Treasured Moments

So I went to the Treasury Department with a bunch of other bloggers yesterday, and spoke with "senior administration officials" about all manner of exciting topics.  Though not all of the topics were exciting for me.  Because I missed the last blogger sit-down, I was rolled in with the progressive bloggers, who were often more concerned about messaging and political strategy than in figuring out what Treasury really thinks about various issues.  


Practically, they may well have had the more relevant questions--who cares what Treasury thinks if they can't pass their legislation?  But with the exception of Gene Sperling, Treasury is not filled with people who are experts in political messaging.  So the responses we got were about what you'd expect, which is to say that in a financial crisis, the secretary of the Treasury has to do a number of things that he knows will be unpopular, and many of those tasks are made harder by the fact that about five hundred other adults all get to weigh in.  The progressive bloggers were clearly frustrated with the inability to sell various policies, or go bigger and badder with various reforms.  But I assume that the nice folks at Treasury are frustrated too, so I'm not sure how much I learned from those questions.

So what did I learn?  First, that Tim Geithner is growing into his role; this was a much more relaxed and confident team than I saw a year ago, when I first met many of them in person.  And while Kevin Drum is right that these things don't really offer earth-shattering revelations, I think they are useful for figuring out how administration officials are thinking about a problem.  

For example, I asked about a topic that is on many peoples' minds right now: sovereign debt problems.  The near-term deficit is basically not a problem; amortized over 15 or 20 years, the U.S. economy can afford this level of debt.  But the long term deficit is a big problem, and I asked one of our "senior treasury officials" whether he was worried that we would cross some threshold where either the debt becomes a major drag on growth, or markets start demanding significantly higher yields to lend us money.

His answer was smart, if not totally reassuring.  Ultimately, this is not about some numeric figure, like Ken Rogoff's 80% of GDP; it's about what the market believes.  If the market believes that we are going to get our budget in order (at least sort of), then the deficits we're running over the next five or ten years can be sustained.  If the market questions this, then we're in big trouble. The reason U.S. debt is the "risk free" rate is that in the past, we've always gotten it together in the end.

This is not perfectly satisfying, of course.  Ken Rogoff is not worried about interest rates so much as the absolute level of debt, because eventually debt service consumes too much of your economy--a very large debt with a very low interest rate is still a very big problem.  Moreover, it's not entirely clear that we're going to pull ourselves together this time around, because the problems we're facing are much less tractable:  growing entitlements and a shrinking workforce.

But still, there are a lot of answers they could have given to this question; the one they chose tells me how they're thinking about the problem.  I'm still worried about potential sovereign debt problems, of course.  But at least we've got some smart guys at Treasury when the crisis comes.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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