Jack Lew, Economic Dictator

NEW YORK (TheStreet) -- Jack Lew has spent his working life seeking orders, not giving them. He spent most of two decades on Capitol Hill, and has spent most of the last five in the Obama White House, seeking consensus or carrying out others' orders.

That will change Oct. 17, unless Congress acts before then. On Oct. 17, Treasury Secretary Jack Lew becomes America's "economic czar."

TheStreet hasn't really written about Lew as Treasury secretary. Our last story on him is dated from December, when Joe Deaux went over his resume upon his nomination.

For most investors, Lew is a blank slate. But he's about to become a blank slate with enormous power.

That's because, despite the dire warnings coming from the White House about our inability to pay or even prioritize our debts after the 17th, the United States remains a cash-flow machine. We take in about $225 billion in taxes each month, and owe $36 billion in interest each month.

The Treasury secretary is in charge of paying the nation's bills. Once the debt ceiling is reached, the Treasury secretary must decide which bills will be paid and which won't, or whether something else will happen.

There are ways out of the bind, but they all involve breaking some fundamental law. Any refusal to pay interest violates the 14th Amendment. Borrowing from the Federal Reserve violates the Federal Reserve Act. Ignoring the debt ceiling violates the Second Liberty Bond Act of 1917, which established the ceiling.

Lew refuses to say which he'll do. He accuses the Congress of "playing with fire," but that's been obvious for weeks now. He has said that failure to pay all bills "hurts everyone," but that's also stating the obvious.

It's an economic Sophie's Choice. But on Oct. 17, the choice has to be made. The administration's political enemies stand ready to cry foul no matter what Lew does. Any action could be construed as an impeachable offense.

That is not what Lew was trained for.

Jack Lew has spent most of his life as a political operative. His biography lists him as an aide to the late Rep. Joe Moakley in 1974, when he would have been a newly minted high school graduate.

Lew then went to Harvard and Georgetown Law, and emerged as a senior adviser to then House speaker Tip O'Neill. After Bill Clinton's election he moved into the White House, and then spent his political exile at New York University and with Citicorp.

While Lew is great at pushing and prodding others toward a decision, in both the legislative and executive branches of government, he has never been "the decider" before. The assumption is that his decisions will come from the president, but he's the Treasury secretary -- he will have to be the chief input to those decisions.

The markets are spending this week in a never-never land where we assume something will happen next week that will let us all go on our merry way. But we have no evidence that will happen.

I'm at as much of a loss as anyone else. I've made no investment decisions in weeks. If the whole house of cards collapses I'm as lost as anyone else. I'm going on faith here and I don't like that.

I think other investors are doing the same thing. Lew and the stock market are playing a big game of chicken. A market panic might force action from Congress, but no one wants to take a loss first. So we trust that Jack Lew will pull a rabbit out of his hat, despite our having no evidence that he's up to the role.

I know what I'd do in Lew's position. I'd have the Treasury mint a $1 trillion coin, with Ronald Reagan's face on it, and hand it to the Federal Reserve, paying down the debt in name if not in fact, defusing the bomb so that it won't go off. The president has said that won't happen. But neither he nor Lew has said what will happen.

It is a bit like the old musical 42nd Street, in which an unknown is pulled from the chorus opening night and told to take the lead in a big Broadway play. Politically, Jack Lew is going out there as a youngster, but he's got to come back a star.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Dana Blankenhorn has been a business journalist since 1978, and a tech reporter since 1982. His specialty has been getting to the future ahead of the crowd, then leaving before success arrived. That meant covering the Internet in 1985, e-commerce in 1994, the Internet of Things in 2005, open source in 2005 and, since 2010, renewable energy. He has written for every medium from newspapers and magazines to Web sites, from books to blogs. He still seeks tomorrow from his Craftsman home in Atlanta.

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