Daily Archives: January 10, 2012

The unexpected departure of Bill Daley as Barack Obama’s chief of staff and replacement by Jacob Lew, director of the Office of Management and Budget, is a setback for economic policy going into a critical period. But it also presents the president with an opportunity to improve his case for re-election.

Mr Lew will have no difficulty filling Mr Daley’s shoes. He has significant government experience both at OMB and the State Department. However, his departure leaves the OMB, which has primary responsibility for drafting and implementing the federal budget, without a leader at a time when budget issues are unusually sensitive, both economically and politically.

Democratic partisans will question whether Mr Lew, who is known principally as a technocrat, has the political skills to be chief of staff during a presidential election year. While his managerial skills are unquestioned, Mr Lew has never been known as a “politico”. Mr Obama may need to bring in a seasoned political operator in a senior capacity to fulfil that function.

While there is obviously danger in being forced to make a major staff change at an inconvenient time, Mr Obama may benefit by having an opportunity to set a new tone and direction. In Mr Lew he has someone he can rely upon, who is well versed in the issues upon which his re-election will succeed or fail. It could be a blessing in disguise. Continue reading »

Another day and another previously unthinkable development becomes reality in Europe. Yet what on the surface appears to be good news for Germany – the record low yield at its latest government debt auction – is actually an indication of growing stress elsewhere in the region.

At Monday’s regularly-scheduled auction, the German government sold six-month securities at a negative yield of 0.012 per cent. Investors who bought them made history. Rather than receive interest income for lending money, they opted to pay the German government for the privilege of converting their cash into securities that, at the margin, are less liquid and subject to mark-to-market volatility.

But German rejoicing for borrowing money at negative rates should thus be tempered by the reality of Europe experiencing an accelerating disengagement of the private sector from the region’s economic integration project. This undermines growth and employment, shifts more of the load to taxpayers, and places even greater demands on creditor and debtor countries alike – all serving to aggravate an already-strained process for agreeing on the appropriate policy response and related burden sharing. Continue reading »