Chief economic advisor struggles with economics

David MoonBlog

The debt of the U.S. federal government topped $34 trillion this week, a number so large that it is easily boggles the mind. This may explain why in a new documentary titled “Finding the Money,” Jared Bernstein, Chair of the U.S. Council of Economic Advisors, sounded like a third grader who didn’t do his homework when trying to explain the differences between monetary policy, fiscal policy and printing currency.

Here is Mr. Bernstein’s answer, which I think I have transcribed verbatim, except for removing 13 “ums” and “uhs.”

“Well, I mean, again, some of this stuff gets … some of the language and concepts are just confusing. I mean, the government definitely prints money. And it definitely lends that money. Which is why … the government definitely prints money and then it lends that money by selling bonds. Is that what they do? They, they … yeah … they, they, they sell bonds. Yeah. … they sell bonds, right? So, they sell bonds and people buy the bonds and lend them the money. Yeah! So … a lot of times, a lot of times, at least to my ear, the language and the concepts can be kind of unnecessarily confusing. But there is no question that the government prints money, then it uses that money to … yeah. I guess I’m just … I don’t get it. I don’t’ know what they’re talking about. Like cause … It’s like, the government clearly prints money. It does it all the time. And it clearly borrows. Otherwise, we wouldn’t be having this debt and deficit conversation. So, I don’t think there’s anything confusing there.”

Mr. Bernstein, who has a BS in music and a doctorate in social welfare, apparently doesn’t understand that printing paper currency is irrelevant to a discussion of the federal debt. Most money is in a book entry form of some type. Paper currency and coins comprise only 11% of our total money supply. Most of the currency we print is simply to replace worn bills.

When the federal government spends more than it receives in tax revenue, it must borrow the difference. In round figures, the government currently spends about $140,000 for every $100,000 it collects in revenue. Of the $34 trillion in federal government debt, 13% is held by the Federal Reserve. When the Fed purchases Treasury bonds, it pays for the bonds by making an accounting entry on the books of the seller. That is, it creates money. Thirteen percent of our accumulated deficit has been funded by money the Fed created without any corresponding production or economic activity. This has been a core enabler of inflation – something I would love to hear explained by our country’s chief economic advisor.

David Moon is president of Moon Capital Management. A version of this piece originally appeared in the USA TODAY NETWORK.