Hank the Tank’s answer to America’s deficit: more prayer, less healthcare

The markets are jumpy, the dollar is tired, and Alan Greenspan has sunk below the horizon. Now more than ever the dollar needs a top-class spokesman, and in Hank the Tank it may have found one. Henry Paulson, boss of Goldman Sachs, lion of Wall Street, took some persuading to jump ship and serve as George Bush’s new Treasury secretary, but in the end the sentimental lure of seeing his name on dollar bills proved too much. After all, he owns 700 million of them himself. He seems to think that he will get a say in making economic policy, unlike his two ineffectual predecessors at Treasury, Paul O’Neill and John Snow, whose role was limited to talking policies up. Good luck to him, but the Bush administration has only two and a half years left, and its room for manoeuvre on fiscal policy is all but spent. Paulson, however brilliant his ideas, is not going to change George Bush’s fortunes in any big way, which accounts in part for the general warmth of his welcome. Even Democrats can applaud him.

Commentators have compared Bush’s appointment of Paulson with Bill Clinton’s appointment of Robert Rubin, a previous Goldman Sachs boss, to the same Treasury job in 1995. Bush, like Clinton before him, wants a bigshot banker who can explain Wall Street to Washington and vice versa. But Paulson has a trickier time ahead than Rubin ever did. When Rubin took over the Treasury in 1995, a Republican-dominated Congress had already forced Clinton’s hand in favour of deficit-cutting policies, which helped support a strong dollar. Paulson inherits a big budget deficit and an even bigger current account deficit. Between them, they are almost bound to bring the dollar down whatever else the government does or says. Paulson’s job is to manage the decline gracefully, which is roughly the equivalent in monetary terms of herding cats along a tightrope in time to music.