Timothy Geithner Photo: AFP
It should not have been a surprise that US Treasury Secretary Timothy Geithner veered between fits of laughter and a tone of chilling gravity when he spoke to the Council on Foreign Relations in Washington this week.
The only member of President Barack Obama’s original economic team still in office, Geithner must surely have a full-blown case of crisis fatigue. When he became the 75th Treasury Secretary in early 2009, the epicentre of the crisis was on Wall Street and rippling out with devastating effect across the rest of America.
As he embarks on his final five months – Geithner has said he is quitting even if Obama wins another four years in the White House – the darkest clouds are coming from across the Atlantic.
Although Europe is not causing the sharp gyrations in US stock markets that it did in the late summer and early autumn, there is evidence that it is again eroding the confidence of American businesses and consumers. Retail sales fell for a second month in May, in a worrying sign that consumers are themselves starting to respond to indications that the economy is losing momentum.
Forecasters have already scaled back hopes for US exports because of Europe’s woes. Economists at Morgan Stanley, for example, predict exports will climb just 3pc this quarter compared with an original expectation of 8pc.
Geithner told his audience that European governments are constantly turning to policymakers in the US for ideas and suggestions on how to extinguish the immediate financial fires on the Continent while at the same time moving the 17 countries in the Eurozone towards closer political and economic union.
The latter challenge might have been better addressed by Alexander Hamilton, the first Treasury Secretary and one of Geithner’s most illustrious predecessors. Hamilton, who died in a pistol duel in 1804, is credited with equipping America’s earliest government with central taxing and spending powers.
The chief advice of the current incumbent of the vast Treasury building in Washington to his European counterparts is to stay ahead of financial markets and act boldly. Geithner is drawing on the first months of the Obama administration, when all the country’s major banks were forced to take an injection of capital from the US taxpayer to shore up confidence in the financial system. But it is easier to act boldly when there is a single fiscal authority – something every Treasury Secretary has, more or less, enjoyed since Hamilton.
As it is, the headwinds from Europe, alongside the still slow recovery here, risk putting Obama and Geithner permanently on the political back foot with the election five months away.
The one respite – and not just for the US economy – is that oil prices have responded to weaker growth how economic textbooks suggest they should. The price of a barrel of crude is down 17pc so far this year, while drivers in the US are paying 10pc less for a gallon of gasoline than they were when prices reached the high for the year of $3.94 at the start of April.
“It’s a silver lining,” says Chris Christopher, an economist at IHS Global Insight. “It is creating a little bit of a cushion for the consumer and the worst thing that could happen right now is for oil prices to start increasing.”
The concern is that the oil price easily could rise. The price of a barrel of oil could race past the $96.33 it fetches today should simmering tensions over Iran’s nuclear programme heat up over the summer. Like Europe, it is another variable The White House and the Treasury have no real control over.
It is a frustration that Obama and Geithner have become painfully familiar with in domestic US policy since the Republicans won back control of the House of Representatives from the Democrats in the mid-term elections in November 2010. The political disputes that have followed – some of which stem from genuine disagreement between the parties on the role and size of government should have in US society – leave the Federal Reserve as the one centre of economic power in Washington that can act quickly. Should the economy slow further from here, bet heavily on a fourth round of stimulus from the Fed.
Given the scale of the economic, political and financial challenges facing Europe, it is understandable that officials have turned to Washington for help. But there are lessons from the Continent that politicians in the US should be heeding too. The failure of The White House and Congress to agree on a plan that reins in the trajectory of America’s long-term debt while, at the same time, preserving growth is poised to haunt Americans at the end of the year.
At the end of December, a combination of the expiration of tax cuts first introduced by President George W Bush, and a set of spending cuts, risk sending the US back into recession. It is a moment that will require the occupant of The White House and Congress to act boldly and deliver the plan on growth and the deficit that has eluded them over the last 18 months.
And, unlike the 17 countries grappling with historic problems in Europe, the US has far fewer excuses for failure. Hamilton would tell them that.