June 26th, 2015
Econintersect: In May a conference was held in Washington, DC, Fiscal Summit 2015: Opportunity for America, sponsored by the Peter G. Peterson Foundation. The panel discussion entitled "Paying for the Past: How Will Rising Interest Costs Affect Economic Growth?" The session was moderated by Betty Liu of Bloomberg TV with panelists Alan Greenspan, Richard W. Fisher and Lawrence B. Lindsey.
Greenspan is the former Chairman of the Federal Reserve Board, Fisher is the recently retired President and CEO of the Federal Reserve Bank of Dallas and Lindsey is a former Federal Reserve Board Governor and former Director, National Economic Council under Pres. George W. Bush.
Econintersect: This is a distinguished panel. One would think that "pronouncements" by these gentlemen would be acceptable without question. However, we would like each of them to define what assumptions are required for some of the statements made. Two examples (some paraphrasing): (1) Lindsey (ca. 2:40) 'The Fed purchasing government bonds is unsustainable.' Why? He says that paying interest on 'that debt' is a problem. We would ask him to explain because interest paid by debt held by the Fed is returned to the U.S. Treasury. Where is the problem? What is unsustainable about about the Fed purchasing government bonds? Please be specific. (2) Lindsey (ca. 2:50) 'Ultimately the Fed is going to have to dump the debt it now has ontothe market.' What is the basis for saying that the Federal Reserve will have to sell assets from its balance sheet? What conditions are likely necessary for the Fed to reduce its balance sheet? How distant is 'ultimate' likely to be? We would suggest that selling assets by the Fed will only make sense if inflation is rising and money needs to be drawn out of the economy. 'Dumping' is not an appropriate term in our opinion - selling would only make sense in a measured process.
There are some very good points made as well. For example, Greenspan emphatically states that the use of the term 'Social Security Trust Fund' is nonsense - Social Security is funded out of current tax flows and/or fiscal deficits.