Treasury Secretary Joins the Good Government Show

I'm not concerned about the level of the debt, but I am concerned about the trajectory that the debt has been on and where it's headed.

We don't want to be in a situation where the market is imposing discipline.

It's a good thing for our economy long-term to have an independent central bank.

I have thoroughly enjoyed my career in public service.

Adequately funding government agencies so they can perform is necessary for good government.

I was really excited about it. I felt very honored. It's something that people pay attention to. It's a symbol of our country, and our money plays an important role in the United States and globally. And so I felt genuinely honored to be able to see my signature there. And hopefully it stands for a credible global base for the United States. It's a symbol of our role in global markets.

Well, I actually made a trip to the Bureau of Engraving and Printing in Texas where the money is printed, and I watched the first bills coming off the press and got to press the button.

And in fact, there are two signatures on the currency, and it took a very long time for them to print money with my signature because the Treasurer of the United States also signs the currency, and it took a long time before she was appointed. She was head of a Native American tribe, and in our case, our two signatures were the first time two women had ever appeared on the currency. But we went together, saw the first bills being printed, and signed some copies of the bills and got some samples for ourselves.

It is fantastic.

Well, the Treasury manages the country's finances. Treasury pays the government's bills. Virtually all of the government's payments are routed through Treasury. And so, think of it as our government's checkbook that's managed by Treasury. On top of that, the United States has borrowed extensively in order to be able to finance spending that over decades has exceeded what we've taken in revenue. And so we now have $40 trillion in outstanding government debt. And Treasury is also charged with managing that debt, issuing new debt, rolling over existing debt as it comes due, paying for the debt — so paying the interest on the debt. But more broadly, Treasury is concerned with the functioning of the economy and the financial system, and we manage international economic relations with countries all around the world. We manage sanctions, which are a key tool that the government now uses to impose costs on countries or individuals who we think threaten our national security. We have bureaus of the Treasury. The Internal Revenue Service is a bureau of the Treasury. It's by far the largest piece, with around 75,000 employees. So, we're charged with collecting the nation's taxes, enforcing the tax laws, and more broadly, the Treasury Secretary provides input to the president and his administration on economic policy matters broadly. So, it's a large agency with around 100,000 people, and it's really involved in all aspects of economic and financial policy.

I'm not concerned about the level of the debt, but I am concerned about the trajectory that the debt has been on and where it's headed if we don't take action to deal with deficits. So $40 trillion is obviously a huge number. Almost $10 trillion of that is debt within the government — for example, debt that's been issued by one part of the government to another, whether Social Security or the hospital Medicare fund. But the debt outstanding with the public is just over $30 trillion. That's the same size as the economy. So the ratio of debt to the output of our economy is now around 100%. That's a pretty high number. For several decades, interest rates in the United States were extremely low. And so when I ask whether or not it's necessary to be concerned, what I look at first and foremost is the interest burden on the debt. And until pretty recently, post-pandemic, that debt burden, that interest burden on the debt, was not high. It wasn't worrisome at all. Although more recently interest rates have risen, and the interest burden on the debt is becoming important and a serious drag. But if you look at what's happened to tax revenue — and we've long known for decades that we would have an aging population, that Social Security, Medicare, Medicaid payments would be rising over time as a share of GDP — we've always known that deficits would likely increase over time unless we were careful to make sure that revenues rose in line with these expanded social insurance payments. And now we have a deficit that's almost 6% of GDP. And we've had deficits that large in the past, but only during wartime or deep recessions when the economy is weak and then tax payments plummet. We have neither of those conditions now, and deficits are very high. And this really worries me because it can become a kind of explosive spiral: the ratio of debt to GDP is rising over time. Holders of our debt require higher and higher interest payments to be willing to absorb that level of debt. Higher interest payments worsen the underlying deficits unless something is done. And this can be an explosive path. And regrettably, that's the path we're on now, in my view, largely because we've had tax cuts that have largely benefited upper-income groups, the rich and corporations. And we really need to make sure that our revenues grow in line with social expenditures and to look carefully at them and look for ways to economize there as well.

So a good government solution is that politicians would recognize that it's necessary to bite the bullet and do some things that people are not going to be happy about. This isn't politically easy to deal with this problem. I strongly doubt that you're going to see politicians on either side of the aisle run on proposing measures to deal with this. People don't like higher taxes, and they don't want to see cuts in important social programs they rely on, like Medicare or Social Security. So, politically, it's difficult. The last politician I can remember who proposed tough medicine to deal with this problem was Walter Mondale, and he was handily defeated.

Since then, both Republicans and Democrats have largely avoided making this an issue in elections. Instead, they say we'll cut taxes or we'll raise spending. So, I would say that solutions to this have to be bipartisan. This can't be a solely partisan thing. And when we've had successful attacks on deficit reduction, they have received bipartisan support. I was at the Council of Economic Advisers in 1997, and President Clinton and Newt Gingrich shook hands after some very contentious years and decided they would balance the budget, and they reached an agreement. It was bipartisan, supported on both sides of the aisle. It didn't have, you know, purely pain in it. Each side got some things that were valuable to them, but they did agree on cuts that imposed some pain and succeeded in balancing the budget.

Yes. And sometimes there are budget rules that are looming when the country is approaching a debt ceiling — a law that says once a given level of the debt has been reached, no more debt can be issued. This is a law that Congress passed that periodically brings the government — and we spend a huge amount of time preparing for this at Treasury — potentially to the brink of default because we have deficits. We have to continue paying for them by increasing the outstanding debt. With the debt ceiling looming, sometimes agreements have been made, and we had this in 2023, that there was a package that reduced the projected debt by about a trillion dollars. But this is very difficult. Sometimes appointing a bipartisan commission, Congress and the president agreeing that whatever recommendations they make will be taken up as a package and voted on by Congress. You know, if this isn't done, if there isn't a political process that's successful in dealing with the debt, eventually the market begins to speak and to say, 'We're worried about the fiscal trajectory, and we're becoming uncomfortable buying the amount of debt the government wants to issue.' And in recent weeks, we have seen a substantial increase in rates on long-term debt — 30-year, 10-year, 20-year U.S. debt issuance. And in fact, my successor has intervened in the market to try to bring down long-term rates, not successfully, because he really hasn't proposed anything that will deal with the underlying problem. But we don't want to be in a situation where the market is imposing discipline.

It's dangerous, and it's not good government. If there's one thing that almost all economists agree on, and that is understood not only in the United States but around the globe, is that macroeconomic performance is much better and inflation is consistently lower when central banks have independence to set monetary policy. That means basically setting interest rates and their path over time to achieve objectives, one of which in every country is low inflation. In the United States, the Fed is charged with two objectives: low inflation or price stability, and maximum employment. And Congress purposely left the Federal Reserve free to decide how best to do that. Sometimes the two objectives are in conflict, and tough decisions have to be made, but normally they're not in conflict, and the Fed has established a good record of achieving these objectives. It's supported by Congress. The Federal Reserve reports to Congress, has to account for how it's managing monetary policy. And look, the president of the United States has a right, if he wishes, to weigh in, as any American citizen does, on what is the proper path of monetary policy. For a very long time, going back at least to the Clinton administration or earlier, presidents have understood that it would be better for the country and even for them politically to respect the independence of the Fed, not to comment on monetary policy or try to browbeat or push the Federal Reserve to set interest rates in a way that they think best. You know, clearly there's a conflict, and this has been true in many countries, between the political needs of an administration, a president or a prime minister who are worried about both financing the debt — and you know, now our interest payments are a trillion dollars a year. President Trump has said it's important to him to set interest rates to lower that interest burden. When that's done, that is really a central bank succumbing to that pressure to help a government pay interest on its debt. That is the story of high inflation or hyperinflation in every country that's ever experienced it. Ultimately, it undermines the economy and, you know, leads to very difficult economic circumstances.

Yes, that's exactly what you see in banana republics — is a government that wants to spend, doesn't want to tax or is unable to tax, finds it hard to issue debt, and then says, 'Well, how can I finance this spending? Oh, I have a central bank down the block, and I'll get them to print money and buy this debt.' And this is the story in every country of how you end up with hyperinflation. So, you know, it can involve tough choices. People don't like high interest rates. Politicians wisely decided, let the Fed be responsible for that. These are political decisions that are hard to make. It's a good thing for our economy long-term to have an independent central bank. And President Trump has taken steps to not only express his views on monetary policy, but to try to stuff the Fed with appointees who will carry out the policies that he thinks best. And this is truly dangerous.

That is not good government, and it's actually — it's frightening.

It's critically important to good government. I mean, the U.S. dollar is the world's reserve currency. It is used in 90% of all transactions, even involving countries with two different currencies that have nothing to do with the dollar. International transactions go through the dollar, are typically denominated in dollars. We have the deepest and most liquid capital markets. U.S. Treasury securities are the bedrock security in the global financial system. And this enables the United States to borrow internationally at exceptionally low interest rates. It's called the exorbitant privilege, and it is a substantial benefit to the United States. So the role of the dollar in financial markets relies on the credibility of the government in managing the dollar. People don't want to hold huge quantities of assets denominated in a currency that may depreciate, where the value of the bonds may fall in price. So good macroeconomic management is the underpinning of the role of the dollar. You know, it's the underpinning of good economic performance in the United States, but also critically to the global role of the dollar. So to see a president who is threatening the independence of the Fed — he's threatened to bring criminal charges against the Fed chair, obviously because the Fed chair has not set interest rates. I'm talking about Chair Powell, not Chair Powell's successor — but to constantly criticize him and then threaten him with criminal action, that is blatantly political. He has now threatened to remove a governor, one of the seven governors of the Fed, for cause, which is something that has never been tested in the entire history of the Fed. What is cause? And you know, I dare say that what he's accused this governor of is probably not valid and very minor.

Well, I have thoroughly enjoyed my career in public service, and I have had the pleasure and privilege of working with an astoundingly talented and committed group of individuals who have chosen to dedicate their careers to public service. And I would encourage people to do so because it's an opportunity to address problems that are critical to the well-being of Americans and people around the globe. And the tasks that I've had the opportunity to deal with are exceptionally important, critical to national welfare. And the people that I've worked with are immensely talented and really committed to good government, committed to wanting to make a difference and work with other people who are similarly motivated. It's been the privilege of my life to get to work with such talented people and in ways that are not at all political, but to take good data, good analysis, scientific understanding, and to try to work with teams of people who are analyzing the policy options and the trade-offs to make the best possible decisions to advance welfare in so many different areas. I've thoroughly enjoyed my service at the Fed over these 14 years and also with Treasury.

Well, you know, we've had many opportunities to see what a committed and talented individual President Zelensky is. He's someone I and most of the world admire for his courage and for what he's been able to do to protect Ukrainian democracy. I was immensely impressed with him and felt it was a privilege to be able to meet with him and the people around him, who, I mean, every day show us their courage and their willingness to bear a great deal of pain to protect their society and its democracy.

No, really. We didn't get — it was a serious conversation. You know, he was a comedian, but I haven't seen that side.

What is good government? I mean, to me, good government is a set of institutions and organizations that are competently, professionally carrying out a set of policies and operations that are critical to the performance of our society and economy, that are the right ones for government to be doing. There's a lot that we entrust to the private sector for most commercial activity. We rely on the private sector to produce, to figure out how to do so in ways that are profitable and contribute to society. But whether it's defense, social insurance, managing the public debt, there are activities that we really need government to manage. And we have a government in the United States that has built an enormous amount of expertise. It's an asset of our country to have government agencies filled with knowledgeable individuals who've devoted their careers to performing a set of functions in the State Department, at Treasury, in the Transportation Department, at HUD — all the government agencies that are able to help our economy perform well and act with integrity and credibility, hold themselves to the highest professional and ethical standards. And I have certainly seen that at the Fed, just a very capable set of individuals, and at Treasury. And these are people who every day, whether it's at the IRS collecting tax revenue and enforcing our tax laws or in our sanctions unit, helping advance the best interests of our country.