October 20, 2003


And we are left with the mystery of how we can have higher interest rates without having higher yields on Treasury bonds. It's kind of like how we can fill a bathtub with water without putting any molecules of H20 in it.

Eschaton: A senior Bush administration official Monday sought to clarify comments on interest rates made by Treasury Secretary John Snow.... The senior administration official said that Snow was only pointing out that when economies begin picking up steam, there is an increased demand for money which naturally pushes interest rates higher. The U.S. official said Snow was not talking about U.S. monetary policy nor was he indicating Treasury yields would rise...

Posted by DeLong at October 20, 2003 09:04 AM | TrackBack


Backpedal at full speed! So was Snow telegraphing an administration line with his original comments, and they didn't understand what the effects of his comments would be? Or was he completely off message? I'm confused.

Posted by: Theresa in Oakland on October 20, 2003 09:34 AM

Oops; I hadn't realized the retraction had become a blog item yet. I should have posted the following here:

# WASHINGTON (Reuters) - The White House said on
# Monday that comments by Treasury Secretary John Snow
# about interest rates were not reflective of U.S. policy but
# were merely an observation about the economy.

Translation: Just because the dude is Treasury Secretary doesn't mean that what he says reflects our policy.


# But Nichols said Snow's reference was to market interest
# rates, not to short-term rates set by the U.S. central
# bank.
# "The Secretary respects the independence of the Federal
# Reserve in making decisions about our nation's monetary
# policy," he said.

Translation: Greenspan has had a closed doors discussion with Snow that featured the sound of whips cracking, muffled squeals of pain, and shouts in a voice believed to be Greenspan's saying "Now *who's* your daddy?"

So Brad DeLong termed this incident "bizarre"; little did he know it turned out to be positively kinky.

Posted by: Jonathan King on October 20, 2003 10:04 AM

There's another way to look at this

1) Snow said improving economies lead to higher interest rates

2) Official says Snow was not indicating interest rates would be higher

3) Conclusion: Snow does not believe economy would be improving.

Posted by: richard on October 20, 2003 10:09 AM

Please please:

'The rule is, jam tomorrow and jam yesterday - but never jam today'.

Now, do you understand?

Posted by: Anne on October 20, 2003 10:10 AM

A few days ago Snow was talking down the dollar. Now he's talking up the dollar (higher US interest rates ought to attract investment, no?). Which is it he wants.

Jam (who's posting despite Anne's attempt to talk him down).

Posted by: jam on October 20, 2003 10:39 AM

A few days ago Snow was talking down the dollar. Now he's talking up the dollar (higher US interest rates ought to attract investment, no?). Which is it he wants.

Jam (who's posting despite Anne's attempt to talk him down).

Posted by: jam on October 20, 2003 10:42 AM

A few days ago Snow was talking down the dollar. Now he's talking up the dollar (higher US interest rates ought to attract investment, no?). Which is it he wants.

Jam (who's posting despite Anne's attempt to talk him down).

Posted by: jam on October 20, 2003 10:42 AM

A few days ago Snow was talking down the dollar. Now he's talking up the dollar (higher US interest rates ought to attract investment, no?). Which is it he wants.

Jam (who's posting despite Anne's attempt to talk him down).

Posted by: jam on October 20, 2003 10:45 AM

Anyone care to comment on this list of geniuses??

David M. Kennedy
John Connally
George Schultz
William Simon

Donald Regan
James A. Baker, III
Nicholas F. Brady
Paul H. O'Neill
John W. Snow

Lloyd M. Bentsen
Robert Rubin
Lawrence Summers

Is there a pattern???

Posted by: bakho on October 20, 2003 10:47 AM

Jam Jam Jam

`I'm sure I'll take you with pleasure!' the Queen said. `Twopence a week and jam every other day.'

Alice couldn't help laughing, as she said `I don't want you to hire me -- and I don't care for jam.'

`It's very good jam,' said the Queen.

`Well, I don't want any to-day, at any rate.'

`You couldn't have it if you did want it,' the Queen said. `The rule is, jam to-morrow and jam yesterday -- but never jam to-day.'

`It must come sometimes to "jam to-day",' Alice objected.

`No, it ca'n't, said the Queen. `It's jam every other day: to-day isn't any other day, you know.'

`I don't understand you,' said Alice. `It's dreadfully confusing!'

`That's the effect of living backwards,' the Queen said kindly: `it always makes one a little giddy at first --'

`Living backwards!' Alice repeated in great astonishment. `I never heard of such a thing!'

`-- but there's one great advantage in it, that one's memory works both ways.'

`I'm sure mine only works one way,' Alice remarked. `I can't remember things before they happen.'

`It's a poor sort of memory that only works backwards,' the Queen remarked.

Posted by: Anne on October 20, 2003 11:17 AM

We should consider the possibility that Snow didn't really think very hard about what he was saying. He might have made the mistake that other ill-disciplined Treasury Secretary officials have made, just talking off the cuff, you know, about generally, as it were, how things usually work, in a way, most of the time. Was he talking about Fed policy? Well, not specifically, no. Was he making a prediction about market rates? Well not a prediction, really, but maybe an observation, of a general sort, not really related to the official ressponsibilities of the job.... A corporate CEO showing off for the interviewer. The only report I've seen offers very few actual quotes from Snow and lots of interpretation, so we don't really know the context. We only know that he hasn't caught on to the "never give them the wrong sound bite" requirement of the job.

Posted by: K Harris on October 20, 2003 12:11 PM

K Harris-
Why would you expect an ex-CEO to know this?? A CFO might know it. Going from CEO where everyone jumps when you say jump to a government financial role where words need to be carefully parsed is too difficult for most CEOs.

Posted by: bakho on October 20, 2003 01:55 PM

David M. Kennedy- Banker
John Connally- Law, Politician
George Schultz- Economics MIT
William Simon- Salomon Brothers

Donald Regan- CEO Merrill Lynch
James A. Baker, III- Lawyer, Politician
Nicholas F. Brady- MBA, Banker, Senator
Paul H. O'Neill- CEO aluminum
John W. Snow- CEO railroad

W. Michael Blumenthal- Ph.D. Economics
G. William Miller- Engineer, CEO

Lloyd M. Bentsen- Law, Finance, Senator
Robert Rubin A.B Economics, Law, Finance
Lawrence Summers- Harvard Economics Ph.D.

Since Nixon's appointed Schultz, the GOP has gone away from having economists at Treasury to CEOs and politicians. Carter appointed a CEO and look where it got him. Clinton started shaky with the politician Bentsen, but then got on the economics track.

Does it make a difference??

Posted by: bakho on October 20, 2003 02:24 PM

As I remember, Bentsen did a very good job. Got out front when a politician was needed and provided cover for the finance and economics experts when that was needed. Before you sneer at the politicians, remember that Bentsen and Leon Panetta were the first team for Clinton 1993, who set the pattern for Rubin, Summers, etal

Posted by: Joshua Halpern on October 20, 2003 02:51 PM

OK. The Administration is all mixed up on this one but go read the National Review. Victor Canto is saying that fiscal stimulus does not raise interest rates (his oped is beyond laughable) while Bartlett says they will. But then Bartlett is suggesting we don't need to raise taxes as spending cuts are in order. Does he realize spend and borrow Bush is still President?

Posted by: Hal McClure on October 20, 2003 03:48 PM

Snow's comments are motivated purely by politics. They tell us nothing about thinking at the Fed or even at the Treasury.

Ever since Bush came to power, members of his economics team have insisted that budget deficits arising out of tax cuts do not put upward pressure on bond yields -- at least not directly. They do not crowd out capital spending and they do not slow the rate of growth of the economy's supply-side potential. Rather, tax cuts lead to faster capital spending and more risk taking and thereby speed the economy's growth rate, both on the demand side and on the supply side. To the extent that bond yields respond to faster growth, they may rise in response to tax-cut stimulus. But that is not a BAD thing. Rather it is just a reflection of a GOOD thing: the faster growth.

As BD has pointed out, this line of reasoning is a half truth and clearly designed to mislead. But it is the current Republican party line and it should not be all that surprising to see Snow sticking to it. The Treasury Secretary is simply trying to ward off Democratic criticism of his budget policy. He wants to plant the notion that higher interest rates are a sign of success, not failure.

True, as BD says, this may complicate things at the Fed and may thereby damage the economy (a little). But John Snow's primary focus is not the economy. It is getting his boss re-elected.

Posted by: Gerard MacDonell on October 20, 2003 06:05 PM

Sounds like a good desription of a 'jobless recovery'. Also known as a 'portfolio recovery'.

Can I demand money?

Posted by: mdhatter on October 20, 2003 06:34 PM

I know it's off topic but I was hoping that someone could answer this question for me:

With both the Federal Reserve and the Federal Government trying as hard as they can to pump money into the economy, how is it that the money supply has fallen in each of the last few months at the same time that GDP is supposedly growing at the highest rate since 4Q 1999?

Posted by: Mark in Delaware on October 20, 2003 08:22 PM

M2 falling for several months? Are you sure? I see a one-time drop in September. Growth was 7.5% or so, annualized, in August. Don't know why it dropped in September.

Posted by: K Harris on October 21, 2003 11:06 AM

Hmm how can you fill a bath tub without putting any water in it ? Well if there is bathtub gin there should be bathtub pure grain alchohol (which secretary Snow seems to have been drinking)

Posted by: Robert on October 22, 2003 02:46 PM
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