Geithner adds to Obama debt woes
Tim Geithner’s promise to remain as Treasury secretary until talks to lift the country’s borrowing limit are complete prompted a quick stream of jokes in Washington that, given the state of negotiations, he might have a job for life.
Mr Geithner’s decision to signal his desire to quit comes at an awkward moment for President Barack Obama, who is facing down the Republicans in tense talks over their demand that the deal be based solely on spending cuts.
America reaches it borrowing limit of $14,300bn in early August, according to the Treasury.
Without a deal, the US could default on its debt, damaging the creditworthiness of the world’s reserve currency and potentially plunging a weak economic recovery into a new downturn.
The bitter divide between the two sides, over spending cuts versus revenues rises, makes a comprehensive debt deal difficult, possibly leaving the two parties to keep talking, tided over by a short-term agreement.
As it grapples with the debt ceiling, the administration is also struggling to find new ways to spur the economy, which has slumped in recent months after showing promising signs of recovery earlier this year.
Mr Geithner’s stature within the Obama administration has been steadily growing over the past two years and his departure risks leaving a significant void in the White House’s economic policy machine.
“His first few months were rocky, but at a certain point it became common wisdom that he was one of the most solid members of the Obama team,” says Jim Kessler, vice-president for policy at Third Way, a Washington think-tank, noting that Mr Geithner was firmly identified as a centrist Democrat.
“I would hope that if the position becomes vacant, the next Treasury secretary is someone who also falls in the moderate spectrum of economic ideology.”
The White House is searching at the same time for a replacement for Austan Goolsbee, the chairman of the White House Council of Economic Advisers, who has announced he will be stepping down in August. While the administration may welcome the chance to put a fresh face on the economy, which will be at the centre of next year’s presidential race, Mr Geithner’s departure at the very least could disrupt the debt negotiations.
“I confess I am a little baffled – the timing [of his potential departure] is odd and counter-productive,” said John Makin of the American Enterprise Institute, adding that Mr Geithner could be left as a lame duck in any talks.
In finding a replacement for Mr Geithner, the White House will be constrained by the need to select a candidate who will be confirmed by the Senate in a deeply partisan political environment.
Republican lawmakers have been willing to block or delay nominations to top economic positions – from Peter Diamond, a Nobel Prize winning economist, for the Federal Reserve board to John Bryson as commerce secretary.
They have also said they will starve regulatory bodies of budget funds, to undermine their ability to implement on the Dodd-Frank legislation, passed through Congress last year to re-regulate the financial industry in the wake of the banking crisis.
Aside from their impact on global financial markets, the debt talks also weigh heavily on the domestic economic debate – now Democrats fear that the Republicans will secure large cuts to government spending in the deal from the Obama administration, which will in turn slow the economy even further in 2012, just before the presidential poll.
However, some economists believe that the apparent failure of repeated efforts at stimulus call for a different approach.
“Maybe there is a time when the long-run benefits of cutting spending outweigh the short-term costs,” said Mr Makin.
With little room for new initiatives, Mr Geithner’s replacement might be more a cheerleader for the economy than a policymaker.
Mark Zandi, chief economist of Moody’s Analytics, said: “We’re moving into a period in which I don’t think there’s going to be a lot of economic policy being made. But I could be wrong if the economy does not co-operate and everyone goes on high alert.”