How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran on Treasury’s $800 Billion of “Stealth QE” via “Activist Treasury Issuance” (ATI)
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Jack: Forward guidance is brought to you by VanEck, a global leader in asset management since 1955. You'll be hearing more about a VanEck ETF later on. But for now, let's get into today's interview. Today is a very important episode that concerns what the US Treasury is doing and how it might be usurping core functions of the Federal Reserve by manipulating the amount of interest rate risk owned by investors and adjusting maturity profile of its debt issuance. I am extremely pleased to welcome back to forward guidance Steven Moran, senior strategist at Hudson Bay Capital and fellow at the Manh
And for the first time, Nouriel Roubini, senior economic adviser to Hudson Bay Capital, professor of Marius at the NYU Stern School of Business, and CEO of Rubini Macro Associates. Steve Nouriel, you both have worked at the US Treasury, Steve, in 2020 during the Trump administration, and Nouriel in the late 19 nineties during Clinton's second term. So both of you know what you're talking about. You are the authors of an extraordinary new paper from Hudson Bay Capital that I think will shock many in the financial community and many of your our viewers here today. The paper is called ATI, activi
So let's begin with you, professor Gabbini. What is activist treasury issuance or ATI? Why does it matter? And what is this tug of war over monetary policy between the treasury and the Federal Reserve?
Nouriel: In this paper, we essentially find out evidence that, Treasury has now started the last few quarters to issue the ratio of short term bills to longer term debt in a way that is different from their standard guidelines in the past that essentially say that not more than between 50 to 20% of the total stock of that should be short term. And they are issuing more short term bills, less longer term, or longer duration bonds. And, effectively, if you think about it, this is a form of backdoor quantitative easing because you're reducing the supply of longer term treasuries while increasing
Now we know that the Fed is trying to tighten monetary policy until recently in order to cool off the economy, slow down growth, and push inflation towards its 2% target. Now these activist, treasury issuance becomes effectively a way for treasury to undo what the Fed has done, And our empirical estimate suggests that the amount of, this active, unconventional, fiscal policy is equivalent to the Fed having cut policy rates, the Fed funds rates, by about a 100 basis points. And we believe that the fact that, growth has remained above potential and inflation has remained sticky rather than movin
Steve: The reason we call it activist is because treasuries got a long standing set of rules for how it manages debt. The you know, treasury likes to likes to manage debt in a way that's going to reduce have the lowest interest expense to the taxpayer over a long period of time. In order to do so, it's got some rules that it follows in terms of how it issues treasury securities. Right? And what the reason we call it activist is because treasury has been deviating from those rules, not temporarily, not for a week or 2, not in the middle of a deep crisis, but it's been deviating from those rules
And we call it activist because it's a it's it's a level of discretion and, deviation from historic policy that's pretty unprecedented. And so we sort of we what we do is we're we're sort of the first paper that sort of take seriously, the ways in which treasury is deviating from its rules and try and think and try and think rigorously about what effects that's having on the economy and how it in
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