Friday, November 7, 2008

From Euphoria to Depression

Yes, Obama is still president-elect, but the U.S. economy lost 240,000 jobs last month, retail sales have collapsed, Paul Krugman sees Japan-style liquidity trap and 0 interest rate ahead, and the Chinese finance minister has rushed home from Peru to deal with the crisis.

And Europe in all this? And France? Look for another cut in ECB rate soon. I expect that by the time of the G20 meeting later this month, Obama will have named his Treasury secretary (my guess: Tim Geithner). He will be looking for European and Asian interlocutors. With all due respect to Sarkozy and Lagarde, I don't think they fit the profile (lawyers by training, their specialty is dressing up the bottom line, not calculating it). Gordon Brown, an old hand at Exchequer, is a much more likely partner, and more in tune with American ways. Sarkozy's effort to erect a Franco-American Special Relationship may founder, as so many fond hopes have foundered, in the economic maelstrom. Of course there may be someone at a lower level in the French hierarchy, a technician of genius, a French Keynes, who could help the new American administration think through its dilemma. I don't know who that might be. Perhaps some knowledgeable reader does. (To be sure, in back of DSK at IMF there is chief economist Olivier Blanchard, but he works for the IMF, not for France.)


Unknown said...

My guess is that you've got it more or less right. Sarkozy's game with the British will founder for the simple reason that the overwhelming thing on Gordon Brown's mind, ultimately, will be to preserve the City - I can understand, having worked there for some years, how major a contribution to British and London's GDP financial services including insurance make. Eventually, reality will intrude onto dreams, namely Germany, which is politically and bank-wise in a poor state, but which does have a large current account surplus and room for maneuver on the budget. At that point, Sarkozy will belatedly realize that it is useful to speak both English and German, which DSK does. He will also realize that people that you patronize sometimes feel patronized. Now, his thing with Obama reminds me of a memory: you see, I used to know Mitterrand, and when I told people so, they were extremely impressed. But then, I might tell some: "did Mitterrand know me?". You know what I mean.

Last, if Geithner, does that mean Summers at FRBNY ? Do tell!!!!

Unknown said...

My thinking on Summers is that, while he might well be the best man for the job, his appointment would be too controversial for a first cabinet appointment--for the wrong reasons, to be sure, but still, Obama is cautious and will hesitate. Summers himself likes Geithner, and Geithner gets on with Bernanke, whom I think Obama will keep. So, Geithner. Summers could get a special advisory role, perhaps bailout czar, or head of the National Recovery Administration Redux that is no doubt in the works. It will be fascinating to watch.

FrédéricLN said...

Er, I just applied on ;-)