When Europe and the US were bickering about what to do in the wake of the financial and Eurozone crises, the US Treasury’s go-to “bad cop” was a little-known but influential career official called Mark Sobel.
Sobel first joined the Treasury in 1978, when Jimmy Carter was president. He then served under Ronald Reagan, George Bush Sr, Bill Clinton, George Bush Jr and Barack Obama. He was the main Treasury official in charge of international policy from 2000 to 2015, and then served as the US representative on the IMF’s board up until 2018. Sobel is now the US chair of OMFIF, a think-tank.
Given everything going on these days, Alphaville thought it would have a chat with a man who had a first-row seat to the making of much international financial history since the 1990s. This interview has been edited for clarity and brevity.
Hi Mark. What’s the mood in DC like these days?
Well it obviously depends on who you’re talking to. But the DC-Maryland-Virginia suburbs have a lot of highly-educated people, many of which work or have worked in government, who are interested in public policy and are strong supporters of institutions and democracy. Some people in my neighbourhood lost their jobs due to Doge and are selling their homes. I’d say a strong majority is fairly depressed these days.
What about specifically in financial and economic policymaking circles?
It’s not going to be a surprise to you that there are a lot of people there that believe in free trade. That’s not to say that there aren’t problems with the international trading system. But people believe in free trade. They don’t believe in tariffs.
On the fiscal side, there’s a lot of worries about fiscal sustainability. But fiscal policy isn’t just about stabilisation, it’s also about distribution, and obviously, the distributive aspects [of the Trump administration’s budget] are weighing on people’s minds. The fact that the tax cuts are skewed in a way that isn’t supportive of the bottom quintile is quite troubling to people.
There is strong support for Fed independence, to say nothing of protecting our institutions and the rule of law.
Finally, people find the immigration policies to be cruel and vindictive. So I think there are a lot of concerns about the direction and course of economic policy.
A nice third-person overview of the vibe in DC these days, as befits a former civil servant. You spent your entire career at the Treasury right?
That’s right. With my skillset the only other thing I could have done in life was flip burgers at McDonald’s [Sobel has degrees from Princeton and Johns Hopkins, where he focused on politics and economics], so it was a pretty good place to stay.
How and why did you first join?
I lived a bit overseas as a child, and maybe that gave me an international outlook. And it was after Bretton Woods had broken up, the European ‘snake in the tunnel’ was always blowing up, and OPEC was riding high and mighty. I thought currency crashes were pretty interesting. I wouldn’t know an equation if it hit me in the face, but I thought the politics of it all was incredibly interesting.
I was applying for jobs and would have taken anything I got in the government, but I got super lucky. I’d just turned 24 and was ushered on to the international side of the Treasury and there I stayed.
What were the most memorable moments?
I’d have to say that the most exciting memories of my life are from the global financial crisis. I got to play a major role in the first G20 summit in November 2008. We had three weeks to do that. The action plan was all about finance sector stuff, so it fell to us at Treasury to take the lead.
Then Obama and [Treasury secretary] Tim Geithner came in, but the politicos weren’t in place yet, so I had the privilege and honour as a civil servant to serve as the G20 deputy. At the time, the Treasury secretary and the president sat at the main table of the summits, so at the G20 in London — probably the most consequential G20 summit that there ever was — I got to sit right behind the president of the United States and Gordon Brown. How cool is that?
Pretty cool. But what was the best bit?
My favourite memory was when Tim introduced me to the president, and said that I was “the mandarin’s mandarin”. I think that it was a compliment.
What are these meetings like in practice, being in the thick of it?
The plenary sessions with finance ministers and central bank governors tend to be nice hunky-dory conversations. People don’t really go after each other. That happens in the communiqué sessions. That’s where the rubber meets the road.
I used to do the communiqués and could scrap with the best of them. Personally I found communiqué scrapping tedious, but it can be pretty interesting. You really smoke out where your counterparts stand.
What do outsiders not realise about these G20 summits that they should?
The G20 did a fantastic job in the aftermath of the global financial crisis, and that’s true. Everyone says that the G20 is now a bit of a snooze. And I agree, the G20 has lost it’s mojo. It has become incredibly bureaucratic. But there is now a machinery in place.
So even if the G20 has lost its mojo, we now have the machinery to handle things when the next crisis hits. And the next crisis will hit. They always do. Maintaining these connections is important.
You had a reputation as the Treasury’s bruiser at a lot of these sessions.
Gee I always thought I was a kind and gentle kind of guy! But as I said, the communiqué negotiations were where the rubber meets the road, and the US always paid attention to the words we agreed to. If I messed up, I’d hear about it from on-high.
So there were hot debates with the Germans regarding growth versus austerity, and with the Chinese over exchange rate issues. There could also be frosty fallouts over our foreign exchange reports.
Yes, there were frequently disagreements. But I hope that at the end of the day my counterparties will agree that I compromised and — I hope I’m not flattering myself here — that I knew what I was talking about, that I was straightforward and honest, and that I was a multilateralist at heart, who defended the postwar system that the US had created.
Right now we are shamefully eviscerating it. From today’s vantage point, I may actually look good to some of my counterparts in retrospect.
Speaking of that, how worried should do you think we should be about not only the fraying of the international system but its disintegration?
It deeply bothers me that we’re not being a good ally and partner. I think the tariffs are going to be economically costly, I worry about fiscal sustainability, and what could happen to financial markets. I worry that we and China don’t appear to be able to better manage our differences.
I do worry a lot about where we are heading, and that we’re not managing it well.
Do you think this will prove just an aberration caused by the Trump administration’s approach, or are we entering a new era?
I don’t think you can put the genie back in the bottle. Maybe relations can improve again afterwards [when Trump leaves office], and things will be less contentious. But I think that some of the centrifugal forces that are driving us apart are here to stay.
When it comes to economic statecraft, are there some aspects of the Trumpian view of the world that you have some sympathy with?
Well, there’s China. The US position on China started hardening substantially in the second Obama term. Trump has put that on steroids, but that’s a legitimate area of concern.
They’ve talked about mission creep at a lot of institutions, and the importance of getting back to basics, and that’s also fair.
The US spends way too much time blaming foreigners for things like trade deficits, given that our fiscal policy is a big part of the problem. But others have also engaged in harmful currency policies, or run economies that are excessively skewed towards high savings and exports, and I think those are legitimate issues to address. US calls for the IMF to focus more on global imbalances and developing country debt and transparency are therefore fair.
Europeans have needed to step up more on defence, where there are definite issues. And I’m not going to sit here and tell you that the trading system is fair. I appreciate that there are huge issues with the WTO that both Democrats and Republicans would agree on. So I think there are some areas that are fair to pursue.
Conversely, what are the aspects of the Trump administration’s approach that worry you the most?
Trade. Trade trade trade. And then the way we are treating our allies and partners. The attacks on the rule of law, the Federal Reserve — and other institutions — are bad. The way they are handling immigration is cruel, wrong and demeans America’s reputation. And again, I think we need to find a way to deal with China more constructively.
Then there are more prosaic issues, like the dollar. I think our poor fiscal policies, attacks on trade, disrespect for allies, assaults on institutions and the rule of law are weakening the underpinnings of dollar dominance. While there is no viable alternative to the dollar for the foreseeable future, we are possibly hastening the erosion of its dominance and that will create more volatility and uncertainty in global markets while harming American prosperity.
I have trouble with the administration’s attitudes towards foreign assistance and aspects of its dismantlement of aid. The treatment of the South African G20 presidency was disgraceful. Its worries about BRICs are farcical. Its retrograde climate policies — especially on renewable energy — are extremely harmful to international efforts to curb emissions. We need more international tax co-operation, not less.
I’m also weary that in the effort to push crypto, stablecoins and financial deregulation, our regulators and supervisors will go too far and forget the lessons of the Global Financial Crisis.
And I worry about fiscal dominance. We’re going to have these large budget deficits, and they’ll eventually put real pressure on the bond market. The politicians then don’t want to take responsibility for getting our fiscal house in order, something breaks and the result is fiscal dominance.
Is there a real danger of a so-called ‘Truss Moment’ for the Treasury market, which is — let’s face it — more important globally than the gilt market?
Our debt-to-GDP ratio is about 100 per cent, and over the next decade it’s forecast to go to about 130-135 per cent. My first instinct is that the US can manage that.
But then you have fiscal deficits staying at about 6 per cent of GDP, which means a lot of bonds are going to be hitting the market. If foreigners stop or pare back their buying, how much upward pressure could that create? Quite a bit perhaps.
While we could see the bond vigilantes returning, I don’t see a Truss moment per se. But we could still see some real bouts of ‘sturm und drang’ in the Treasury market in the next few years.
It feels like we’ve been talking about America’s dangerous debt trajectory for 20 years though. Could we end up talking about it for another 20 years without any major mishaps?
Maybe we can. The Bank of Japan owns over 50 per cent of the Japanese government bond market. That’s fiscal dominance. But I don’t see the Fed being willing to do what the BoJ has done.
And our interest bill is soaring. Something has got to break sooner or later, and then you’ll have plenty to write about.
Touché.
Charlie Bean [formerly the Bank of England’s deputy governor] once told me that crises are terrible for people but they make for interesting policy. And so it has proved.
So what would you do if you enjoyed omnipotent power over US government financial policymaking?
We collect about 17-17.5 per cent of GDP in revenue at the federal level, and we’re spending 23 per cent-ish. I’d say we need to get the deficit down to 2.5 per cent, or something like that.
In 1990 George Bush gave up his no-new-taxes pledge, convened a budget summit, came up with a plan, cut spending and raised taxes. Clinton then built on that. In a sane world, the Democrats and Republicans would sit down together again, come up with a plan to raise taxes to maybe 20 per cent, and tackle the growth of entitlements. Having worked at the IMF, I’ve seen emerging market countries do this. We should be able to do it as well.
I don’t like tariffs and whatnot, and I’m a big believer in Fed independence. So those are three things I’d do at least.
Sounds a little bit like a return to sane, normal economic policymaking.
Nothing wrong with that.
