Budget, Value of Dollar Key to Treasury Success

President Bush has chosen Wall Street veteran Henry M. Paulson Jr. to be his third treasury secretary. If confirmed, he would succeed John Snow. The Wall Street Journal's David Wessel tells Steve Inskeep that the Goldman Sachs CEO can make a difference at Treasury by taming the federal budget process and the tending to the value of the dollar.

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STEVE INSKEEP, host:

The business news starts with a nominee to sign the dollar bill.

(Soundbite of music)

INSKEEP: This morning, we're learning more about the Bush administration's choice to head the Treasury Department. The White House selected Henry Paulson, who held perhaps the top job on Wall Street. Now he takes on the top economic job in Washington, assuming he is confirmed by the Senate.

Paulson is the CEO of Goldman Sachs, and now gets to tackle tax cuts, the deficit, the dollar, and how to handle China among other things. And for all that, he gets a pay cut.

David Wessell is Deputy Washington Bureau Chief for The Wall Street Journal and frequently helps us sort out developments like this. David, good morning.

Mr. DAVID WESSELL (Deputy Washington Bureau Chief, The Wall Street Journal): Good morning.

INSKEEP: I have to ask, first off, if it really matters who holds this position in the Bush administration. We know what the chairman of the Federal Reserve does and how he affects the economy. How does this guy affect the economy?

Mr. WESSELL: I think he affects it in two very important ways at this point in history. One is, the markets are very volatile at the moment, and the dollar is starting to decline, as many economists expected. And I think it's going to be important for the Bush administration to have a public figure who exudes confidence and competence at the Treasury. So managing the markets, managing the orderly decline of the dollar, that's an important job.

INSKEEP: Does the Treasury Secretary really have leverage to do that?

Mr. WESSELL: Yes. For reasons that I've never been able to fully understand, the markets seem to care about what the Treasury Secretary says about the dollar, even though the Treasury Secretary rarely - at least these days - uses his power to buy and sell dollars on foreign exchange markets to influence its value.

But I think the second thing, and its related to the financial markets and the dollar, is will he manage to help both the White House and Congress come to a more sustainable budget policy? Neither Paul O'Neill nor John Snow seems to have had much influence on the Bush administration's fiscal policy. Both of them profess to worry about the deficit before they came to office, but were unable to do very much once they became Treasury Secretary.

So it's, it'll be interesting to see if a Treasury Secretary from Wall Street -a former chief executive of Goldman Sachs - can help steer first the White House and then the Congress in the remaining years of the Bush term towards some kind of combination of tax increases and benefit cuts that puts the federal budget on a more sustainable course.

INSKEEP: So is the assumption on Wall Street that the White House needs to change course, and that Paulson might be the guy who could push them in a slightly different direction?

Mr. WESSELL: I don't know what Wall Street is assuming, but its very hard for me to see any peaceful resolution of the budget wars in Washington without some change of course in the White House - at least an openness to talk about taxes in ways other than you just need to extend the president's tax cuts.

I think that it does matter very much in the next six months what kind of relationship Mr. Paulson establishes inside the administration, because Congress isn't going to do anything of significance for the rest of this year before the election. This is all about what happens in the following two years.

And it's very interesting to me that we now have Treasury Secretary from Goldman Sachs working with a new White House Chief of Staff, Josh Bolten, who was also a Goldman Sachs partner, and has also served as Budget Director. So I think there's a possibility that these two men may have had a conversation and talked about what strategy to go forward for the next couple of years.

INSKEEP: David Wessell of The Wall Street Journal, thanks very much.

Mr. WESSELL: A pleasure.

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