the incoming U.S. secretary of state, and he or she may well have a greater hand in setting foreign policy, given the precarious nature of the U.S. economy.
Although the most recent GDP estimates show that the economy grew at a 3.1% pace in the third quarter of 2012, growth in 2011 was around 1.7%, and any number of global factors could topple even an otherwise impregnable recovery.
Consider all of the key international issues on U.S. president Barack Obama’s agenda over the next four years:
- the ongoing eurozone crisis and the destabilizing blowback to the U.S. economy from a eurozone breakup or further recession, unemployment and depressed aggregate demand in the European Union;
- in the world’s second-largest economy — China — a new leader in Xi Jinping will face a slowing economy and a renminbi currency that remains elevated in value vis-a-vis the U.S. dollar;
- in the world’s third-largest economy — Japan — a new leader in Shinzō Abe will embark upon a massive public spending binge in a country that’s set to become the largest external holder of U.S. debt (supplanting China, which held that role for a decade, and which has seen its own U.S. dollar inflows from export trade slow over the past four years);
- Obama will want to leave office having concluded the Trans-Pacific Partnership, an ambitious trade and cooperation agreement among various North American, South American and Asian countries;
- as the United States transitions from a net energy consumer to a net energy producer in the coming decade or so, foreign policy in the Middle East will become relatively less important as the United States becomes less dependent on Arab oil; and
- for the first time in a generation or more, ‘investment’ and ‘boom,’ rather than ‘AIDS,’ ‘civil war,’ ‘famine’ and ‘genocide’ are more applicable to sub-Saharan Africa, taken as a whole — there remain major problems, but for the first time, the narrative of ‘cheetah’ economies from Nigeria to Ghana to Ethiopia has outpaced the narrative of horrors (like the ongoing violent morass in the Democratic Republic of the Congo).
All of that means Obama’s next treasury secretary — whether current chief of staff Jacob Lew, BlackRock CEO Larry Fink or someone else — will be at the forefront of the Obama administration’s foreign policy in the next four years.
Remember, too, that the chairman of the Federal Reserve, Ben Bernanke, has been more important than anyone else in the United States over the past four years in stabilizing the world economy after the 2008 financial panic, and his continued emphasis on expansionary monetary policy has implications that go far beyond the U.S. economy. His term ends in 2014, and he’s indicated he won’t stay on for a third term; minds have been known to change in Washington, but economic policymakers and investors alike will be keenly interested in the policy background and ideas of Bernanke’s successor — a choice that will likely be shaped with input from Geithner’s successor (and who may even be Geithner himself).
It’s thought that Geithner hopes to stay on to see through the United States through its current immediate budget crises — the ‘fiscal cliff’ negotiations, currently ongoing, between the Obama administration and House Republicans, to avoid the simultaneous increase of federal income tax rates and immediate spending cuts — $54.7 billion from defense and $54.7 billion from non-entitlement discretionary spending — that would otherwise go into effect on January 1, 2013, just 10 days from today. There’s also a small matter of the U.S. debt ceiling, currently capped at $16.394 trillion, which must be raised by Congress before U.S. public debt exceeds the debt ceiling, which will likely occur sometime in or around February 2013.
Jacob Lew (pictured below), currently the Obama administration’s chief of staff since January 2012, and formerly the Obama budget director from 2010 to 2012 seems the likely frontrunner to succeed Geithner. The son of a father who immigrated to Poland as a child, Lew began his career as a Democratic staffer on Capitol Hill, notably as an advisor to House speaker Tip O’Neill. In the Clinton administration, Lew worked as a special assistant to the president, notably working on the national service initiative AmeriCorps. In 1994, he left to work at the Office of Management and Budget, first as a director for legislative affairs, then as deputy director and ultimately, from 1998 to 2001, as Clinton’s budget director.
Like most potential treasury secretaries, he’s spent time on Wall Street — in 2006, he became the chief operating office of Citigroup’s alternative investments unit, a fact that may prove controversial in confirmation hearings, though he was easily confirmed as budget director, and will certainly prove controversial among the most progressive Obama supporters who lament the revolving-door nature of policy appointments for officials with ties to top private-sector financial institutions.
Unlike most potential treasury secretaries, he’s also spent time at the U.S. state department — when Democrats returned to the White House under Obama in 2009, Lew was appointed as deputy secretary of state for management and resources, where he effectively served as the department’s chief operating officer, and he’s received praise for capably holding down the West Wing while Obama sought reelection.
Investment firm BlackRock CEO Larry Fink has also appeared atop many lists to succeed Geithner, and his appointment would surely reassure top U.S. financiers on Wall Street, but his background as an investment manager for the past three decades, coupled with virtually no government experience, might make his nomination difficult. As Felix Salmon wrote last year:
I think the problem with Fink, though, is that the country has had enough of financiers at Treasury. I suspect that Obama will want Geithner’s successor to be a communicator — someone who can get through not only to the country at large (something Geithner’s never been good at) but also to Congress. And Fink is no man of the people.
Two former Clinton administration officials — deputy treasury secretary Roger Altman and former chief of staff Erskine Bowles — are also mentioned, though Altman’s background as an investment banker before his time in government and since 1996 may as problematic as the fact that he left office in 1994 after allegedly lying to Congress over a record-keeping scandal. Bowles, who served as president of the University of North Carolina from 2005 to 2010, has even apparently ruled out serving as treasury secretary, though as a fiscal hawk whose joint report with former senator Alan Simpson is the current roadmap for balancing the U.S. budget, he may be too much of a budget scold even for an administration that wants to be seen as putting the United States on a more stable fiscal footing in the next four years.
There are of course many dark horses available to Obama, including Eric Schmidt, the executive chairman of Google, and a top campaign advisor and donor to Obama, who would mark the first treasury secretary to come from the ‘new’ digital economy that has so enriched Silicon Valley. Sheryl Sandberg, the chief operating officer of Facebook, might also serve that role (no woman has ever been appointed treasury secretary, so her appointment would also be historic).
Dan Tarullo, who’s been a member of the Board of Governors of the U.S. Federal Reserve since 2009, and a former Clinton administration treasury official, might also be an option. Recently retired U.S. representative Barney Frank, who chaired the House financial services committee, and drafted and pushed into law the Dodd-Frank financial reforms that bears his name, would certainly be a colorful choice, and he comes from a background more Ocean Parkway than Wall Street — and he would also be the first openly gay treasury secretary at that.
Top photo credit to Kevin Lees — U.S. Treasury Building, Washington DC, December 2012.