Global landscape

‘The world is on the edge right now’: Jack Lew on a risky global landscape

By BEN WHITE

The Trump administration has gotten lucky so far on the economy and in the stock market, according to former Treasury Secretary Jack Lew.

In the latest POLITICO Money podcast, Lew said President Donald Trump inherited a good economy and has benefited from a remarkable period of calm in global politics and economics. But it could all come unglued in 2018 with a flare-up in North Korea, a White House-sparked trade war or a big run up in deficits.

“They’ve had a lot of luck so far. We, in our first few years and for a long time, there was a crisis that exploded that you just had to deal with,” Lew said from his office at investment firm Lindsay Goldberg in midtown Manhattan. “The world is on the edge right now but is not breaking through on most of those issues. The question is what happens if one of those crises actually switches from being potential to real.”

Lew suggested that markets, which continue to hit new records under Trump, may have developed too much of an assumption that placid conditions will continue.

“The thing I don’t have a good explanation for is the tolerance the markets have developed for uncertainty that used to rattle them more than it does now,” said Lew, who previously served as White House chief of staff and budget director.

“You look at the number of things where it’s kind of binary — whether things are really good or really bad, whether it’s North Korea, the possibility of trade wars, future deficits in the U.S. — the range of issues that have in the past made markets nervous, it seems they are kind of treated as a new normal.”

Lew also spoke about the 2016 election and how he feared Hillary Clinton was headed to a crushing loss.

“I had a bad feeling before the election,” he said. “I can’t say I expected it, but I can’t say I was completely surprised. I did not treat it as a done deal. The fact that President Obama went to Michigan on a rather urgent basis just a few days before the election was a bit of a canary in the coal mine that things weren’t where they needed to be.”

Lew stayed in Washington on election night to monitor potential market reaction to a Trump win. And he tried to boost spirits at the White House — including Obama’s — the day after.

“I went into work the next day, I went to the White House to the morning meeting, I went to Treasury to the morning meeting,” Lew said. “And I tried to kind of buoy people’s spirits with a bit of a historical recollection, that a lot of them who were younger than me hadn’t experienced crushing election outcomes. And the country survived and we survived and the pendulum swung back. You take two steps forward, you take a step back.”