YouSaid · the spoken record

Stephen Miran

lines on the record: 82
first: 2024-07-23
most recent: 2024-07-23
sittings or episodes: 1
sources: podcast

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“Side effects and unintended consequences that are actually negative, but doing unconventional policies in conventional times and trying to do backdoor monetary policy through stealth or backdoor. unusual definitely unusual”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Where health economic growth, inflation went up with to tighten, there was no recession, there was no financial crisis, there was no war, times were normal. And therefore, we phased out also QE in addition to normalized policy rates. We started doing quantitative tightening. And then suddenly, out of nowhere, we end up with something that looks like, I would have called it maybe even unconventional fiscal policy as a parallel to unconventional monetary policy, but we call it the ATI, activist treasury issuance, and it's really an unconventional type of macro policy at the time where the economy is reasonably conventional, so unconventional policies and unconventional times may be justified, even if some of the consequences, long-term, might be actually having”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Well, what surprised me was that, of course, during the global financial crisis and then again in COVID, we moved to a world of unconventional macroeconomic policies. Before the GFC, the term zero policy rates or negative policy rates, quantitative easing, credit easing was not even existing in the textbook, was something really arcane. And then it became the new normal. And we could justify because there were exceptional times, both during the GFC and then during COVID. And there was also some, how to say, merger between monetary and fiscal policy because de facto we are monetizing larger fiscal deficit or we're using quasi-fiscal policy and quasi-monetary policy and credit easing as a way there was a combination of both. But then, you know, we normalize policy rates.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's quite extraordinary. I'm not aware of Treasury using that and it's issuance and its refunding announcements previously. I haven't done a study of refunding announcements back 50 years, but I'm not aware of it being used before. And like I said before, I think part of the reason why Tools like Ford guidance are being incorporated into issuance policy now is because there's the fusion of the Fed and the Treasury because of a large number of former Fed staffers and executives basically being and introducing a host of what are sort of normally thought of as Federal Reserve tools into various elements of Treasury policy.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, there's a whole bunch of things that would sort of go into that analysis, right? And of course, it's the revenge of the Soterist parabus again and all else equal, right? You're sort of providing the economy more stimulus than it needs and you're synchronizing it to the political cycle. So you run the risk of permanently higher inflation and more volatile and frequent business cycles as a result. why we think it's important that treasury return to regular and predictable as quickly as possible we want to we want to head off uh the risk of that becoming uh you know the future of the economy for the next 10 20 years”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Not totally unreasonable, right? Like that's fine, right? That's not quite a war or pandemic, but it's not like what they were doing throughout the course of the rest of last year and throughout the course of 2024 and seem to be committing to do into 2025. And so we gave them a path. So we tallied up the 800 billion and we gave them a pass and an additional 400 billion because it seemed not activist. So to answer your question, I think that there are times when you can issue large amounts of bills for legitimate reasons. And those are things like wars, recessions, right? Or the aftermath of a debt limit suspension when there's a flood of issuance for reasons that's not your fault. That was Congress couldn't agree on raising the debt limit. Congress eventually came to an agreement on suspending the debt limit and therefore you had to do a flood of issuance. We didn't count that as bad. That's reasonable. But yes, I think that engaging in these policies without a clear, good, justified reason for doing so.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Limit was suspended in May of last year. Treasury had to sort of come in and do a ton of issuance to make up for the time when it wasn't issuing because of the debt limit, right? It was drawing down a savings accounts and it wasn't issuing. So then when the debt limit was suspended, they had to do a ton of makeup issuance, right? And they did that makeup issuance in bills in Q2 of last Q2 and Q3 of last year. That was, we talked before about $800 billion of ATI being stealth QE. There was an additional $400 billion from right before that from the immediate aftermath of the debt limit suspension that we didn't count in our numbers because we viewed that as not activists. We didn't view that as the suspension of the debt limit and the flood of issuance that you had to do in the immediate aftermath to make up for refilling the savings accounts, right? I think that was, you know.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think we're pretty clear that it's bad. It's erosive of institutions. It's erosive of the idea of having independent monetary policy that's not driven by the political cycle. And it's very costly because it sets up, you know, it has to be paid back. And we just had this long conversation about crowding out and how unwinding ATI would boost the long end by 50 basis points temporarily before settling back into a permanent 30 basis point increase. It's got to be paid back and it may not be at the most opportune moment. So I think it's a pretty bad thing. And as we emphasize throughout the paper, it's okay. It is the right policy to issue a lot of bills in an emergency, right? It is the right policy to issue bills in a financial crisis, in a war, in a pandemic. We even cut Treasury a pass on the aftermath of the suspension of the debt limit, right? And so when the”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“So, you oppose activist treasury issuance regardless of it, whether it's Trump or Biden or Republican Democrat, if it's RFK. You think that regardless of politics that activist treasury issuance is not a good policy, Steve?”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“So I think in the long run, our prosperity rests upon the quality and credibility of our institutions. And so I think it's important to stop fraying those and to undo ATI and work back towards regular and predictable issuance as quickly as possible. I think that a lot is hinging on this all else equal clause. Economists love their Soteros Erebus and their all else equal. And so I think a lot of the negative impact of higher interest rates can be stemmed by taking a broader disinflationary political agenda to try and put a lid on interest rates and put a lid on inflation. And a 50, a temporary 50 basis point increase in the term premium when government is sort of taking steps to interfere with the supply side by instance proposing caps on rent control or something.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Can lead to a stall of economic growth, could even lead to a recession. So weather is going to be Trump or it's going to be a Democrat is going to be tough to undo it. Because if you undo it, actually, the tightening of financial condition could push you potentially in a stall, if not in a recession. And then the question is going to be whoever is going to be in power, other than they're going to keep on doing it to keep a lead on long rates, or they're going to undo it, risking to really crowd out economic growth. And I honestly, I don't know what's the answer to that question.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“We don't know, I don't want to make assumptions, but I would say whether it's Trump or whether he's Biden or another Democrat in the White House, think of it this way. Suppose that you want to phase out essentially this ATI, then as we show in the paper to undo it for a period of at least two or three years depending on how you do it and when, 10-year treasure yield compared to current level may be going up by at least 50 basis points. So where it's going to empower is going to have a dilemma. I don't want maybe to continue this policy and make it permanent. We're supposed to be temporary, but if I do it 50 basis points increase in long rates.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Nureel, just to be clear. So in the paper, you argued that the risk is going forward. Currently, the White House, President Joe Biden is a Democrat, whether it's Republican or Democrat going forward, both sides will use ATI activist treasury issuance. Trump is leading in the polls. If Trump wins the presidential election in November, is it your base case, Nuriel, that the policy of activist Treasury issuance, that is to say padding the Treasury issuance by issuing shorter term bills rather than longer-term coupon debt, which is similar to the economy, will continue? Might it even be bigger than it is now? What do you think, Nuriel first, and then Steve?”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“For cheaper and longer. So we were playing with fire. We're not at the staging time we can anymore have large deficit, hope that the feds are going to monetize them and ignore the fact of them. So we have to become less reckless in terms of fiscal policy.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“You are now at 7% in some of the fragility of the housing market is that it's very expensive to buy a home at 7%. And this is if you are a good credit. So the risk is really that we have not yet seen the full impacts of crowding outcoming from this deficit because we're in a world in which deficits were being monetized pretty much in and out since 2008. And now we're in a world in which we have bigger deficits and because of inflation we cannot monetize them as before. So that's the risk we're facing right now. And because of other factors, there may be, maybe, I'm not saying it's going to happen, gradually some degree of dedoization. And certainly our enemies and our rivals and even our friend enemies may over time, we've not seen yet the full impact be less willing to finance ourselves.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“and post GFC may have been driven by that, and now we're in a different world, a world in which because of inflation, because of difference balance between saving investment, we're not going to be in a world of zero policy rates, be 4% plus, we're not in a world of zero long rates, as it was for almost a decade, we're in a world where the long-term treasury yields are going to be 10% plus. That's already pinching highly leveraged people, household, small businesses, highly debt corporations, entire countries, and even yields on the US Treasury and before COVID were close to 1%. Now they're closer to four. And we believe that actually given the size of the deficit, they could become 5% or more. And even we yield at 4% for 10-year treasury, mortgages of 10 years.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Say that zero for many years and after went to zero was not enough. We did quantitative easing and then we did other types of credit easing and that game occurred all the way to 2016 and 17 and then we stopped QE but we maintained the balance sheet and then we started raising rates very very slowly and then reduced the balance sheet but we've lived in a world where easy money has been literally the experience since 2008 on with very few exceptions and so on and when Trump was in power the Fed was hiking but he was bashing them saying you're hiking too much and then COVID came and went back to zero and then to QE and now we have normalized and so on so we have not lived in normal times first of all we're lived in periods of easy money some of the acid bubble we have seen pre-”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Well, I will make it the following observation. When I was a treasury during the Clinton White House, as you pointed out, was the first time in a long time where the budget surplus, part of it was prudent fiscal policy, part of it was also good luck. There was the Internet revolution that led to a significant increase in economic growth from less than 2% to about 3% and so on. And then we started squandering it again after Clinton came out of power. And as I said, there's been a bipartisan kind of bias. But, you know, during the global financial crisis, initially the Fed went from near zero policy rates to 625 by 2006. And then when the GFC occurred because there had been a massive buildup of private debt and leverage in the system, we went to policy rates of zero.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“That there has been a large amount of private sector credit creation, whether you look at the subprime mortgage bubble of the mid-2000s or high yield corporate corporations issuing corporate bonds, which are then bought up. The argument of crowding out of, oh, if money is going to fund the treasury, there's no money to fund the corporate bond market. I would say maybe there's not that much evidence of that because the more treasuries that the treasury issues, the more corporate bonds governments issue too. So what would you say, you know, over the past 20 years, has there been crowding out in the US economy, would you say?”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Thank you. Nuro, you said there is a risk that going forward there will be a massive crowding out that unlike the rest of the world and even the United Kingdom, which used to have the world's reserve currency, if they run very large deficits, the bond vigilantes, they will sell bonds, the currency will go down as long interest rates rise, and there will be a strong market discipline effect. The US, because basically the rest of the world wants our dollars and dollars-dominated assets, particularly treasuries, we can get away with a lot more. So you say you're worried about crowding out going forward, but would you say that there has been crowding out over the past 20 years, when you were at the treasury plus or minus one year, I think that US Treasury actually ran a surplus. And since then, the deficits have just returned and with a vengeance. But I might argue, and that over the time that the U.S. Treasury has increased its debt by issuing Treasury securities.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“That you have with a politically compromised central bank of just delivering too much stimulus over time. The economy is going to get more stimulus than it really merits over the course of the business cycle, over the course of many business cycles. And people come to come to expect that. And therefore, you will cement. Literally wrote the book on is really the biggest concern that we have that comes from Treasury's policy innovations in the sense that it's really ushering us into that world, which is a big step backwards in terms of institutions and the role of law and being in a long-term low inflation equilibrium and stable society.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I just want to add that one of the reasons why economists think central bank independence is so important is because if you have a politically activist central bank, it will provide too much stimulus the economy needs. And then you get inflation over time. And if you're providing more stimulus than the economy needs over a long period of time, you get more inflation than you want over a long period of time. And then people start to come to expect more stimulus, they start to come to expect more inflation. And then you find yourself in a permanently higher inflation and real interest rate regime as well, right? As a result, and that's bad. Like, you know, we don't want to be in a permanently high inflation regime. We don't want it, right? And so to the extent that ATI becomes a normalized tool because Treasury Departments decide, hey, this is something that we can do to goose the economy when it's politically commemorative for us. You run into all those exact same problems.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“The market discipline of Bombigilantes so far in the US has not worked very much because we are the global reserve currency. But the risk is we keep on building up bigger and bigger deficits, bigger and bigger debt, and the rest of the world is giving us more rope to hang ourselves. And when the market shock is going to occur and eventually it's going to occur, the shock to your long yields could be much more severe than otherwise. So we're playing with fire”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Account deficit for longer and cheaper, that's advantage of being the global reserve currency. But over time actually is dangerous because any other country in the world that has a reckless fiscal policy, if you have an emerging market, the market punishes you. Your bond yields go higher, the currency collapses, and you have a squeeze, even in advanced economies the last few years. Greece, Italy, United Kingdom, if you have reckless fiscal policy, the market punishment can be instant. Look what happened in the UK, where Listras did not last in power more than 44 days because she cut taxes and raised spending. In the US instead, that market discipline of the bond vigilantes, that's the term used by Jim Carville, the former advisor of Bill Clinton, he said, in my next life I would like to be born as a bond vigilante so I can go and punish my enemies.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Spending as a share of GDP, even if it's financed by distortion in taxes, can weaken economic growth because it crowds out some private investment? And certainly persistent large budget deficits over time can also crowd out private sector growth and overall economic growth. And unfortunately, in the US, when Democrats are in power, they like to spend more and are either unwilling or unable to raise taxes enough to finance it. And then you have a structural budget deficit. And when Republicans are in power, they like to cut taxes, but they're either unwilling or unable to cut spending equivalently. So we end up in a situation which there are structural budget deficits, whether Democrats are in power or Republican. And we're lucky that we are the global reserve currency. So the rest of the world is willing to finance our fiscal and currency.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“treasuries, commercial real estate, mortgages, autoloans, pseudo loans, credit card, you name it, then dead rise in long-term interest rates can crowd out private spending, consumption, capital spending, and investment. So excessively large budget deficits over time crowd out private sector economic activity. They can also crowd out economic growth. Of course, when you think about public spending, is it current spending? Is it capital spending? If you have to make a lot of investments in the public sector for infrastructures, it makes sense to make those investments if they're not provided by the private sector and maybe even finance them over time with that if the return on them is higher than the cost of borrowing. We cannot just say there is a generalized crowding out, but of course too much governments”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Well, crowding out is a complex concept the way you describe it. I wouldn't say that all government spending, crowding out economic activity. The governments to provide their public services, both short-term and things like healthcare, education, pension, and so on. Some of those things, of course, can also be provided by the public sector. Usually crowding out is more, how to say, likely to occur when you increase spending, you don't raise enough revenues, you have a large budget deficit, then a large budget deficit over time leads to an accumulation of public debts, and then the equilibrium within demand and supply implies that long-term interest rates go higher and that rise in long-term borrowing costs by the government by increasing also the borrowing cost of the private sector because everything is a spread relative to”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Back to the episode. And so the risk is that the U.S. Treasury is increasing its bill share, which is stimulative to the economy. So it increases nominal growth. It also maybe may increase inflation. And that government, regardless of Republican or Democrat, will become dependent upon that because they fear if they stop the market, which has become used to high bill share, low coupon issuance, will have a bad reaction that would adversely impact the economy. Nera, you use the word crowding out. Could you describe that theory for your audience as well as do you agree or disagree with the fundamental claim of crowding out, which I'll summarize now, is that government spending takes money from the private sector and can use it inefficient ways and that that money in the private sector isn't spent because it's”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“And there's a risk that then whoever is going to be in power. Going to say we did it in election year, but we have to keep on doing it for longer term. Otherwise, we're going to crowd out economic activity. So by doing something like this, you are biasing not only your decision in the short run, but you're risking to introduce no separation between monetary and fiscal policy over the medium long term. And that's why this is something dangerous that shouldn't be done. Regardless of who is in power, this is not a partisan argument. When Trump was in power, he was trying to bully the Fed to cut rates sooner and faster rather than raising them. So those political biases occur whether there's a Democrat in power or a”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“That actually this new activist treasury issuance is a way for a fiscal authority to do effectively monetary policy. They can do it in an election year, but the risk is that if it becomes normal, they could do it also outside of election years. And whether one administration does it or the other, once it becomes normal, then there is a risk that whoever is going to be in power is going to do the same. Because in the paper, we show that if you're going to undo this activist treasury policy for a while, we push down long yields by 25 basis points, but for a while, long yields will have to go higher by at least 50 basis points. Because you have to undo the effect of what you have done during ATI. And therefore, whether Democrats are going to win election or Trump phasing out this policy may actually hurt the economy over time.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“But you could say those were emergency. Donald Financial Crisis, the worst financial crisis, the Great Depression, COVID potentially, the worst economic downturn. So those unconventional policies where unconventional monetary policy, unconventional fiscal policy, credit easing, and the blurring between monetary fiscal credit policy was justified maybe by emergency, even if many people said we did it too much and for too long. However, as Steve was pointed out, we're not in a recession, we're not in a financial crisis, we're not in a depression, we're not in a big world, and therefore monetary and fiscal policy should be independent from each other. Central bank policy should be independent, and we should not have a ways of interfering with what the central bank is doing via fiscal policy. And what we're showing here in the paper is”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Or even thirty years where some degree of separation between monetary and fiscal policy, we realized that having independence for the central bank is important to have long-term credibility and achieving a 2% inflation target. And therefore monetary policy should be separate from fiscal policy. Central banks should be independent. Fiscal policy, of course, is more political, but that's normal, and depending who's in power democratically choose the sets of fiscal policies that are considered desirable by the majority of the people. But here, I think that the risks we're facing right now is that we made the central bank independent during the global financial crisis and during COVID, you had some merger between monetary and fiscal policy, quantitative easing in both the episodes was monetizing fiscal deficit.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Is anybody who's in power wants to get re-elected and they want to avoid a recession? And if they can affect both fiscal policy or directly, indirectly, monetary policy to make sure that there is not a recession, they have an incentive to do that. But what happened in the last 20 years has been that”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Well, as Steve pointed out, the desired amount of village share depends on structural factors, and those structural factors change over time. I think that what's important here in terms of the bigger picture is the following observation. You know, I wrote a long time ago, almost 20 years ago, a book about political cycles and the macroeconomy together with the late friend and colleague from Harvard Alberto Lezina. And in that book, we showed that there is a political manipulation of the economy, both by center-right and center-left administrations. Some of it is part of the partisan, Democrats and Republicans have different preferences on the share to GDP of spending, taxes, and so on. Some of it is electoral, usually in election.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Nuriels, tell us about your view of just how radical or just how big of a departure current treasury policy is to do activist treasury issuance or issuing a lot of bills not during a crisis during your long review and focusing on Treasury issuance as well as your time there in the late 1990s How did the historical issuance process differ from what you're seeing right now?”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“The argument, yeah. You know, look, issuing a ton of bills is normal during a genuine crisis, like the global financial crisis, like the pandemic. It's not normal when you have 6% inflation, 3% inflation, 4%, you know, almost 4% real growth like we did over half the year last year. And unemployment sort of still pretty near historic lows. In stock markets at all-time highs with very, very loose financial conditions when all these funny named sort of alt altcoins sort of seem to act like rocket ships. Financial conditions don't seem that tight. And so it's not normal to be engaging in this level of bills issuance with financial conditions this loose to begin with. In the picture that we were just looking at, you know, the period of ATI looked very similar to the behavior of the bill share during, yeah, look at the spike in 2023 to 2024. It's very similar to the spikes in 2000.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“And if we look at the chart on the left, the share of Treasury bills as a percentage of total marketable treasury debt outstanding, you can see that it peaked in 2008 and it peaked in 2020 when you, Steve, were at the Treasury. So that is normal. And I guess the argument there is when there is an economic crisis. And without a doubt, 2008 and 2020, there was an economic crisis. It is highly appropriate for the U.S. Treasury to issue Treasury debt and basically print money, even though it's printing money. It's just causing money from savers to go into the government where the government has a much higher propensity to spend that money. So you'd say activist ATI, activist treasury issuance is appropriate during crises 2020, 2008, but you're saying right now we have crisis activists, treasury issuance at a time that where it is inappropriate because the unemployment rate is still low, although it's a little bit higher, 4.1%. We're still adding jobs and the stock market is at all-time highs. Is that your argument, Steve?”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Any one year's issuance is small relative to the overall outstanding stock. That might not sound like a lot until you realize that debt to GDP is over 100%, right? And so as a result, when you move the debt to GDP, the bill share of overall debt by a few percentage points, it generates a trillion dollar swing in the amount of coupons versus bill issuance out there. So a small percentage point number in the overall stock and the change in the overall stock of Leads to a trillion dollar shift in the value of the thing outstanding. And that's why QE programs are usually on the order of a few percent of GDP when they're done. So it winds up having a really, really significant effect on the economy when it happens”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“And so this rule of 15 to 20% really moves around over time based on over long slow time over the course of decades, based on structural features of the treasury market. Deviations from the rule are normal during an emergency. A deviation from this rule is normal if you have a war. It's normal if you have a financial crisis. It's normal if you have a once-in-a-century pandemic. But deviations from the rule are not normal in periods of buoyant markets, in periods of high inflation, in periods of robust real growth. There's not really a strong argument for doing so. And so what Treasury has done in deviating from this rule is to push the share of bills as a percent of all outstanding debt up by a few percentage points, right? Now, so they've issued, what, about 70% in bills over the last year, right? And that's pushed the share of overall outstanding bills up by a few percentage points because”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Not plausible to issue a ton of 30 year dot bonds in a sudden financing spike like a war or a recession. So in an emergency, you increase the bills issuance, right? And so if you look at previous episodes of Bill's, if you pull up panel B of figure one, in our paper, you can see the history of Bill's issuance over time. So you see here, if you look on the right side of this panel, right, a huge spike in Bill's issuance to be about 80% over the last 12 months during the financial crisis. That's because revenues dry up and you need to do stimulus and so you need to come to the market, you need to finance. But you do in short-term debt and bills because that's the easiest, most liquid means of doing so, right? You look again during COVID, same thing, right? The thing in the middle is the money market fund regulatory reform that I just spoke about a moment ago that Treasure chose to accommodate. And then on the last thing on the right, you have the last tier, which we identify as the period of activist treasury issuance, right?”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Was there although I wasn't working directly on this issue because I was working in a bunch of other stuff, but I've spoken to the folks who were, and yes, it was about pandemic flexibility. And so typically you want to have, and so the bill share went up from 15 to 1520. But the point being, it moves around over time because of structural components of the market for treasury bills, not because of short-term bets on the interest rate cycle. Now, you expect to issue a lot of bills in an emergency, right? Because in an emergency with a spike in financing needs, you need to fund the government, whether you're sort of doing an emergency stimulus program or fighting a war or whatever it is. You need to fund the government in the fastest, most liquid means possible. And if you raise taxes by 10%, you know, that's not practicable to suddenly raise taxes by 10% in the middle of a financing spike of financing crunch, right?”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Was 156. Yeah, 1516 15 they were you know sort of proposed and 16 they were adopted and then implemented over the course of the next couple years so you had this this regulatory drive into treasury bills and treasury accommodated that by lifting the target share of bills in treasury issuance from about 10 to 15 right then during the pandemic in 2000 sorry in 2020 during the pandemic Treasury lifted the target again from 15 to 15 to 20 because it wanted more flexibility for the ability to issue bills in an emergency and so because we didn't we didn't really have a good sense of how bad the pandemic might get whether you know whether we'd have to do another another stimulus program and you know like a huge stimulus program in the blink of an eye is it going to get worse is it going to accelerate you know we there was a great deal of uncertainty over this stuff”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Money market phones that are allowed to have this dollar nav are those that invest only in government paper, money market funds that invest in corporate paper and other and non-government paper called prime money market funds. They're not allowed to have the dollar nav anymore. They have to have a floating NAV. And so because investors want these things to treat as substitutes for checking accounts, they really want the dollar nav. And so there was a huge migration out of non-government money market funds and into government only money market funds that was driven by this regulatory. That was a surge in demand for treasury bills, a surge in demand for treasury bills that was not driven by economic fundamentals. It's not like people said, oh, we don't want interest rate risk. And so, you know, we're afraid that there's going to be a wave of inflation, so we're going to shorten the shorten the duration of our treasury holdings. It was purely regulatory driven, purely regulatory-driven demand for treasury bills.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, a dollar net asset value. The value of money market fund is pegged to a share is pegged to a dollar to effectively make it a close substitute with money that you can sort of treat as a checking account and write checks on the money market fund and so forth, right? And if a money market fund has losses because it owns defaulting securities, short-term commercial paper, it's potentially possible to for the dollar value of a value of a share to go below a dollar to 97 cents or 92 cents depending on the scale of the defaults. That's referred to as breaking the buck. And because money market funds are often treated as substitutes for checking accounts, it could cause a, you know, it would be akin to a bank failure and potentially accelerate or cause a financial crisis. Now, after 2008, the SEC was really scared about, you know, the regulatory authorities really scared about that. And so they instituted what they called money market, you know, some money market reforms where they said the only”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Reform came from the money market funds. And the SEC decided that it was afraid that another financial crisis could be caused or accelerated by what people call breaking the buck on money market funds, right? So money market funds have this dollar nav, right?”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Right. So Treasury has a rule of thumb for issuing 15 to 20% of outstanding debt in bills and then the balance and the balance of 80 to 85% in intermediate and long-term coupon debt. That sort of target, it moves around over time in a very slow manner. It doesn't move ever a month. It moves every decade type of thing over the long term. And it's set based on trying to accommodate structural features of the demand for treasury securities. And so coming after the great financial crisis, there was sort of an enormous demand for long-duration bills because we were in a debt deleveraging crisis that lasted a really long time. And so Treasury was issuing a lot less bills because there was so much more demand for longer-term securities, right? Then you get to the middle of the last decade and regulatory”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Just to make clear, Congress's job is to decide how much to tax and how much to spend. And then that difference is either the surplus. If they take in more than they spend, or as is much more common in the U.S., a deficit where you spend more than you take in. And that deficit, which last year was 2023, just under $1.7 trillion deficit, Treasury has to borrow that in the market and they could borrow it by issuing a one-month coupon and rolling it over every month, or they could issue a 30-year bond. Currently, that's the longest thing. They could issue 100 bond year if they wanted, but obviously we don't have that in the US. So what we're talking about, Treasury's decision, which again is a member of the executive branch, is to how to finance the deficit, not the size of the deficit. So just want to make that clear. So there might have been a recession if Treasury.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“I think this is an extremely sophisticated, extremely financially sophisticated Treasure Department. But yeah, I mean, like, I think it would be far-fetched to believe they didn't know what the effects of what their decisions would be. And to the extent that you might question this might have an effect, just imagine that ask yourself tomorrow, Treasury announced it's going to issue a trillion dollars of, it's going to issue a trillion dollars more of intermediate and long-term debt. What do you think that would do to the markets and the economy? And if you think that Treasury selling a trillion dollars more of intermediate and long-term debt would have a different effect than the Fed selling a trillion dollars worth of this past QE purchases or someone else selling it, you know, I'm not sure why that would be the case, but I think most people would agree that it would have a significant tightening effect on financial markets.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“And if you look at the folks in the treasury that are responsible for debt issuance, right, you know, sort of, you know, first of all, starting with Secretary Ellen, but then if you look at the folks that sort of go down the command line in the where the debt issuance occurs, they all come from the Federal Reserve, right? They all are former Fed officials, right, who really, really know the ins and outs of QE and how QE works. They've adopted forward guidance as well, which is another Fed tool. For the last two refunding announcements, Treasury has asserted that it does not anticipate any further increases in coupon option sizes for at least the next several auctions, which of course conveniently goes just to the other side of the election. But these are folks that either themselves engineered these tools like forward guidance and quantitative easing or have spent their career studying them and implementing them and really know the ins and outs.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT
“Might have been an overkill, they knew that this year will be an election year. They knew that the results of the election depending part on whether you can avoid a recession or not. And to be on the safe side, that's our takeaway, they wanted to undo part of the tightening of the Fed, and that's where the activist treasure issues policy came into effect. So I cannot say that there have been a recession, but certainly economic growth would have slowed down more according to what the Fed was desiring to do. That certainly would have been. And we could have been even at the risk of maybe a short and shallow recession, possibly, possibly. We don't know, of course.”
2024-07-23 · Forward Guidance · How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI) · IDENTIFIED FROM THE TRANSCRIPT