With the federal government issuing massive amounts of debt and the Federal Reserve purchasing it in the name of keeping interest rates down, questions have arisen about impact on the U.S. dollar.
On June 2, CNBC’s “Power Lunch,” aired a clip of the network’s chief economics reporter, Steve Liesman interviewing Secretary of the Treasury Timothy Geithner. Geithner claimed the Federal Reserve wasn’t monetizing the debt the government was accruing. Following that clip, CNBC’s Chicago Mercantile Exchange floor reporter Rick Santelli, famous for inspiring the anti-tax-and-spending tea parties, questioned Geithner’s denial of debt monetization.
“Well, you know the first part of that question was economists are worried about quantitative easing – are we monetizing?” Santelli said. “And his answer was no, we have a strong independent central bank. Now the latter may be true but it certainly isn’t an answer to the question and I put forth, and I’d like feedback everybody – that quantitative easing can’t exist without the monetization process. We issue debt; we print the money to buy it. That is monetizing. I can’t believe that was his answer.”
Santelli explained that by definition that is what the Fed is doing – diluting the dollar to monetize debt. He also brought up the possibility of the sterilization process [1]the Japanese government used in the early 1990s during a similar financial crisis.
“By diluting the dollar to purchase the debt is monetizing,” Santelli explained. “I don’t know any other way quantitative easing can be expressed. Now if there’s a sterilization process like the Japanese, let’s talk about that. But to the best of my knowledge, there is not.”
He also noted the message Geithner relayed contradicted what was coming out of the Federal Reserve.
“Saying you have a strong dollar policy – we know that’s disingenuous, but blatantly saying they’re not monetizing when the March statement for the first time ever expressed quantitative easing and put it on the map, I just think that that’s the wrong answer.”
“Power Lunch” co-host Sue Herrera asked if Geithner had any other choice but to monetize debt, but as Santelli pointed out, even if it were true he had no choice he’s not being forthright.
“It’s not a question of a choice,” Santelli said. “He’s not telling the truth and if he doesn’t understand it, that’s more scary. And if he understands it, he’s lying to the American people.”