Fiscal Sustainability Teach-In: Session 2, Q&A

1st Fiscal Sustainability Teach-In and Counter-Conference?George Washington University, Washington DC?April 28, 2010

SESSION 2: “Are There Spending Constraints on Governments Sovereign in their Currency?” - Q&A

Q: [00:29:15] [male] [inaudible: something about Argentina and Russia]

A: [00:29:35] [male] So . . . Many of you who have been to the Fed, you know you start everything off with “So.” So what happened in Russia [he laughs] was that they had a fixed exchange rate, the ruble was fixed at 645 to 1, and they were borrowing dollars in order to keep it going because people were— would rather have their dollars than a ruble. When you have a fixed exchange rate, the dynamic is, if you get paid in rubles, you have three choices: You can do nothing, you can buy ruble securities, or you can cash them in for the reserve currency, which was dollars. So with a fixed exchange rate the treasury competes with the option to convert, and you see that all the time, and the fixed exchange rates, the interest rates, are actually controlled by the market. And so what happened in Russia is as the treasury competed with the option to convert, interest rates went up and up and up, and finally they were paying 200 percent and there was no interest rate where people would rather have the rubles than the dollars and they ran out of reserves, couldn’t borrow any, and defaulted on their conversion obligation. Now, at that point in time, what most countries would do would be just to float the currency and say, Okay, look, there are no more dollars for now and the ruble’s floating and just keep the money— the central bank operational. What they did in Russia, when they ran out of dollars, they just turned out the lights and went home, shut off the computers, didn’t open for up four months later. When they did open up, they went in through the hard drives, and, sure enough, the ruble balances were still there, and they were— they basically honored them. There was a little bit of restructuring, but nothing particularly serious on the interest-rate side. And so it *was* a fixed-exchange-rate collapse, or blowout, and they just shut everything down. Now in Mexico they had the same kind of blowup and they just— what was it, three to one, three and a half to one, or something like that? Was it three? Three to one back in about ’95, they were supposed to honor these tessa bono [ph??] obligations, where you were able to turn these in, they were at an index to U.S. dollars, where you could turn in and get— and they were guaranteed you could get enough pesos where you could convert those instantaneously into 40 billion dollars. Well, there was no amount of pesos that could be converted into 40 billion dollars, so the whole thing collapsed, and they wound up dishonoring their promises, rolling some into Brady Bonds, and they let the currency float, they just— and so the peso went to nine to the dollar or somewhere around there. And they kept business as usual with the— as a floating exchange rate. Okay, so I don’t know if that answers your question or not, but that’s what happened.

[Voice; inaudible]

[00:32:25] [male speaker again] Argentina. Yeah. Argentina was fixed one-to-one to the U.S. dollar. Same type of thing: Interest rates went up because of the option to convert, they ran out of dollars, and one night in a deflationary mess that followed with after thirty-two dead in the street one night Buenos Aires they reopened with the floating exchange rate, they let the peso float. Okay, Russia, the difference was, when it blew up they just turned the lights off and went home. They could have kept it going if they wanted to, they didn’t know what buttons to push at the central bank, or they were afraid for their lives, the central bankers, and just left, okay, which is the story I’ve heard also.

Q: [00:33:06] [male] [inaudible] Can you explain [inaudible]

A: [00:33:24] [female: Kelton??] Yeah, I think the lesson to be drawn from the arguments that I made are that the debt-to-GDP ratio is largely irrelevant so long as the debts have been written in a currency that you have a monopoly over the issue of. So the U.S. Government can always meet, on time and in full, *any* payment that comes due in U.S. dollars, *period*. Okay? If you’re borrowing in a currency that you do not control, you cannot create, like Greece cannot create the Euro. It is prohibited by the master criteria, Article 104, you can’t print money. So they can’t always, necessarily, serve as on-time and in-full obligations that come due; it’s not a sovereign currency.

A: [00:34:16] [male] Let me just add to that, if you look at Italy back in the eighties, they had one of the best economies in the world with debt-to-GDP ratios well over 100 percent and inflation rates in double digits. So the problem with inflation is not that there’s any real economic problem, it’s a political problem. People don’t like it, and you will get thrown out of office if you allow inflation. Not because it’s not good for employment and output, it’s just considered immoral. It’s the government robbing us of our savings, and hidden taxes and all these types of things. And it has to be respected, and democracy reflects the will of the people.

A: [00:34:15] [female; Kelton??] Keep in mind also that Japan’s debt-to-GDP ratio is roughly 200 percent, but as long as the borrowing is done in yen, it’s not a problem.

A: [00:35:01] [male; Bill??] If you read their book carefully— have you read their book?

[response??]

[Bill??, contd.] If you read their book carefully, you’ll see— and you go through each case and trace the currency systems being run, the circumstances surrounding the default, you’ll only find one example of a sovereign, truly sovereign government in modern history that has defaulted, and that was Japan, and it was during the war, and the reason they defaulted was because they said they weren’t going to pay back debts to their enemies, and it had nothing at all to do with the question of solvency, it was a political decision. And so, you know, I think the book is being used very frequently now by commentators as, See, this is the definitive piece of research, and in actual fact it’s highly *limited* research and applies to a very small number of circumstances that we don’t find in very many countries.

A: [00:36:14] [another male] Look, I’ve had very strong conversations with David Biersitz [??] of Standard & Poor’s about this, separating the difference between ability to pay and willingness to pay, and the last time on that last go-around I sent you a copy of that, but they have stopped downgrading on ability to pay, I believe, they are now downgrading on willingness to pay, which is what happened with Japan. So what we’re saying is, there’s always the ability to pay; there may not be the *willingness* to pay. Very different things.

A: [00:36:44] [female] Just to add on to the Argentina story, it’s instructive for another reason. Argentina actually is a very good case study of how you launch a currency. When the state was bankrupt, the provinces were bankrupt, what they did is they actually issued their own IOUs. They issued [patacornes?? lecops?? foreign terms], the varieties of local currencies. Now, our states are prohibited from doing that, but in Argentina they could, and so you get back to Stephanie’s point, Why do you trust the currency you didn’t have before, you didn’t use before, the vast majority of people are not using, you know, there’s no trust that was built in the system, and the reason was because the states taxed the population in these [lecops??] and they negotiated that you could pay your utility bills in [patacornes??]. And so, although everybody was up in arms and saying, you know, You can’t be using this system, and, granted, it didn’t last very long, you go to Argentina and you see every store says “Aceptavos patacornes” [??]. It is very effective to launch this currency. Once they floated, they had no need for them anymore.

A: [00:37:45] [male] In Russia, after the central bank shut down, they traded what they called arrears, which is I thought a fantastic word for what things are. So the states with the— whole corporations would trade arrears with each other.

Q: [00:38:15] John Lut [ph??] from the great state of New Jersey, or infamous, as it currently may stand. I want to thank Stephanie very much for her very clear presentation. I did want to ask you a specific question, though. When you’re talking about countries, everybody believes you but you see that lurking look in their eyes and [they?] say, Well, what happened to Germany after World War I or the latest case, Zimbabwe? Could you explain that in clear terms?

A: [00:38:36] Stephanie: No, but I hope Marshall can. [Laughter]

[00:38:40] [male; Marshall??] I’ll be doing a full presentation

A: [00:38:42] Stephanie: That is *the* topic of Marshall’s presentation. Will you be staying for the full day? . . . Okay. Well, then. I was going— Okay.

Q: [00:38:52] Roger Erickson [ph??]: Another question about getting back to treasury bonds. We’ve all heard, most of us have heard now that we went off the gold standard under Nixon in 1971. The question that rarely gets asked is, Why does anybody bother selling Treasury bonds anymore, at least very many of them, and a follow-up is, Is there any country in the world that doesn’t bother doing that to any extent?

[00:39:21] [male] That’s the short answer.

A: [00:39:24] [male] What happens is that when new countries start, they just have what they call central bank credits, but then when they become real countries, then they start using treasury securities, so then they become real countries like everybody else. And even Russia was like that. For years they were just central bank credits, so they had it right to begin with and then moved on to be like everybody else. I have seen that happen many times.

[00:39:44] [male] But that doesn’t answer the question. Marshall, can you elaborate on why?

A: [00:39:38] [Marshall] Yeah, it’s a legacy of— As you say, Nixon closed the gold window in ’71, Bretton Woods was completely eliminated in ’73, but we didn’t sever the *legal* connections to that system at the time, so that the laws that were enacted in Congress are predicated on the old gold standard thinking, so that by law you have to issue debt dollar for dollar to fund the spending. So it’s simply a legal legacy. There is no operational reason for it. And I think one of the things we have to do at times, and that we don’t do well enough at times, is we tend to conflate the descriptive with the normative, and I think we have to make clear to people that, and I think Bill’s been very good at this, especially recently, I think the [blowoff??] from a couple of days ago, that there are certain theoretical aspects which are impeded from happening in an operational sense because of these silly legal constraints, and that happens to be one of them. One of the things that we’ve talked about is that just let the Treasury run an overdraft facility with the Fed as opposed to issuing bonds, but there’s no real reason for that other than the legal legacy.

A: [00:41:12] [male] Yes. One other thing and I you know this is the interest-earning alternative to holding reserves, which in the United States until a year ago didn’t pay interest, so what we needed to do was to put in place the alternative that doesn’t require selling treasury bonds, and that is to pay interest on bank reserves, so Canada had done this ten years before, so Canada no longer had any operational reason to sell treasuries, although they may not understand this and they’re still selling treasuries and there could be a legacy of law also. Now we’re in the same situation, now we’re paying interest on reserves, and so we don’t need to sell the treasuries anymore for operational purposes, but we still have the law.

A: [00:41:57] [different male] From a function point of view, the reason to sell term securities would be to raise the interest rates for the term structure, and clearly that’s not what they want, what they’re trying to do.

??: [00:42:07] [different male] But you’ve pointed out many times that that only requires very-short-term bonds.

A: [00:42:10] [male] But if you want thirty-year rates to be higher, if you want mortgage rates to be higher, you could go sell ten-year securities to drive up rates, if that was the public purpose. That would be the only reason you would sell ten-year securities would be some public purpose behind having higher ten-year rates. Now I don’t think anybody thinks there is, they’re doing it for another reason.

Q: [00:42:30] [male] So I know Bill’s going to comment. Could you also just slip in is there any country in the world that’s just forgone selling treasury bonds?

A: [00:42:38] [male; Bill??] The example that I’m going to tell you about is Australia, because I know it very well, and the traditional system under the convertible currency was what was called a tap system under the issuing date, and what the government would do in that system would be, they’d decide on what yields they were going to offer, and let’s say they’d say 4 percent or whatever it was, and then they would announce the tap was turned on, and if people took up— if the private investors took up, wanted to hold the paper at that yield, then they would, that buy, and if they would, there was a shortfall, the central banker would buy—strike forward. After convertibility collapsed, the end, it was soon after that that we started to worry about budget deficits and the [manifest??] surge occurred, I’m talking about mid-’70s onwards, there was a constant public debate among the sort of characters that I hang out with, as a professional economist, about the *dangers* of the tap system and the *dangers* of allowing there to be any shortfall at all that the central bank might take up. And there was a really grand debate and what happened in the early ’70s they decided that the tap system was dangerous and they realized that— they decided to change the system, and they turned to an auction system that was *purely* available to the private sector, and the auction system then allowed the private sector to determine the yield of the issue. Obviously, the last unit of debt sold would be the highest yield that was being prepared to be paid by the private investor, and they prohibited the central bank from buying *any* of the issue, other than small amounts infrequently for operational reasons, and they soon solved that anyway by creating a support rate, so they minimized the use of that, they minimized *made* for that. And you read the literature on this, the government papers, they separated the dead issuance from treasury into a separate unit, and if you read all of their papers, they talk about the reason issuing debt and structuring it in this auction system, why, was to maintain fiscal discipline. They knew damn well that the central bank could buy it all, they know damn well. I know the reserve bankers very well, I talk to them regularly, they know the central bank could control the whole yield curve if they wanted to. But they won’t, it’s voluntary, but they won’t because they want to maintain what they call fiscal sustainability, which is the antithesis to what I call fiscal sustainability. As to whether there’s any country that doesn’t, my understanding is, No. But they’re all caught up, we’re all caught up in the same ideological tangle.

A: [00:46:19] [male] Even worse. A few months ago I was at, one of the guys in debt management at Treasury and they’re extending the maturity of the treasury, more years, more tenure, it’s like why are you doing *that*, don’t you guys want mortgage rates to be lower, why are you [??]. He says, Well, we’re worried about downgrades, the ratings agencies have come in and told us if we don’t extend the debt we risk being downgraded. Okay, so the deeper you look, the worse it gets.

[00:46:44] [male] So then, as a final comment and I’ll be quiet, many people have blamed this area, I mean the last thirty years in the deregulation of financial markets, on the mania for deregulating *everything*—Thatcher and Reagan and people like them—but, based on everything we’ve heard today, it seems that everything else was deregulated at the same time we were hyper-regulating our monetary systems, which is inexplicable.

A: [00:47:14] [Bill] No, it’s not inexplicable at all, because they wanted to— the whole paradigm and the whole ideology was to create freedom, so-called freedom, for the private sector and hamper the government sector from having any freedom, ’cause you can’t trust the public sector, you can only trust the private sector, because the rhetoric is that the private sector is market-disciplined and the public sector isn’t. It’s entirely consistent.

A: [00:47:41] [male] Can I just add one thing, because I think Edward, Lynn, and Roger all have raised a similar point, you know. *Do* they actually understand the way things work? And so the possibility is, Yes, they do, and so we create these myths or frauds because this is how we’ll constrain the government because otherwise the politicians will run away and start growing the size of government. But actually it is we don’t trust the voters. We don’t trust the populace, we don’t trust *democracy*, that is what it really is all about, because ultimately that is what’s going to constrain the politicians, it’s democracy.

Q: [00:48:24] [male] This may be a digression, but I stumbled on to looking at the Fed balance sheets, which I guess come out weekly or monthly. Why is their goal— They do have treasuries they list as assets or liabilities—why do they have gold on the Fed balance sheet, and what is it there for?

A: [00:48:40) [male] Because they had it there before and they don’t want to sell it. It’s like the national forests or any other asset. But there’s no monetary use for it.

[00:48:53] [male] You know they do lend it also, and there’s some talk they’ve been using their— they haven’t been transparent about what they’ve been doing on the lending side. I don’t know what’s going to come of that.

[00:49:04] [silence]

Q: [00:49:25] [female] I’m Theresa Sabenko [ph??], I’m not an economist, I’m an investigative journalist, that’s why many things are [probably?? pretty??] new to me, but I listened to the president of the European parliament yesterday. He was just mentioning a few things. But what I learned today, I wanted to ask the panelists if this currency, the Euro, is a problem right now, because that’s the way it is, because there’s no state connected to that. Wasn’t there enough knowledge that they did that, or was it something on purpose again that is being created right now? Where to look for the remedy for this, because they?? are right now talking about introducing a common language, which the president is fighting. I mean, is it a scheme or is it just the lack of information?

A: [00:50:20] [male] No, there *is* an awareness of the problems. In fact, no less than Otmar Issing [ph??] from Germany, who’s one of the hard-liners on— he’s one of the practitioners on strong money, good-as-gold, etc., etc., he readily conceded that a European monetary union in the absence of a political union longer term is not viable. And I think that— But they also realize that politically the nations, the individual nation-states within the Eurozone, were not able to create this new entity called the United States of Europe. And the hope was that the use of a common, of a monetary union would ultimately lead to a political union. So there have been these institutional constraints, they’ve been recognized right from the start. You know, Randy has written about this since the mid-1990s, so has Yom Kreigel [ph??] and other colleagues of Randy’s, I’ve written about it since early 2000, Bill’s written about it as well. So there is an awareness, but there was a political restriction that I think kept it going. And, you know, the question often then arises, Well, why didn’t they just keep it as a narrow bloc, why did they create these problems by allowing countries like Italy and Portugal to come in in the first place, and that’s a much longer story, but basically you’ve got three Germanies: You’ve got the Germany of the Bundesbank, you’ve got the Germany represented by people like Helmut Kohl who believe that you want to bind Germany within a broader Europe within these European structures and to make it as wide as possible, so there was a political impetus from him, and then you have Germany number three, industrial Germany, the Germany of BMW, Siemens, you know, and the like, and they rather like the idea of keeping countries like Italy and Spain in there as well, because they thought, Wow, we can lock them in at these exchange rates, they won’t be able to competitively devalue against us, and so it will help to sustain our competitiveness. So there were a lot of unique political circumstances that drove this, and there was also the problem that you had a country like Belgium, which is essentially part of, in many respects, you’ve got the Benelux countries—Belgium, Luxembourg, and the Netherlands. The Netherlands and Luxembourg fulfilled the original Maastricht criteria. Belgium didn’t; I think Belgium had one of the worst debt-to-GDP ratios, it was over a hundred percent, but you couldn’t really well have a Eurozone where you allowed the Netherlands and Luxembourg to come in but you didn’t allow Belgium to come in, and once Belgium was allowed it, then the Italians were going to put up their hands and say, Well, if they’re going to be let in then we should be let in, and likewise with Spain and Portugal. So it became politically unsustainable to pick and choose. Although if you ask the Germans, I think, hand over heart, they would have preferred a much narrower core Eurozone and it would have been much probably much more workable,, although ultimately you would still have the same problems but it’s deferred the moment of reckoning, that’s been the main issue.

A: [00:53:31] [male] I’m glad you asked that question because I actually jotted down a little note, something that we probably should talk about, which is that, see, the Euro is still a tax-driven currency, so it fits that part of the story, it’s tax-driven. The problem is that we don’t have the fiscal authority to issue that currency, we have individual nation-states, so these are much more like U.S. states, so sometimes I’ll get the question, people ask, Well, hold it a second, it sounds like there’s nothing backing up the Euro according to our scheme, and why is it so strong then? Well, it’s a *tax-driven currency*, okay, you have to pay your taxes in Euros, and it actually doesn’t *matter*, it’s sort of a bizarre situation, it doesn’t matter whether the governments default on their debts, the Euro can remain strong. Greece can go down, and, who knows, the Euro might go up. People will be glad Greece has defaulted and is now kicked out of the union so the Euro could be a very strong currency even while all of the member nations deteriorate and collapse.

[00:54:43] [female] Thank you.

[00:54:50] [male] Okay, we have a question.

Q: [00:54:55] [male] Here’s my question. It’s about the operational necessity for having treasury bonds. Because my understanding is that treasuries are used in order to target a Fed funds rate, that you need the treasuries in order to keep the interest rate at a certain level. My question about this is that if you prefer using monetary policy over fiscal policy as a driver of government action, don’t you need a constant flow of treasury securities in order to keep on the run securities constantly coming in order to keep a liquid market in that vehicle.

A: [00:54:44] [male] Let me bypass the question this way: If the Fed wanted a 2 percent Fed funds target, it could just trade Fed funds. It could say I’m two bid two offered; banks, do whatever you want all day, we’ll add it up at the end. So, you know, from that point of view, that would be sufficient to target interest rates.

Q: [00:56:02] [male] But that’s a political nonstarter, they’d never be able to get away with that, they wouldn’t do that. From a political perspective, that would never fly.

[00:56:11] [male] Right. I’m just saying, from an operational perspective, all the Fed has to do is set the overnight rate in terms of a bid and an offer, which is what they do in Canada and Australia, where they have a [corridor??] which does that. But from an operational point of view, you don’t need treasuries for that. Now, based on the way we’ve got our institutional structure, where the Fed has to use a repo market where they’re doing overnight loans back and forth where they’re required to use treasury securities as collateral, then you’re correct in that sense, but again, that’s a self-imposed constraint, and what we saw after the middle of ’08 was they started expanding that collateral base because using treasury securities was ineffective, and so you saw them overcome this self-imposed constraint through a variety of things, always missing the point that all they really had to do was trade in Fed funds, and you’re right, politically they never got there.

A: [00:57:08] [male; Bill??] Just two points on that. In ’90–’96 we elected in Australia a conservative government [inaudible...to tell on that I think], and for the next ten out of eleven years they ran surpluses increasing, and they sold it to the public as rail bridges started to crumble, public education started to crumble, hospital waiting lists started to increase, they sold it to the public as getting the debt monkey off their backs, and because they were now obviously retiring debt as it became due, and by 2001 the bond markets were so thin that there was a huge outcry. Now who did the outcry come from? Well, it came from the Sydney futures exchange at the beginning, and all of the other traders that were using the government debt as what I call corporate welfare, basically as a guaranteed annuity in which they could price their risk off, and this led to the government having an official inquiry—remember that one?—they had an official inquiry onto what the size of the bond market should be, and they were blithely running surpluses all the time, and they agreed, they caved into the pressure particularly from the Sydney futures exchange, they caved into the pressure and announced that they would continue to issue debt at an agreed amount, they came up with an agreed amount of millions per quarter, even though they were running surpluses, they continued to issue debt. I thought that was a really [inaudible].

[00:59:01] [male] We put a paper—

[00:59:02] [Bill??] Yes, that was the Connaught [ph??] government inquiry into the optimal level of debt when you’re running a surplus.

[00:59:10] [male] Yeah, that was a good paper if anybody wants to see it.

A: [00:59:12] [Bill??] You can download it off my research center off [CofFEE’s?? inaudible] website, go back to 2002, December 2002, and you’ll see all of the documents and all of the special pleading from the top end of town on why the government had to issue debt even though they were running surpluses, despite two facts. One is that at the same time the recipients of the corporate welfare were leading the charge to deregulate the welfare state for the workers and deregulate the wage system and get rid of social security, and secondly, despite the fact that the top end of town were the ones that were leading the myths about the onerous debt burdens the deficits they used to run were causing. The second brief story is it’s very interesting now with Basel 3 about to emerge which will change some of the rules relating to the quality of assets having to be held by banks under the capital adequacy regulations, the banks are starting now to suggest that the deficits aren’t going to be high enough to produce enough debt for them to satisfy their requirements, and they’re starting to pressure the Basel process to allow commercial paper to count as high-quality assets in the capital-adequacy calculations. I think that’s very ironic. [laughter]

A: [01:00:45] [male] Plus the idea that you need international bank standards makes no sense. You set your own.

Q: [01:00:57] [male] My name is Jeff Baum [ph??]. I’m actually an investment manager, so I come from a bit of an operational side. I kind of get the general idea of what you’re saying here, and it’s all very new to me, so I’m trying to get my head around it, but it sounds like basically you’re saying that the government, or, in my mind, the Fed, can create currency, therefore they can spend as much as they need to—I get that. There’s an inflation consequence because of this, but I haven’t heard too much about what that consequence can lead to. There’s obviously some sort of distributional question, and I guess that’s the *political* question, I haven’t heard that addressed, I don’t know if you guys do that or if that’s for the politicians, but then it just changes the question from But we can’t afford this to What are we going to spend it on, and maybe there *is* a big question there, as Randall was saying, that once the voters figure that out it turns into a big political fight. I don’t know if you guys heard, there’s some quote somewhere that says democracy can only last until the voters realize they can vote to the purse strings of the treasury. So I guess my question is, Do you have any kind of summary about how this turns into a political question, and what are the distributional consequences of that?

A: [01:02:20] [male] I’m sure several people will comment, but I think that what the public needs to understand is if you’re saying you want the government to do this, you want the government to spend on this, that means we’re going to devote real resources to this. Do you really want the government to devote our nation’s capacity to supply you with this, and if you do, then democracy wins and we do it. But you got to realize that means less resources here, okay, so to get it out of the deficit hysteria, the affordability, and so on, it’s a *real* issue. Do we want to devote an ever-rising share of our nation’s output to be put to taking care of aged people? Put it that way, and let the population vote on it. They might vote yes, they might vote no . . . okay? That’s democracy.

A: [01:03:19] [male] Two points I’ll make. One is that if we get the debate along the lines that you’ve suggested, then we’ve effectively won the argument, because we’ve always said ultimately it’s a political argument. You know, I’ve had exchanges with people and I’ve written on blogs and often get these debates, and it ultimately comes down to saying, Look, you are making a political argument. You and I might happen to disagree on the best ways that the government can use the money here, but that’s okay, I respect that, this is a pluralistic society and we can have differences of views, but let’s at least get past the operational issue. And the other point I would make is that even the notion of affordability, it’s applied in a very, very selective way, as I’m sure you’ve noticed. I mean, when we declare war, we don’t sort of say, Well, we’re running a budget surplus and can we afford to go to war, we just do it. Or we don’t say, Well, we’re going to buy this aircraft carrier, so we’d better check with our bankers in China as to whether we can afford it or give them a line item and see if they want to red-line anything. Nobody actually ever does that, but that’s the logic of their position, if you follow it through to the conclusion. But somehow when we get onto a subject like health care or Medicare or Social Security, it’s like, Oh, well, affordability becomes an issue, so I think it’s more a reflection on our skewed value system than anything else, actually.

[01:04:55] [female] Just one point on the distributional issue, one of the things that you hear a lot about now is the growing size of the national debt and the growing interest burden, and we really need to make that a distributional topic, because it goes directly to this argument that we’re passing this on to the next generation and the generation after that, becomes a generational argument, which it absolutely is *not*, okay? *All* of the interest payments will be made by the people who are alive at the time the interest payments come due, and what we’re talking about is a *shift* of income from those paying taxes to those receiving payments because they’re bondholders. And so the bigger the share of the interest, relative to the size of the economy, the bigger the command of the goods and services the bondholders can wield against the rest of us. And so that becomes a discussion that we definitely would want to have.

[01:05:51] [male] Thank you very much [inaudible] time for a break and we’ll come back here in fifteen minutes [inaudible] and we’re going to be talking a lot about the debt and deficit and grandchildren. And so thank you very much [applause]

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