The Geithner Legacy

Had to put in a blurb before I sign off for the weekend. How would you rate Tim Geithner? How does one rate Treasury Secretaries? Is it easier to rate Central Bankers instead? Ben Walsh had this on Geithner:

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Step One in the Tim Geithner Legacy Project is complete: Barack Obama delivered a ringing endorsement of the Treasury secretary, who’ll be stepping down on January 25. Here’s the president:

“With the wreckage of our economy still smoldering and unstable, I asked Tim to help put it back together. So when the history books are written, Tim Geithner is going to go down as one of our finest Secretaries of the Treasury.”

Step Two: favorable consensus opinion. Neil Irwin writes that Geithner was “one of the most important Treasury secretaries in history” — he agrees that Geithner’s primary task was to “stop the bleeding” and that Geithner’s experience at the NY Fed made him a highly capable financial first-responder.

Joe Weisenthal pulls a chart from the Oregon Office of Economic Analysis that puts Geithner’s tenure in perspective: compared to previous financial crises — and compared to other countries recovering from the current crisis — the US job market has rebounded relatively quickly. Politico joins in the praise, and includes this gem from a former colleague: “If anything, he was quite focused on the pain the country was suffering”.

Not everybody is so positive, however. Paul Krugman isn’t sad to see him go: “Geithner has consistently been a voice urging the president to cave in for fear of upsetting the markets, with no real concern for the dangers of giving in to blackmail.”

And Binyamin Appelbaum tweeted his own take on Geithner’s legacy by pointing to an August piece headlined “Cautious moves on foreclosures haunting Obama”. The administration, Appelbaum wrote, “tried to finesse the cleanup of the housing crash”, and that caution hurt economic growth. (You can read more on the Obama Treasury’s troubled housing legacy hereand here.)

What’s Step Three? Geithner told Charlie Rose that he’s unlikely to write a book after leaving office, and he’s equally unlikely to want to stay in Washington as Fed chairman. So maybe he’ll just work on his jump shot for a while before taking that inevitable highly-remunerative job at BlackRock. 

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I didn't think much of Geithner initially but I'm looking at this from a sporting perspective, literally. The NBA, MLB and NFL that I'm aware off, have a metric that determines the impact of a replacement. i.e: how valuable a player is can be assessed by replacing him with an average player and seeing the impact it has on a team. Of course, that's impossible to do without statistics, but I'm not convinced of the significance of the difference it would have made. A difference - yes, maybe. Just how much of a difference is a matter more of opinion and less of numbers. 

The Independence of the Central Bank

I don't know whether it was more of Abe's victory and the consequences for the BoJ or the whole fiscal drama in the US leading to a #mintthecoin discussion but there seems to have been a huge burst of discussion in the blogsphere on whether central bank independence is a requisite - shouldn't it depend on the economic circumstance. Furthermore, would it be worth sacrificing the credibility of the institution and make it hostage to electoral cycles at the cost of a more favorable monetary-fiscal policy interaction? You get the point, because there are just too many to state; so here are some of the good reads out on this:

-  As mentioned earlier, Gillian Tett had a piece out where she dwells on monetization for a second and focuses on the McCulley-Poszar paper.

- Gavyn Davies has somewhat of a contrary argument to the general opinion that's been disseminating from the blogosphere and academia. He claims that this talk of 'political dominance' is somewhat premature and goes on further to argue that the opposite is happening in the rest of the world (minus Japan). He concludes by admitting that fiscal dominance may well and truly be an issues once a tightening trend forms by central banks.

-  Stephen King, the HSBC CE has a short piece stating that consciously and willing or not, central bankers are being dragged into the political fray. His main point starts with an analogy that even if the BoJ has a 2% target does that mean they will hit it (Does Aston Villa have the necessary team to win the title?). What if this leads to an increase in the deficit in the form of bond sales to the central bank? Would this lead to a change in public mindset? Irrespective of what follows, at that point, King writes, its politicisation would have been complete.

-  Tim Duy has a sort of aggregated piece at Fedwatch. His bottom line is that the concept of central bank independence has always been more of an illusion than reality because ultimately, the monetary authority is the creation of an electorate (true). Ultimately, this perception of independence is perpetuated as long as its actions follow conventional and situational public wisdom. As of now, just as Davies states, Duy thinks that except for the BoJ, fears are largely unfounded. 

-  Greg Ip at Free Exchange has a detailed explanation of the platinum coin drama, what it entails and how it will theoretically play out in the monetary base etc. Of note is his plea for students to be taught the Romer IS-MP model (a flatline) rather than standard IS-LM so that they realize how it applies in the real world. All in all, this is a must read.

-  Isabella Kaminska at Alphaville has a quirky piece on the "transient necessity" of CB independence. She argues mainly not whether independence is necessary or not but that if ever there was a time to determine this, this is it. She quotes heavily from the McCulley-Pozsar paper and simplifies it by first assessing the context and 'mood' of the private sectors. Hate to say it, but this is a must read too if you want to skip the actual paper.

-  Leika Kihara for Reuters in Tokyo had a post-election piece that I missed a couple of weeks ago with this telling quote that sort of justifies why the BoJ is causing monetary authorities everywhere some concern - "The LDP's win was just too big, and it won an election calling for a 2 percent inflation target. If that's the will of the people, the BOJ must respect that," said a source familiar with the central bank's thinking. "Otherwise, the BOJ could lose everything, including its independence."

This is a detailed and well-constructed piece that asks what will happen in a post-Shirakawa BoJ.