What's in your wallet? Ask the new Treasury Secretary

Summary

Podcast Summary: "What's in Your Wallet? Ask the New Treasury Secretary"
The Indicator from Planet Money | Released on November 27, 2024

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Introduction

In the November 27, 2024 episode of The Indicator from Planet Money, hosts Darian Woods and Waylon Wong delve into the pivotal role of the U.S. Treasury Secretary and its direct and indirect impacts on everyday Americans. Titled "What's in Your Wallet? Ask the New Treasury Secretary," the episode explores recent political moves, including President Donald Trump's executive orders on tariffs, and introduces Scott Besant as the Treasury Secretary nominee. Through insightful discussions and expert analysis, the episode demystifies the complex functions of the Treasury Department and elucidates how its decisions resonate in the daily financial lives of citizens.

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Trump’s Tariff Announcement and Treasury Secretary Nomination

The episode opens with Darian Woods highlighting the political climate following Donald Trump's inauguration on January 20. Despite the transition, Trump made significant waves in the market by announcing an executive order imposing a 25% tariff on goods from Mexico and Canada, and an additional 10% on imports from China. This move sets the stage for the critical discussion on the Treasury Secretary's role in navigating such economic policies.

Waylon Wong emphasizes the gravity of the Treasury Secretary nomination:

“We watch this nomination closely because who is selected as the Treasury Secretary is a big deal” (00:37).

Darian connects this to popular culture by referencing Alexander Hamilton, the first Treasury Secretary, drawing parallels between history and current events:

“Alexander Hamilton was the very first treasury secretary. But aside from historical hip hop musicals, what are the actual implications of this job for you and me?” (00:51).

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Understanding the Treasury Department’s Impact on Everyday Finances

To unravel the Treasury Department's influence, the hosts interview Karen Dinan, the former Chief Economist at the Treasury under Presidents Obama and Bush. Karen provides a foundational understanding of the Treasury's responsibilities and how they translate to the average person's wallet.

Managing Government Finances

Karen begins by explaining the Treasury Department's role in overseeing the government's financial operations:

“Let's talk about the money going out of the government. So treasury is essentially cutting the checks. So when people get their Social Security payment, it comes from the Treasury Department” (04:02).

Darian underscores the routine yet critical nature of these tasks:

“So if you're receiving Social Security or are employed by the government, that's Treasury's hands all over your payment each month” (04:10).

Debt Ceiling and Extraordinary Measures

The conversation shifts to the perennial issue of the debt ceiling and the Treasury's role in navigating funding shortfalls:

“Over the last decade or so, the debt ceiling has become this recurring fixture of politics where the government routinely runs out of authorized funding” (04:19).

Karen elaborates on the extraordinary measures the Treasury employs to manage these crises:

“Some of those extraordinary measures include playing with federal employees savings funds so that the government has more cash on hand for other things” (05:06).

This highlights the delicate balancing act the Treasury must perform to maintain government operations without incurring a default.

Tax Collection and the IRS

Waylon Wong points out the Internal Revenue Service's (IRS) critical function within the Treasury:

“The IRS... makes sure that people are paying the taxes that by law they owe. And that's really important because if some people aren't doing that, that means the rest of us have to shoulder that burden” (05:44).

This emphasizes the Treasury's role in ensuring fiscal responsibility and the broader implications for economic equity.

Managing Government Debt and Interest Rates

Karen Dinan discusses the Treasury's responsibility in managing national debt and its ripple effects on the economy:

“If they [investors] lose confidence in the US Government to making the payments on that debt, then those investors are going to demand a higher interest rate. So that’s likely going to then increase interest rates for us all” (07:28).

Darian connects this to personal finance by explaining how higher interest rates can affect mortgages, car loans, and credit cards:

“So a mortgage could be more expensive. Car loans, credit cards” (08:05).

Financial Stability and Crisis Management

The Treasury's role in maintaining financial stability becomes paramount during economic downturns. Karen recounts past financial crises, emphasizing the Treasury Secretary's duty to stabilize the economy:

“A seizing up of the financial system is something that could be very destructive for the economy. It also could cause a lot of job loss” (08:15).

She references the 2008 financial crisis, where then-Treasury Secretary Henry Paulson orchestrated a $700 billion bailout to purchase toxic assets, underscoring the high-stakes decisions the Treasury must make.

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Scott Besant’s Stance on Tariffs and Future Implications

As the episode progresses, attention shifts to Scott Besant, the nominated Treasury Secretary, and his position on the newly announced tariffs. Darian notes:

“Scott Besant has given lukewarm support for them while also saying that abandoning the international trading system would be a major economic and strategic mistake” (10:20).

This balanced stance suggests that Besant may navigate a middle path, supporting protectionist measures to some extent while recognizing the broader implications of straying from established trade frameworks. The hosts tease a deeper exploration of the tariff trade-offs in the upcoming episode:

“We'll go deeper into the tariff trade-offs Scott may face in our next episode out Monday after our Thanksgiving break” (10:20).

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Conclusion

The episode wraps up with a Thanksgiving greeting and production credits, leaving listeners with a comprehensive understanding of the Treasury Department's multifaceted role. By dissecting the implications of the Treasury Secretary's decisions, The Indicator effectively illustrates how high-level economic policies trickle down to affect everyday financial scenarios.

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Key Takeaways

1. Treasury Secretary’s Influence: The Treasury Secretary plays a crucial role in managing government finances, tax collection, debt management, and ensuring financial stability—all of which have direct repercussions on individual wallets.

2. Impact of Tariffs: Recent tariff announcements by President Trump highlight the interconnectedness of trade policies and Treasury operations, with Scott Besant's nomination indicating potential future shifts in economic strategy.

3. Financial Stability: The Treasury's ability to manage crises, such as the 2008 financial meltdown, underscores its importance in safeguarding the economy and, by extension, employment and personal finances.

4. Everyday Relevance: From Social Security payments to mortgage rates, the Treasury Department’s actions permeate daily financial activities, making its role indispensable to regular Americans.

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Looking Ahead

Listeners are invited to tune into the next episode for an in-depth analysis of the tariff trade-offs Scott Besant might encounter, further unraveling the complexities of Treasury policies and their tangible effects on the economy.

Transcript

[NPR]

NPR.

[Darian Woods]

Donald Trump takes office on January 20, but that hasn't stopped him from making waves in the market. On Monday, Trump announced one of his first executive orders would be to charge a 25% tariff on all goods coming in from Mexico and Canada, as well as an extra 10% for goods from China. We were wondering what the Treasury Secretary nominee Scott Besant, thinks of that here at the indicator.

[Waylon Wong]

We watch this nomination closely because who is selected as the Treasury Secretary is a big deal. That will be clear to anyone who's watched or even hummed along with Hamilton, maybe the most famous musical about a Treasury secretary ever.

[Darian Woods]

Yes, Alexander Hamilton was the very first treasury secretary. But aside from historical hip hop musicals, what are the actual implications of this job for you and me? How does the treasury affect regular Americans? This is the indicator from Planet Money. I'm Darian Woods.

[Waylon Wong]

And I'm Waylon Wong. Today on the show, how the new face of American economic management might affect your wallet.

[NPR]

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[Darian Woods]

To learn more about what the Treasury Department does, we spoke to Karen Dinan. Karen was the chief economist at treasury under Obama. She's also worked under President Bush.

[Waylon Wong]

We asked Karen how the treasury might affect our wallets.

[Karen Dinan]

Do you have your wallet with you?

[Darian Woods]

I do, yes.

[Karen Dinan]

Do you have a $10 bill in your wallet?

[Darian Woods]

Oh, I do have a $10 bill.

[Karen Dinan]

What do you see on that $10 bill?

[Darian Woods]

I see Alexander Hamilton, now famous.

[Karen Dinan]

Yes. Our first Treasury Secretary. What do you see on the back of the bill?

[Darian Woods]

I see the U.S. treasury. Yes.

[Karen Dinan]

Those are steps that I got to go up every single day. So whose signature do you see on that $10?

[Darian Woods]

I see too the Treasurer of the United States and Steven T. Mnuchin, former, now Secretary of the Treasury. But I guess he was the Secretary at the time of the printing of this bill. So it sounds like what you're saying is a lot will change, but what we know will change for sure is the signature on this $10 bill.

[Karen Dinan]

The signature on the $10 bill will change.

[Darian Woods]

Okay, so that's how the changes in the Treasury Secretary will literally change my wallet. But how will this affect everyday Americans finances?

[Karen Dinan]

Yeah, so let me break it out.

[Waylon Wong]

Karen says to think of the treasury as the agency that's in charge of the government's finances. You know, money coming in and out.

[Karen Dinan]

Let's talk about the money going out of the government. So treasury is essentially cutting the checks. So when people get their Social Security payment, it comes from the Treasury Department. If you received a payment from the government during COVID like one of those economic impact payments that came from the Treasury Department.

[Darian Woods]

So if you're receiving Social Security or are employed by the government, that's Treasury's hands all over your payment each month. And in normal times, this is a fairly routine task. Treasury advises the President and Congress about spending. They do the deciding and then the treasury writes the checks. But over the last decade or so, the debt ceiling has become this recurring fixture of politics where the government routinely runs out of authorized funding. And several times the treasury has had to resort to what are known as extraordinary measures to find cash to pay, say Social Security entitlements.

[Waylon Wong]

Yeah, it's become a much more exciting job, if you want to characterize it that way.

[Darian Woods]

That is one way to put it. And some of those extraordinary measures include playing with federal employees savings funds so that the government has more cash on hand for other things.

[Waylon Wong]

The new Treasury Secretary could even take the nuclear option and default on debt payments.

[Darian Woods]

Yeah, that is unlikely. At least we hope so. Now on the side of money going into the government and out of our wallets, the big one is the Internal Revenue Service, the irs, and that's a bureau within the Treasury Department.

[Karen Dinan]

It collects the taxes. It doesn't set the law about Taxes, that's done by Congress. But it's the Treasury Department and the Internal Revenue Service that makes sure that people are paying the taxes that by law they owe. And that's, that's really important because if some people aren't doing that, that means the rest of us have to shoulder that burden.

[Waylon Wong]

So if I get audited this year, God forbid, it's the irs, which is within treasury, which is overseen by this new Treasury Secretary, you know, who to plead messy to. I'm going to knock my receipts now. Now, generally speaking, the Treasury Secretary and Treasury advises the President and Congress on taxing and spending decisions, which is nothing to snif. You know, Scott Besant will have to be the one fronting up to Donald Trump about whether or not his tariff plan can make up for lost revenue from tax cuts and shepherding a big tax or spending bill through Congress. Accounting for all the tweaks and changes suggested by politicians is an art. Treasury also implements those decisions, but the Department doesn't actually have much power to change big policies on its own. That's for the President and Congress. Treasury's power is having the politicians ears and being the ones with the spreadsheets.

[Darian Woods]

Yeah. So treasury has these restrictions on what it can do. But perhaps a big reason why Trump took comparatively longer to decide on the Treasury Secretary is that it has a lot of scope to mess things up.

[Waylon Wong]

And that might be why Scott Besant is seen as one of the more business as usual cabinet picks.

[Darian Woods]

You may be onto something. So let's take the example of government debt. Treasury is the one that holds the auctions for government bonds. You know, the IOUs that fund some of the government.

[Karen Dinan]

It's really important that that debt is managed responsibly. But it's also really important that the payments are made on that debt. And you know, I think the average person might think, oh, that's, that's not really relevant to my life. But it is relevant to your life because if the people who are buying that debt, if they lose confidence in the US Government to making the payments on that debt, then those investors are going to demand a higher interest rate. So that, that's likely going to then increase interest rates for us all.

[Darian Woods]

So a mortgage could be more expensive. Car loans, credit cards.

[Karen Dinan]

Absolutely. Yeah.

[Darian Woods]

Okay, so that definitely affects all of us then.

[Waylon Wong]

Karen says the stability of the financial system is in large part managed by the Treasury. Karen says take the great financial crisis in the late 2000s. Banks and lenders were in a panic. Loans were freezing up so people wouldn't.

[Karen Dinan]

Be able to get those mortgages that they needed to buy homes. Firms wouldn't be able to get loans to build factories. Firms. Some firms need loans to be able to make payroll on a regular basis. So, you know, a seizing up of the financial system is something that, that could be very destructive for the economy. It also could cause a lot of job loss. And so the treasury secretary needs to be there to step in and do what he or she can to stabilize the financial system and mitigate the harm that will be caused.

[Darian Woods]

Back then, that mitigation meant bailouts. Then Treasury Secretary Henry Paulson got Congress and the president to approve $700 billion, which treasury would use to buy toxic assets that no one else wanted to touch. And that was seizing up the financial system. Those toxic assets were mostly based off mortgages that a lot of people weren't able to pay back.

[Waylon Wong]

Treasury secretaries have dealt with financial crises all throughout US History. The first was Alexander Hamilton in what was known as the panic of 1792. Karen says that firsthand, the greatest time for treasury officials was the mid 2010s when the Alexander Hamilton musical brought the role of treasury secretary to a wider audience.

[Karen Dinan]

I think a lot of us had spent our lives as wonky people, nerdy people who, you know, were just, you know, into our subject areas. But then we had this moment where we felt really cool.

[Darian Woods]

Yeah, you could go to dinner parties and people, people would know what you were doing, roughly.

[Karen Dinan]

Absolutely.

[Waylon Wong]

And to recap, here's what they were doing. Managing the money coming in and out of the government, running the debt auctions, helping keep banks safe, and of course, writing the signatures on our bills.

[Darian Woods]

Now everyone was watching what the Trump treasury nominee's position on tariffs would be. Scott Besant has given lukewarm support for them while also saying that abandoning the international trading system would be a major economic and strategic mistake. We'll go deeper into the tariff trade offs Scott may face in our next episode out Monday after our Thanksgiving break.

[Karen Dinan]

Gobble, gobble.

[Darian Woods]

All right, Happy Thanksgiving, everyone.

[Waylon Wong]

This episode was produced by Cooper Katz McKim and engineer by Jimmy Keighley. It was fact checked by Sara Juarez. KK Cannon edits the show and the indicator is a production of NPR.

[NPR]

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