It's that time again--the G8 ministers of finance get together for another face-to-face conversation, this time in Italy over the coming weekend. (Aside: the central organization at work is actually the G7, but the Russians get to join when the ministerial meeting is ahead of the annual G8 heads of government meeting). The G7, which first convened in the 1970s to guide the global economy after the breakup of the Bretton Woods fixed exchange rate system, seems increasingly irrelevant (and adding Russia, after the collapse of communism, added little).
If there's one political blemish on Barack Obama's first four months in office, it's that he's losing the budget debate. Democrats are openly worrying about the red ink. Republicans have taunted Obama as less fiscally responsible than his predecessor. (House Republican John Campbell compared George W. Bush's deficits to a "couple of drinks," and Obama's to "falling down, throwing up and wasted.") The administration's hasty budget-cut announcements (first $100 million, then $17 billion) show signs of panic. But Obama's budget is actually ... pretty responsible.
President Obama is on his way to Saudi Arabia, and Secretary Geithner is done with his major initiative in China. In part, this is just the U.S. normalizing its relations with the rest of the world and rebuilding some basic diplomatic niceness.
On his China visit, Secretary Geithner is immediately on the defensive. The language he is using on the Chinese policy of exchange rate undervaluation-through-intervention is the mildest available. And the commitment he is making, in terms of bringing down the U.S. deficit--which we all favor--is an extraordinary thing to put numbers on in a foreign capital. Such commitments are of course unenforceable, but still the wording indicates--and is understood by China--great U.S. weakness. Not surprisingly, China seems likely to push for more. Their main idea is that some part of their U.S.
This week the administration begins a serious behind-the-scenes charm offensive on its regulatory reform plans. The argument seems to be: we are where we are on banks' solvency/recapitalization, so let's not argue about that; it's time to strengthen financial regulation in line with our G20 commitments. But there is a serious dilemma lurking behind the foreshadowing, the rhetoric, and the talking points. (Aside to Treasury: please find somone other than big financial players to endorse your next 100 days report; many taxpayers will find p.5 of your first report particularly annoying--if you d
The public relations campaign packaging the bank stress tests is kicking into high gear and our professional information managers are really hitting their stride. They face, of course, a classic spin problem: you need to get the information out there, but you don't want to be too definitive on the first day or soon after--if you're easy on the banks, that looks bad; if you're tough on the banks, that might be dangerous. The best way to handle this is by jamming your own signal--which they are starting to do in brilliant fashion. To the WSJ you leak that BoA needs to raise a great deal of capit
The bank stress tests are beginning to create a perception problem, but not--as you might think--for banks. Rather the issue is top level Administration officials' own optics (spin jargon for how we think about our rulers). At one level, the government's approach to banks--delay doing anything until the economy stabilizes--is working out nicely. This is the counterpart of the macroeconomic Summers Strategy and in principle it is brilliant.
If you haven't picked up on one of the dozens of recommendations from other blogs, I recommend reading Phillip Swagel's long and detailed account of the view of the financial crisis from his seat as assistant secretary for economic policy at the Treasury Department. It's particularly useful for people like me who make a habit of criticizing government officials. The writing is dry, but much of the subject matter is fascinating. It often explains or defends Treasury's actions during the crisis, but Swagel certainly owns up to plenty of mistakes or shortcomings.