Disclaimer: The next is a parody of a “leaked” transcript of a latest phone dialog between Federal Reserve Chairman Jerome Powell and Secretary of the Treasury Janet Yellen.
Powell (answering cellphone): Powell right here.
Yellen: Jay, the way you doing, Janet right here, been that means to name you certainly one of lately.
Powell: What’s in your thoughts over there at Treasury?
Yellen: Effectively, I see that you just’re decreasing rates of interest, so I simply needed to let you know that’s nice information for us over right here at Treasury. We’re at all times on the lookout for methods to economize, what with all this debt we’re attempting to handle and pay curiosity on. Once I was in your job, we had been capable of maintain rates of interest traditionally low, barely above zero, and nobody a lot talked concerning the dimension of the federal debt or paying curiosity on it. Now it’s grow to be a headline subject in all places, although I nonetheless don’t see anybody stepping as much as do something about it. You and I’ve our jobs to do, and each Congress and the President carry on spending. I simply get caught paying the payments. After which every now and then we run up towards a debt ceiling that requires some fancy footwork to deal with.
Powell: Effectively, I get caught assuring there’s satisfactory liquidity within the economic system and low cost loans for the federal authorities. In fact you realize that we didn’t decrease rates of interest for any political motive or to maintain curiosity funds beneath management. No, we comply with the information in setting financial coverage. I’m nonetheless getting some flack concerning the Fed’s giant steadiness sheet that predates your and my time on this job, as you realize, however everybody appears to love the outcomes of all this debt on the Fed’s books so I doubt it is going to come again to hang-out us. I count on to be nominated and confirmed for a second time period regardless of who turns into president, at the very least if we are able to maintain unemployment affordable, although the inflow on the border does trouble me a bit. Moreover, the massive bulk-up on the Fed’s debt possession started with somebody earlier than you and I took over, so we are able to at all times blame him for it.
Yellen: Say, since we’re speaking debt, I additionally needed to provide you a heads-up about our upcoming Treasury debt auctions as a result of I stay up for some Federal Reserve participation. Week after subsequent we’re doing a 2-year notice providing for 69 billion {dollars}, a 5-year for 70 billion {dollars}, and a 7-year for 44 billion. We haven’t scheduled a 20- or 30-year public sale presently. Ditto for any future TIPS [Treasury Inflation Protection Securities]. You recognize we at all times handle our credit score wants fastidiously to time them with scheduled spending wants.
Powell: Oh, I do know you do. However I don’t know the way a lot we are able to take part in these upcoming debt auctions. As I stated, I’m beneath the gun on the scale of the Fed’s steadiness sheet, so I’ve to watch out.
Yellen: Sounds as when you have some misgivings about collaborating in our debt auctions. However hey, we each work for a similar employer, and we all know there needs to be some coordination and cooperation if our employer is to succeed. What do you imply, chances are you’ll not be capable to present the funds we want for these auctions? Our Treasury Division checking account is in your system’s district banks, so we’re certainly one of your clients, and also you’re accountable for producing infusions to our account as we want them. I’ve acquired payments to pay!
Powell: I hear you, however generally individuals begin to ask questions concerning the Fed’s independence and I get just a little nervous after I hear that speak. However sit tight and I’ll see what I can do on this finish.
Yellen: Hey, on a special matter that may make life simpler for each of us, the opposite day I had an inspiration that you just would possibly wish to take into consideration. How about forgetting the disagreeable enterprise of gathering taxes? I hate overseeing the IRS as a result of everybody hates the place, and it ought to be abolished. Must be simple to do if we simply coordinate and work collectively and clarify convincingly why we are able to cease gathering taxes. The key is to simply start issuing sufficient debt to pay for every little thing that method as an alternative of bothering with taxes. Everybody will adore it.
Powell: Hmm, an attention-grabbing notion. Possibly these MMT individuals have the suitable concept in any case. Create all these financial institution reserves and print all that cash, and don’t fear about repaying the debt as a result of it’s denominated in {dollars}, our personal sovereign foreign money that we are able to at all times print extra of. I’m nonetheless fearful, although, concerning the Federal Reserve’s giant steadiness sheet. And I ponder if Congress and voters would catch on to what we’re doing with taxes?
Yellen: I wouldn’t fear about Congress. If these elected nitwits may ever get their act collectively to determine it out, I’d be stunned. No, the best way to go is simply to do it. Must be a chunk of cake. We simply public sale off just a little extra debt each week and nobody will know the distinction.
Powell: I’ll take into consideration this. Within the meantime, I’ve to get going right here to test the newest financial stats, and assume forward about our schedule for future rate of interest cuts. Good speaking to you, and thanks for calling.
Yellen: Nice, and let’s keep in contact.
Powell: You bought it.
The Upshot
The dialog ended at this level as each events hung up. May these two highly effective people, of their official capacities heading their respective highly effective entities of the US federal authorities, pursue Yellen’s suggestion to cancel taxes and fund all federal spending with debt? Keep tuned on this creating story.