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Likely Treasury chief Lew faces early budget tests

Published on NewsOK Modified: February 12, 2013 at 4:45 pm •  Published: February 12, 2013
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House Republican officials who negotiated with Obama's team over a deal to raise the federal debt ceiling in 2011 have accused Lew of using budget gimmicks to demonstrate phantom cuts in spending.

"Lew is obviously very knowledgeable on budget matters, but he may lack the diplomatic skills to forge a compromise with Congress," said Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University.

But Collender said he saw the Republican criticism as signaling that Lew was a tough negotiator.

Lew will enjoy at least one major negotiating advantage — his close relationship with Obama. Lew would be the first Treasury secretary to take the job after being a president's chief of staff since James A. Baker III served as Ronald Reagan's chief of staff before becoming Treasury secretary in 1985.

"When Jim Baker spoke, you knew he had the total confidence of President Reagan," Collender said. "Lew will be in a similar position. Lew has been as close as any White House staffer to Obama."

Beyond the budget, Lew is expected to hew closely to the positions Geithner struck on such issues as Europe's debt crisis, the U.S. relationship with China and the administration's defense of the Dodd-Frank financial overhaul law that the banking industry has fought to weaken.

"I don't see anything creative in terms of dealing with these issues," said Brian Bethune, an economics professor at Gordon College in Wenham, Mass. "That is the downside when you choose an administration insider who is loyal and will likely toe the party line."

One potential weakness for Lew: His relative inexperience with financial markets and international economic crises — areas that had played to Geithner's background.

Lew did serve briefly as chief operating officer for Citigroup's alternative investments unit starting in January 2008. The unit was later criticized for its use of investment vehicles that hid mortgage risks outside the bank's balance sheet and for operating risky hedge funds that imploded during the 2008 financial crisis.

Citi was pummeled by the crisis and was rescued with the help of $45 billion in taxpayer aid — money the bank has repaid. Lew's defenders say that by the time he showed up to take charge of the alternative investment unit, most of the bad decisions had already been made.

Analysts think Lew will keep pressuring Europe to deal aggressively with its budget and debt issues. But they suggested that this will consume less of Lew's time given that Europe's debt crisis now poses less of a threat to the global economy.

On trade, Lew is expected to keep prodding China. The U.S. trade gap with the world's second-largest economy hit another record high last year. No breakthrough is expected, though.

Lew will also need to calm investors who have grown concerned about possible currency wars after Japan's new government sought to lower the value of the yen as a way to boost exports and its weak economy. A weaker yen makes Japanese goods cheaper overseas and foreign goods costlier in Japan.

Japan's steps have alarmed officials from Latin America to Asia and Europe about the possibility that more countries will seek to manipulate their currencies to gain trade advantages. The issue is expected to be raised when finance ministers of the Group of 20 major economies meet in Moscow this week.

Lew will also need to defend the Dodd-Frank Act, which overhauled financial regulation after the 2008 crisis. Since the law was passed in 2010, Wall Street has fought to weaken many of its stricter regulations.