Summers Time
What Obama's economic adviser is up against
I had lunch with Larry a few years ago at The Palm, the noisiest, most exuberantly political restaurant in the capital. But rather than schmooze the tables, he focused on grilling me about the odds of this or that candidate winning this or that election.
I was honored, but a little nonplussed when he pressed for specific numbers: 60-40? 55-45? Barack Obama? He never came up.
I'm remembering this about Larry because a friend of his in the Senate told me that Summers has begun to worry aloud (but not in public) about the dollar's potential deterioration as the world's leading currency.
A rapid fall could, among other things, be matched by soaring inflation.
I'm wondering what odds Summers is placing on, say, a 50 percent decline in the dollar against the euro and yen over the next five years if, as now looks quite possible, the federal government borrows (or prints) another, say, three trillion between now and then.
His odds-calculating brain has to be working overtime right now, for the credibility of the dollar is the major risk that must be balanced against Obama's just-begun effort to spend and lend us back to prosperity.
Step back from the headlines and consider some numbers for a moment:
The Troubled Asset Relief Program, the bank (and other sector) bail-out program, will soon have committed its full $750 billion. These are loans, in theory, but in fact are obligations unlikely to be paid back soon, if ever, in many cases.
Congress by February is likely to enact a nearly $1 trillion "stimulus" package, with huge spending increases and tax cuts equivalent to an extra, full year's "discretionary" federal budget.
Obama will soon unveil another credit-revival plan, this one calling for direct government acquisition of perhaps a trillion dollars or more in "bad" assets, taking them off the books of ailing banks.
The plan is to create a government "bad" bank, one that could issue its own paper, even if (as might be likely) the major buyer is the U.S. government. It's just a new rug to sweep catastrophe under.
And all of this will take place as the Federal Reserve, looking for new ways to add liquidity to the desert, considers buying U.S. Treasuries that foreign investors may be growing wary of holding.
We're not only inventing the rug, we're inventing the money to pay for it.
At some point, foreign investors may indeed become very skeptical of lending us money, at least in instruments denominated in dollars. They may doubt our ability to invent, build, grow and prosper—to create real wealth. They may think we are too weak to generate the real profits and real tax revenues necessary to pay it all back.
I doubt the wisdom of the doubters. Personally (and I'm an optimist about my country) I would never bet against our own resilience.
But it's Summers's job to worry about the consequences of failure. In President Obama's White House, Summers is the macroeconomic equivalent of National Security Advisor. He established and now runs a morning Oval Office briefing similar to the long-standing one on global military and intelligence. Given the nightmarish state of the world (and the American) economy, the president is tending to ask to hear from Summers first, and I'm wondering what he's telling Obama about the odds.
If there is no rug, and no money to pay for it, and if too much printing and borrowing risks leading us to doom, Summers must say so. What are the odds that, if circumstances call for it, he will step up?
Well, I know the guy. He is brilliant—and blunt.
I'd say the odds are pretty good: about 70-30.
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Howard Fineman is Newsweek's Senior Washington Correspondent and Columnist, senior editor and deputy Washington bureau chief. He is the author of "Living Politics," a column that began on MSNBC.COM and Newsweek.com and that now also appears in the print magazine. An award-winning reporter and writer, Fineman also is an analyst for NBC News and MSNBC, appearing regularly on "Countdown with Keith Olbermann," "Hardball with Chris Matthews" and "TODAY." The author of scores of Newsweek cover stories, Fineman's work has appeared as well in The New York Times, The Washington Post and The New Republic. His 2008 national best-selling book, "The Thirteen American Arguments," was released in paperback by Random House in the spring of 2009.
One of the nation's leading political reporters, Fineman has interviewed every major presidential candidate from (then-vice president) George H.W. Bush in 1985 to (then senator) Barack Obama early and often in the 2008 campaign cycle. His current work focuses on the Obama Administration and its top officials, as well as on Congress and politics throughout the country. Although based in Washington, Fineman travels widely in the U.S. and has covered politics and other events in 49 of the 50 states.
Fineman's work has produced many milestones and awards. A cover story in November 2001 featured President George W. Bush's first extensive interview after 9/11. Another cover, "Bush and God," was part of a series of articles that won the 2003 National Magazine Award for General Excellence. His reporting has helped Newsweek win many honors from the Magazine Publishers Association and the American Journalism Review. Other awards include a "Page One" from the Headliners Club of New York, a "Silver Gavel" from the American Bar Association and a "Deadline Club" from the Society of Professional Journalists (SPJ). In 2006 he received the Alumni Award from Columbia University's Graduate School of Journalism.
As a reporter and writer, Fineman ranges widely. Besides campaign-year covers, other projects have included: race and politics, the impact of digital technology on society, the influence of Hollywood on politics, the rise of the religious right and of conservative talk radio. He has interviewed business leaders such as George Soros, Bill Gates, Steve Case and Robert Rubin and entertainment figures such as Warren Beatty, Jane Fonda and Jay Leno.
Although now under exclusive television contract to NBC, Fineman over the years has appeared on major public affairs shows, such as Nightline, Face the Nation, Fox News Sunday, Larry King Live, Charlie Rose and the NewsHour. He was a regular panelist on Washington Week in Review on PBS (1983-95) and on CNN's Capital Gang Sunday (1995-98). He worked with Ted Koppel on Nightline specials, and has been a guest on Comedy Central's "The Daily Show with Jon Stewart" and "The Colbert Report."
A native of Pittsburgh, Fineman began his career at The Courier-Journal in Louisville, covering the environment, the coal industry and state politics before joining the newspaper's Washington bureau in 1978. He moved to Newsweek in 1980, was named chief political correspondent in 1984, deputy Washington bureau chief in 1993, senior editor in 1995 and senior Washington correspondent and columnist in 2008.
Fineman holds an A.B., Phi Beta Kappa, from Colgate, an M.S. in journalism from Columbia and a J.D. from the Brandeis School of Law at the University of Louisville. His legal education included a year as a visiting student at the Georgetown University Law Center. He received Watson and Pultizer Traveling Fellowships for study in Europe, Russia and the Middle East, and has traveled to more than 40 countries, among them China, Vietnam, Japan, Ukraine, Israel, Turkey and the West Bank Palestinian Territories.
Fineman is married to Amy L. Nathan, a senior counsel at the Federal Communications Commission. They live in Washington with their two children, Meredith and Nicholas.
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