At least Ben Bernanke isn’t the only person in government who doesn’t really understand our monetary system. Over the weekend Tim Geithner paraded himself all over the weekend talk shows while he proved that he barely deserved to pass econ 101. That’s right, the Secretary of the US Treasury doesn’t get it.
The interviews mostly began with Mr. Geithner distancing himself from the entire cause of this crisis. Although he was effectively the fox in the hen house (he was President of the NY Fed while we experienced the grossest bank expansion/leveraging experiment in the history of the world) Mr. Geithner continues to make it sound as if he was saddled with this problem and played no role in its cause:
“I, I think I disagree slightly in the sense that, you know, remember, this was a recession caused by a set of policies that left us with a $1.3 trillion deficit when the president came into office, an economy that was falling off the cliff. Millions of Americans had already lost their jobs. The recession was a year old at that point.”
Mr. Geithner goes on to explain that there is no chance of a double dip (famous last words?). He displays absolutely zero sense of risk management and prescience. This shouldn’t be surprising to anyone. It is the tendency of government officials to adhere to the scientific method – “let’s wait for the dust to settle before we make our next moves”. Unfortunately, that’s not how markets work and it’s certainly not how economies work. Mr. Geithner is blindingly optimistic:
“MR. GREGORY: So just to be precise, you do not believe in a double-dip recession, that it will get worse before it gets better?
SEC’Y GEITHNER: No, I don’t. I think the most likely thing is, you see an economy that gradually strengthens over the next year or two, you see job growth start to come back again.”
Mr. Geithner then goes on to explain how he totally misunderstands how a fiat currency system in a floating exchange system works. It’s 100% crystal clear that Geithner is living in his textbook gold standard world where the USA borrows money to finance spending - nothing could be farther from the truth. The Treasurer of the USA says we “borrow” to “finance” our spending:
“I think this is a responsible way to do it. You know, my job, David, is to help make sure we can borrow to finance the obligations that Congress gives us.”
Mr. Geithner then continues his rambling diatribe by offering up an explanation for why we can afford to continue borrowing and why interest rates are so low:
“David, we can afford to do it this way. I’m completely confident we can. And if you look, again, at what we’re paying to borrow now, we’ve got very low interest rates as a country, in part because people around the world and Americans have a lot of confidence in our capacity as a country to make sure we manage through these challenges.”
Of course we can afford it. We are the largest and most productive economy in the world. There is enormous demand for our currency. We have an output have you could drive a Mack Truck though. We have Harvard graduates applying for jobs at Starbucks. The amount of idle capacity is an outrage. As a nation, we can always always afford to spend in the currency we create so long as there is a productive economy that backs that currency and the USA does not lose its ability to tax that productivity.
Mr. Geithner believes interest rates are low because the risk of insolvency is low. Of course the risk of insolvency is low in the USA – because there is no insolvency risk in the USA. Despite the ranting and raving of many market pundits in recent years a bet on US insolvency has been an absolute disaster. Interest rates are low today because the market is worried that the USA is at risk of years of very low growth and below trend inflation rates. Insolvency is not an issue, yet Mr. Geithner believes we need to cut the deficit so we can reassure the rest of the world:
“But we have to make some choices, too, and we have to make sure we can continue to earn confidence around the world that we’re going to have the will as a country to bring these large inherited deficits down over time to a much more manageable level. We think that’s the responsible thing to do because we need to make sure we can show the world that (we’re) willing as a country now to start to make some progress bringing down our long-term deficits.”
And we wonder why the economy in this country is such a mess after all this time? Mr. Geithner has no clue how the system actually works. If he did, he would have taken responsibility for his part in the crisis and never taken a job that is clearly well beyond his capabilities. He would have never helped Ben Bernanke devise his great bank rescue plan which has been an utter waste of government resources and failed on all levels (except making bankers more wealthy).
Mr. Geithner might have sounded at least partially credible if he’d spent more time talking about cutting wasteful spending as opposed to letting tax cuts expire (which is an effective tax hike – the last thing the debt saddled private sector needs right now). But it’s clear Mr. Geithner doesn’t understand how a sovereign issuer of currency in a floating exchange system actually functions. He’s more worried about non-existent bond vigilantes and China as our banker (which they aren’t). Let’s just hope Geithner’s model isn’t as horribly flawed as Mr. Greenspan’s was. Unfortunately, the evidence leads me to believe it might even be worse….
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There’s another possibility. Tax-evader Timmy is simply a crook, a frat-boy sycophant who “gets it” alright; using Greenspanesque obfuscation to hide the looting. He’s setting himself up for a fat undisclosed sinecure as Alan did at John Paulson & Company, the hedgehog who sucker-shorted the Greenspan housing bubble.
I see it all the time (I work daily with executives in private industry). Competence is in no way necessary for a high-level position of power. In many cases it is a hindrance.
Very frustrating for most of the “little people” who of course would like the higher salaries and other perks to see these idiots in charge. The lower levels keep trying to hone their skills and become more technically proficient, doing the same things that would get them an A in school. Well that doesn’t work in real life. It’s a completely different set of “soft competencies” that win the day and that we ultimately reward, both in the public and private sector. It’s a bitter pill to give someone credit for being able to look good in the suit an “suck up move up” but using the measuring stick we have developed, that indicates Geithner is the smart one. He’s “done it right” …
“Mr. Geithner has no clue how the system actually works” ??? He ho benefits from the system knows what is going on. The ones from ho he benefits don’t. If and when and if it was to collapses he ho benefits will have exited.
how else is the party in power going to vilify the opposition to get that 10% of swing vote independants who elect politicians
Tiny Time doesn’t get it??! Wait a minute…
Jokes aside, of course he doesn’t get it – that’s why he was offered the job! I mean, one has GOT to laugh about a guy missing tax payments over $40k being elected to head the Treasury….that’s kind of irony is perfectly fitting.
And when the proverbial $hit hits the fan, he’ll be the one to take the fall.
You are straining your credibility a little. I’m pretty sure the Secretary of the Treasury knows how our monetary system works.
What do you expect Timmy to say? “Well actually, David, the Fed just makes money on their computers out of thin air, so it doesn’t really matter if we can borrow money or not, because otherwise we’ll just make new money.” How do you think the American people would react to that? When a 4-year-old asks about Santa Claus, you don’t start giving him history listens about the origins of the St. Nicholas myth in Germanic paganism.
And do you really think this statement is “blindingly optimistic”: “I think the most likely thing is, you see an economy that gradually strengthens over the next year or two, you see job growth start to come back again.” If you ask me, that is a pretty reasonable, hedged statement. Even if you think a double-dip is a real possibility, you could agree that it is still “most likely” that the economy will “gradually strengthen”. It’s not as if he said that he expects 5% GDP growth and a return to 4% unemployment in two years. Again, what do you expect him to say: “Actually, David, we probably will double-dip and job growth won’t strengthen for at least 5 years”?
I think you can make the argument that it is time for people like Timmy to start talking to Americans like adults (even those most cannot think like adults) and stop hiding uncomfortable truths. But to say that Timmy doesn’t even understand these facts himself, based on his public statements, is ridiculous. Let me let you in on a little secret: People in government (and in the public eye in general) do not say what they really think, they say what will play well with the public and help them to achieve their short-term policy goals. You cannot infer what an official understands from 30-second answers in a Sunday morning interview. Period.
I think TPC is referring to this statement as patently incorrect:
"I think this is a responsible way to do it. You know, my job, David, is to help make sure we can borrow to finance the obligations that Congress gives us." – Geitner
The fact is, Congress raises the deficit ceiling, money credits flow from the Fed into the Treasury from thin air and that money is spent to keep things running. Later down the road, the Treasury will sell bonds (large amounts of which go directly to the Fed to “pay for” the credits) mainly to insure that interest rates don’t fly through the roof.
We don’t borrow to finance, we generate output to finance. That’s like saying I take out money from my Visa card to “finance” the spending on my Mastercard. We do have to pay off those IOUs but how and when is a different story all together. Moreover, the fact that bond yields have plummeted in the midst of all this turmoil and money printing (fiscal irresponsibility) seems to be in direct contradiction to Timmy’s statements about “continuing to earn confidence” from the market. And despite the absurdity of such a line of reasoning, the truth is that if we did cut back on expenditures – we likely would fall far deeper than before.
If I had written this same article in 1992 in reference to Alan Greenspan I would have been insulted by everyone. Little did we know that 15 years later he would admit that he was entirely wrong about everything….
I don’t know why a title and a Congressional vote means this man has instant credibility….
The earth is flat again…..At least in the world of economics….
“As a nation, we can always always afford to spend in the currency we create so long as there is a productive economy that backs that currency and the USA does not lose its ability to tax that productivity.”
Please clarify. What is your stance on the US current account deficit in relation to your monetary theory? I’m sure many would argue that capital inflows from China and Chinese productivity support our currency, at least in context of your ideas. Does an ongoing and widening trade deficit shrink our ability to tax production enough to pay for new printing? Or does it simply have no effect?
Please see the many links in the article. My stance on monetary theory is well documented. Email with specific questions. Thanks.
TPC I believe you are letting your personal moral code get in the way of seeing a crook as a crook and not just your run of the mill empty suit with a dirty nose. He is well aware of what he is doing and I can guarantee that he does indeed understand the real system. He is mearly setting the stage for the coming depression, reset of wages, devaluation and coming war all the while wrapped in the American Flag of patriotism. Remember it is good for the “country” (collective) that we show the rest of the world that we can do it, go team USA. /sarcasam
“there is no shelter here”
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I disagree. I really honestly believe that many of our most influential politicians and leaders have little to no idea how the economy actually works. Call me crazy, but the results don’t lie….
The writer of this article is an uneducated blowhard, trying to make a name for themselves. Sad.
Hey Scott, I don’t know who this TPC guy is but trust me, he puts out a great site. Believe me, I don’t always agree with him either but no question about it he gives good food for thought and since none of us really know all the answers anyway (we may think we do) all we really want is some good information, some good food for thought along with some healthy give and take from other readers along with TPC which, believe it or not, you can actually get on this site, and maybe if we’re lucky, we actually come away learning something in the process. Thats really what we’re hoping for when we go to these sites anyway isn’t it? I usually don’t write comments on this site but from what I’ve seen over the months I’ve been on here, the experience is priceless. If you dislike or disagree with TPC’s thoughts and opinions, and I do myself at times, but can’t come up with a better way of expressing that, do me a favor and just go somewhere else. I doubt many of us who read this site regularly will miss you anyway.
Well argued. Very well argued.
“Please see the many links in the article. My stance on monetary theory is well documented. Email with specific questions. Thanks.”
I’ve read much of your writing, but sorry, circular arguments like “I already proved this, so see that” don’t work. You source yourself continuously when answering inquiries. Why do you require email unless you cannot make a coherent argument publicly?
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If I had written this same article in 1992 in reference to Alan Greenspan I would have been insulted by everyone. Little did we know that 15 years later he would admit that he was entirely wrong about everything"¦.
I don't know why a title and a Congressional vote means this man has instant credibility"¦.
The earth is flat again"¦..At least in the world of economics"¦.”
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