WASHINGTON — For two years Treasury Secretary James A. Baker III could do little wrong, but suddenly President Reagan's economic mastermind is being blamed for potentially calamitous falls in stock prices and the dollar.
By clashing in public last month with West Germany over interest rate policy, Baker fanned the fears of a breakdown in international cooperation that helped trigger Wall Street's "Black Monday" crash.
And by admitting in a newspaper interview last week that he would rather let the dollar decline than raise interest rates, he gave the green light for a slide by the dollar to record lows that could unleash a new round of inflation.
Baker, a consummate politician, may yet win the high-stakes poker game he is playing to try to redress the world's economic imbalances.
But with nervous financial markets hanging on his every word, many experts wish he would keep his diplomatic maneuvers off the front page.
"He has tended to talk too much, I think, especially about other countries' policies," said Robert Solomon of the private Brookings Institution, a Washington think tank.
"His objectives were right, but it's not very sensible to do it publicly. It might backfire," added Solomon, a former senior official of the Federal Reserve, the U.S. central bank.
Whoever holds the reins of the world's biggest economy wields extraordinary power. If the Americans sneeze, others catch cold.
But Baker, an articulate multimillionaire Texas lawyer who likes to wear cowboy boots and chew tobacco when he works weekends at the Treasury, has been able to exert even more influence than most of his predecessors due to his skills in parlaying his political clout into bold economic decisions.
He made his mark as Reagan's White House chief of staff while Donald T. Regan had stewardship of the Treasury, a period marked by a benign neglect of the high-flying dollar that contributed to today's woes.
Baker and Regan swapped jobs early in 1985, and, within months, Baker had persuaded the President that an overvalued dollar was no longer a badge of pride for America but a huge liability that was crippling the nation's export industries.
The result was the landmark agreement of the world's leading finance ministers at New York's Plaza Hotel in September, 1985, to push the dollar lower in a bid to correct the ballooning U.S. trade deficit.
Just 10 days after that triumph, Baker pulled off another coup in Seoul, South Korea, when he unveiled a grand plan for tackling Third World debt.
These initiatives, though not unqualified successes, still form the basis of global dollar and debt diplomacy.
Baker, 57, has subsequently consolidated his power.
As one of a dwindling band of Reagan's trusted lieutenants, he is now in undisputed charge of the U.S. economy.
He was instrumental in guiding last year's landmark tax reform through Congress. He assumed command of the U.S.-Canada free-trade talks and brought off an agreement at the 11th hour. He is spearheading Administration efforts to prevent a protectionist trade bill emerging from Congress.
And he has taken charge of the critical deficit-reduction talks between the White House and Congress now grabbing the world's attention.
Some economists fear he may be exerting too much influence over the independent Federal Reserve by insisting interest rates must be kept low to avoid recession.
Close Friend to Bush
Success in keeping the economy humming may determine whether the Republicans retain control of the White House in presidential elections next year, political analysts say.
Baker, who managed George Bush's unsuccessful presidential campaign against Reagan in 1980, is widely expected to step down from the Treasury to try to help the vice president win the November, 1988, election.
Baker and Bush have been friends for more than 30 years. Both are moderately conservative Republicans and both attended Eastern prep schools and universities. Baker, from a blue chip line of lawyers, went to Princeton and Bush went to Yale.
Bush persuaded Baker to help manage his unsuccessful bid for a Senate seat from Texas in the 1970s, in part, Baker has said, as therapy after the death of his first wife, Mary Stuart.
Until then, Baker had practiced law in Houston. But his life quickly changed after that taste of big-time politics.
He went to Washington in 1975 as undersecretary of commerce under President Gerald Ford and, in 1976, played key roles in Ford's winning campaign for the presidential nomination--over Reagan --and his losing re-election bid.
Baker's only attempt to get elected himself, as Texas state attorney general, failed. That experience may have helped him decide to satisfy his political ambitions through others, although some political analysts speculate on a 1992 presidential bid if Bush wins next year.
Baker, who remarried in 1973 and has eight children, keeps punishing hours in Washington. But he is also a committed outdoorsman who likes to hunt wild turkey on his Texas ranch.
He told a newspaper interviewer last week that he was still enjoying his job despite the recent strains.
"I guess I could be practicing law in Houston, Texas, but right now I'd a hell of a lot rather be here," he said.
After the financial roller-coaster ride Baker has taken them on, some people on Wall Street may be wishing he would change his mind.