Re: Bernanke on 60 Minutes
Posted by WARREN MOSLER on March 17th, 2009
(email exchange)
Thanks!
Got it on my blog yesterday and added it to the attached draft in progress as well.
I cut his response a bit short to save the point that he missed the point ‘fundamentally’ even though he got this operational point right.
While in the operational sense ‘taxpayer money’ is never spent per se, in the macro sense tax liabilities function to reduce demand which is the real tax, and allows
government to buy the unsold output and move those goods and services to the public domain.
So in that sense, any government spending that buys goods and services is ‘spending taxpayer money’.
So the ‘right’ answer is that when the Fed buys financial assets, and not goods and services, it is not ‘spending tax payer money’ but merely exchanging one financial asset- balances in a fed bank account- for another- the financial asset it purchases. And the further economic effect of purchasing financial assets is that of lower interest rates than otherwise.
It’s about price, not quantity!
Best!
Warren
>
> On Tue, Mar 17, 2009 at 2:50 AM, Felipe wrote:
>
> Hi Warren,
>
> I am sending the link of the “60 Minutes” interview of Bernanke
> by journalist Scott Pelley. In particular, pay attention to his interview
> Part I around 8:00 min. Bernanke explains how the Fed buys assets.
> He admits that it is not taxpayer’s money; but it is just numbers on
> Fed’s balance sheet.
>
> Best,
> Felipe Rezende
>
Part I
Part II
[top]
March 17th, 2009 at 12:51 pm
The statement in Part I, roughly 9 minutes in that ‘the Fed actually pays for itself and returns billions in profits to the Treasury’. This implies the Treasury is being run for profit.
Reply
March 17th, 2009 at 1:20 pm
Jill,
No, it doesn’t. If my church runs a bake sale and makes $500 and puts it toward it’s running expenses, does that mean it’s being run “for profit”? I work in IT. My department doesn’t contribute anything to the bottom line of my company. Does that make the company a non-profit?
Of course, the whole idea of “profits” in the context of a currency issuer and it’s central bank re non-applicable, anyway, but the larger point remains…
Reply
March 17th, 2009 at 2:15 pm
Both sort of right.
While the mission of the Treasury is not to maximize profits, those in Treasury often seem to measure their success by whether or not they make a profit. So, for example, if AIG turns out to have made a profit for the Treasury I’m sure they will claim bragging rights.
Same with Fed operations- should all the loans to foreign CB’s and the JP Morgan Bear Stearns loan turn out to be ‘profitable’ I’m sure that will be well publicized as a sign of success and good judgment.
If I were in charge I’d make it a point to look towards the actual public purpose of these programs, and recognize any profits made by the government that reduce aggregate demand are recognized as such and appropriate measures to sustain desired levels of aggregate demand are in place at all times.
Reply
Jill Reply:
March 19th, 2009 at 1:07 am
I understand what Jim is saying and that makes perfect sense to me. But then Warren says something interesting I think. If I may test my understanding, the people that work at the Treasury sort of “ring the bell” if money spent comes back with returns? I’m trying to imagine my husband and myself getting excited about receiving an additional say 7 or even 17, coupons. I mean we didn’t need the first 10. This all came about because of our desire to improve our standard of living and so to start with we decided we needed someone to be responsible for the dishes after each meal. And mowing the lawn and pulling the weeds and watering regularly will make our home a more enjoyable place to be for us and for our guests whom we love to entertain.
So if my husband and I are in anyway motivated to collect extra coupons and then say to our kids ‘we turned a profit this month AND we think it be nice if we could profit every month so here’s the plan…’
Sheez, people would think we were crazy!
How’s my understanding? Or, what am I missing?
Thank you
Reply
March 20th, 2009 at 8:38 pm
Jill,
You’re now over qualified to be Treasury Secretary!
Reply