When American Bridge sent a tracker to record this talk from Tim Pawlenty, I’m sure they were hoping he’d commit gaffes with a bit more political potency than the ones on display here. But if you happen to care at all about policy substance, what you’re about to see is the former Minnesota governor make a number of blundering errors that reveal fundamental misunderstandings of how monetary policy and the international financial system works:
Pawlenty refers here disparagingly to “something called QE1 and QE2, the Treasury was buying our own debt. So they were paying off their Visa card with their Discover card.” This is simply not what either quantitative easing measure was. Rather, the Federal Reserve bought the debt. A good analogy would be to say that this is like paying off your Visa card by using magical powers to conjure up the amount of money you need. This is, of course, exactly what any household would do if they had magic powers. You probably don’t run your household finances or your small business like that because you probably don’t have magic powers. But the Federal Reserve does have the power to create money. The possible problem with money creation is that if you do too much of it, you get too much inflation, but we don’t have too much inflation.
Separately, Pawlenty doesn’t seem to understand U.S.-China bilateral trade at all, which is a problem because that’s just about the most important bilateral economic relationship we have. He suggests that we could “deal with these unfair trade practices” except for the fact that we owe China too much money. “You ever told off your banker?” This would be an excellent point except that Chinese purchases of American debt are the main “unfair” trade practice of which China stands accused. Buying American debt is the method by which China artificially depresses the value of its currency, subsidizing its export sector and hurting our exporting and export-competing firms. The purchase of debt isn’t a way of gaining leverage to prevent us from changing their policies, it constitutes the policy we want them to change.