Mosler Special Installment (guests: David Bezic & Warren Mosler) - Market Huddle Ep.146

[@rupertmitchell8487]

This was an outstanding interview. Fascinating. I am 100% with the view that MMT is an observable reality. I don’t care about the ideological biases of the “guns and butter” crew. Would love a follow up post-game analysis from Kev and Patrick along the lines of how to position portfolios if central bankers and politicians come clean on the MMT game. Watching Jay Powell in action last Friday it seems clear that the Fed is in no hurry to taper (and probably realised that it cannot). My conclusion: puts on financial assets are a waste of money. Cue the ZeroHedge doom-mongers. Come at me!

[@Achrononmaster]

Yeah. Mosler is more than just a "good guy" am I right? He is what they used to call in the old days a saint.

[@555frontier]

Is Venezuela or Zimbabwe MMT in practice..?

[@mustavogaia2655]

Yes. They are examples of what happen whne you apply MMT and the economy do not have the power to catch up with the debt, not the govt has the enforcement to tax. The descriptive aspect of MMT is not magic. It is simple accounting - most firms do not have money to pay for the expenses due next month/year. They buy products/services and expect to pay for them as they sell products/services. The problems come when you apply MMT in a national lavel and the economy does not grow to match the debt and/or govt lack the means/will to rectify thing. It happened all the time in Latin America. IT didnt work in there - every 5-10 years there is a reset, a few zeros cut off in the currency. It might work in the USA as long as American politician are less corrupt/inefficient.

[@Achrononmaster]

Yes, but the MMT implication for Venezuela are very different to the USA, because Venezuela peg the bolivar to the dollar. That means they do not have full fiscal space. So they cannot purchase anything for sale in bolivar, not if they want to defend the peg.

[@Achrononmaster]

Zimbabwe runs an MMT monetary system, but are not running MMT base case for analysis policy, so you cannot honestly say it is "MMT in policy," without adding caveats. MMT policy base case is simple: use the full fiscal space without generating inflation, using a job guarantee as a price anchor and anti-inflation countercyclical buffer. ZM are generating inflation, due to farming sector supply shock. The ZM government deficit is not causing their inflation, it is an effect of the supply shock, not the cause. They are in a spiral because they do not understand MMT. If they did the governemtn spending would go to shoring up farm supply by employing the now unemployed skilled farmers. Sadly those were ex-pats who now no longer live in ZM, so they kind of idiotically shot themselves in the foot by chucking the "white" farmers off their land. They will have to live with inflation until their farming output returns to previous levels.

[@impex500]

Thanks 👍

[@halbu_0]

Aww man, I've been waiting for this week in market history for so long

[@Achrononmaster]

@1:23:00 watch this Mosler GT900: kzbin.info/www/bejne/l5W2c5ale8dgiM0 It's more fun on the inside.

[@Lioc]

Absolutely interesting take on economic and financial issues, I just wonder how the deposit creation of commerical banks fits into Warren Mosler's views. Also I cannot (maybe yet) wrap my head around his take on interest rate hikes being inflationary, if I remember this bit correctly. But this interview definitely makes me curious to read more about MMT.

[@mack01]

I don’t know if you’re still interested in the answer but…. Interest rate rises increase inflation because of 2 main reasons: 1) higher rates mean the government must increase their deficit in order to pay the increasing interest cost on bonds they’ve issued (so more money is being spent into the economy) 2) Lots of businesses have debt (bank loans or corporate bond issuance) so an increase in interest rates directly increase their costs. Therefore, they may raise prices in order to keep up with their growing interest bill.

[@thomasd2444]

1:07:00 - Mark LeVoir

[@evidently4772]

Fascinating to hear about the origins of MMT (thank you!) but I'm concerned the description of EU mechanisms may mislead. Our North American friends may better imagine the EU as a free trade organisation (think NAFTA) than a sovereign. It is true that those EU countries that choose to participate in the Euro have to agree common fiscal constraints that they dictate to the central bank (ECB), and this is a continual source of argument between them. However each EU member country remains sovereign with its own foreign policy, domestic taxation, healthcare system, etc. Not all choose to participate in the Euro. The institutions of the EU have no legal sovereignty and have can act only on concensus instructions from member countries. Arguments about what instructions to give to the ECB are an example of this, as indeed is Brexit (no war is needed to leave - just an individual sovereign state's choice). Like all EU institutions, the power of the European parliament is secondary to the power of the heads of government of the individual countries. Its main role is to check back with local citizens regarding free trade rules. For example, common medical device regulation (like FDA in US) are proposed jointly by health ministers from member countries. The purpose is that manufacturers have only one set of regulations to comply with, rather than different ones for different countries, so it makes trade easier/cheaper. But before any changes are agreed the European parliament members will check they don't cause problems for local companies in their region. That's why those running for European parliament are likely to run on local and perhaps boring/detailed issues. Hope this helps!

[@steviewonder417]

Mosler's point is that without sovereignty over their money they aren't really sovereign at all.

[@evidently4772]

@@steviewonder417 thanks for the reply. I agree that is an interesting talking point for him to make and he begins it well. Where I think he gets confused and becomes misleading is from 26:30 "Italian parliament used to...[have] a foreign policy...now they're just like New York or California...where it's all local politics..." I think this would come as news to the Italian army! And to the Italian foreign minister who has a seat at NATO summits, UN security council, etc. Trying to say Europe now works like the US because some fraction of its countries have an (optional) common currency is a vast over-simplification that I don't think would help anyone who wants to invest/work/travel/understand culture in Europe. He then gets muddled because tries simultaneously to say that the European parliament is like the US Congress whilst complaining that this parliament has no power. This seems muddled thinking. Indeed the parliament's powers are very limited as it exists only to check back with local people on minor details. But it is designed like this precisely to preserve the sovereignty of nation states that he was so concerned about. It cannot overrule the democratically elected ministers of the nation states. If it were like congress it would limit the powers of the nation states, and Europeans (on average) don't want that.

[@steviewonder417]

@@evidently4772 I appreciate the response but once again these countries that have given up their sovereign issuance of currency have now hamstrung themselves to provision all the sectors of the state you mentioned. They are fundamentally cucked albeit not so much that they literally don’t have a military but that the continued provision by way of their own policy making alone is not the reality anymore.

[@evidently4772]

@@steviewonder417 Thanks also. I think that would have been a really interesting point if he had articulated it like that. There was no need for him to say misleading things about how the EU works in order to make the point that you are making. Unlike your more nuanced description he literally did say that Italy has no foreign policy. Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania, Sweden: these are the EU member states that *don't* have the Euro. The UK never had the Euro when it was an EU member and was highly unlikely ever to do so - contrary to what he implies the UK did not need to leave the EU to avoid the Euro - Euro participation is a decision for the nation state. He talks about 'Europe' as if it is all one thing when it really isn't, and that doesn't help investors' understanding at all.

[@trixn4285]

The ECU is a bunch of countries that fixed their exchange rates to one-another and then got rid of their central banks to give the power to a supra-national organisation that doesn't give a fuck about high unemployment and massive trade imbalances. In fact they created it with the explicit rule to not give a fuck about those.

[@Lioc]

I would also be interested in how Michael Pettis' views might overlap with Warren Mosler's, I feel like there could be some valuable synergies. In general I think, the way market participants look at the economies, is often more enlightening than the view of pure academica.

[@thomasd2444]

49:38 - The historic political economy is comprised of fixed exchange rates

[@stumpy25lbs]

When Draghi said the ECB would "do what it would take" (to bail out Italy/Greece/Portugal/Spain) how do you think the world would have reacted if Germany hadn't been there to generate all the economic productivity to support such a bail-out? My point is, the world needs to believe in the ability to support the bail out (aka money-printing / fiscal and monetary easing) with genuine productive growth, otherwise the process is doomed to fail. This is the difference between the US and EU, compared to say Zimbabwe and Venezuela. The US is very lucky to have this global faith (by those who have lent it $$, that are currently being devalued) - but that underlying faith can only survive a finite amount of currency devaluation...

[@Achrononmaster]

Spencer, you did not grok MMT. Bail outs are debt cancellations, since the ECB is the issuer when it buys bad debt there is no consequence for the ECB other than political. So it is not a claim on real resources. QE is not "printing money," it is an asset swap, so does not change the monetary base, in fact it is contractionary because when you sell bonds for cash you lose the interest-income. Increasing reserves does not increase money in circulation because banks do not (and _cannot_ by the very software they get licenced to use) loan out their reserves or deposits, they can only issue credit if they can find a credit-worthy borrower. Just examine the banking rules! (We are not talking about shadow banking here.) There is no question of faith the way you put it involved in Zimbabwe and VZ; anyone seeking their goods will be willing to pay a fair price in their own currency unit, the exchange rate being a mere conversion factor of no real consequence for real trade (it has consequence for purely financial trades and import/export balance), and willing sellers will be found at any currency value provided tax liabilities are still in place. In these countries the inflation is not being generated by government issue, it is generated by corruption (in the case of VZ) and supply shock + corruption (in the case of ZM) . The government deficits are an _effect_ of the corruption and supply shock, not the cause. The USA is not "lucky" by world standards, there is no more faith in their currency than there is in the AUD or UKP or Yen or NZD or CND, since all these currencies are backed by tax liabilities that have been proven to be redeemable. Issuing more money for goods & services rendered does nothing at all to undermine such trust. To undermine trust you have to blow up the IRD. The US government does not need to borrow any USD. It issues Treasury bonds _to support an interest rate target,_ not to fund spending. You'd know this if you examine the balance sheets; when Congress spends it injects bank reserves (a reserve add), that pushes the overnight rate to zero, so they issue bonds to support a 2% interest rate to stop the interbank cash rate going to zero (a reserve drain). They cannot perform a reserve add without a reserve drain if they want a non-zero interest rate. Longer maturity bonds are issued to control the yield curve. If Treasury stopped issuing bonds the overnight rate would fall to zero, and it could stay there, with no impact on Congress ability to spend. A government only needs to tax or borrow before spending if they do _not_ issue their own currency. If they do not impose tax liabilities, or if they pay arbitrary high wages, then the value of the fiat currency goes to zero, and ultimately no one will accept the currency, and will demand gold (or bread or whatever), from their private employer, in return for their labour time. But why would any government choose to give up currency sovereignty? It'd be madness, or, we could say, it would be European.

[@Basta11]

Normally before the Euro, these countries that have trade surpluses will see their currency rise. The German Mark would go up relative to countries with trade deficits with them like Italian Lira. Italian goods would then be cheaper for Germans to import while German goods would be more expensive for Italians to import. This is a negative feedback mechanism which keeps the imbalances from getting out of hand. Today, Germany and France pretty much sell their goods in Euro, countries like Greece, Italy, and Spain cannot compete by lowering their currency. There is no correcting mechanism other than a Euro transfer of wealth. This is similar to the US where many less productive states like South Carolina and Kentucky are always at a trade deficit to more productive states like NY and Massachusetts. The Federal Budget pretty much is the way the wealth is transferred as less productive states get more in Federal funding than they pay in taxes.

[@jamesgoodman3645]

What about Rheinhart and Rogoffs work saying that more debt, less GDP (specifically over 90% of GDP). The Achilles heal of MMT.

[@Achrononmaster]

What??? Rheinhart and Rogoff are doing fictional studies, they've been proven wrong, empirically, many times over, especially by the case of Japan and now even the USA is proving them wrong. So do not believe theoretical studies like Rheinhart and Rogoff, trust the real data available to your eyes instead. More government debt either adds to or supports GDP _ceterus paribus,_ since it adds to monetary base without inflation provided the spending is paying for labour at current market price, not depleting real resource capacity. You reach limits Rheinhart and Rogoff allude to only when you've got maximum resource use, i.e., full employment and/or energy resource depletion, and the USA is nowhere near that limit. Also, go=rowing _private debt_ also adds to GDP, since one person's spending is another's income, but it is the _rate of change of credit_ that counts here, if private debt goes above about 150% of GDP and is growing at a rate above 15%, then you get a type of Minsky instability (financial fragility: the debt servicing rate starts exceeding the real production growth). For reference, see _A Brief History of Doom_ by Richard Vague.[^] Higher government debt reduces private debt, dollar-for-dollar. Rheinhart and Rogoff do not understand this because they think in terms of ISLM or loanable Funds models, which are inapplicable to the USA ever since they came off the gold standard. [^] Richard Vague's analysis of the data for several nations concludes: "Rapid growth in lending is the key harbinger of financial crisis. In examining financial crises from 1945 forward, a period for which we have more complete data, I’ve found that a financial crisis is highly likely if the ratio of private debt to GDP grows by 15 to 20 percentage points or more in a five-year period and the ratio of overall private debt to GDP reaches or exceeds 150 percent. This is a general guideline, to be applied with reflection and judgment." So it is private debt that is the danger, not government debt. Government deficits add to money supply, so eases private debt (if the distribution is fair with a decent wage share, one problem is it is not fair). Check out Steve Keen's lectures, he goes into detail over why economists like Rheinhart and Rogoff are either ignorant or frauds. Government deficit = Private surplus, to the dollar. The risk is not to GDP but to inflation. Yet inflation is not a risk except to hoarders of money, high inflation can often accompany high _real GDP_ such as in the case of Turkey: data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2020&locations=TR&start=1960 data.worldbank.org/indicator/NY.GDP.DEFL.KD.ZG?locations=TR You will see it is the _rate of change of inflation_ (acceleration of inflation) that matters, not the absolute level of inflation, that is because Turkey issue their own currency, so it is a numeraire. So despite dramatic collapse in the Turkish lira exchange rate, their economy is still humming along for the good of foreigners. The exchange rate collapse benefits their exporters.

[@markrollinson2257]

If you look at National economies with an unbiased eye then you can only conclude that MMT is not an idea about how things should be, it's a description of how things are and it's irrefutable. There are so many examples where Govt. expenditure was not constrained by revenue e.g. bank bailouts, stimulus packages, world wars etc. that it becomes ridiculous to deny it. The concept of Govt. debt (assuming it's denominated in its own currency) is equally ridiculous because it isn't debt in any meaningful sense. It's just some portion of the money that the Govt. has already put into the economy being moved from one bank account into another and which can just as easily be moved back again. You could eradicate all of the US so called "debt" to China overnight simply by moving all those $'s held in China's Securities account at the Fed into their Reserve account at the Fed and, voila, all the "debt" is gone. So what? What difference would it make? As far as I can tell the opponents of MMT misunderstand it as saying that the Govt. can simply create money and the population could sit at home and do nothing other than collect their welfare checks. It doesn't say anything of the sort. Money itself has no intrinsic value, it's only value is in what you can buy with it so given that the US is not an autarky (I don't think any country is anymore) then the only ways the US could buy foreign goods is either with foreign currency (but where do you get that from if you don't have anything to sell that other countries want) or with US$ (but the same problem exists in why would anyone want US$'s if they can't buy anything they want with them) or exchange of goods & services - but you need to have them in the first place for other countries to want them. Exponents of MMT understand that you still need a viable economy in order to get all the foreign and domestic goods and services that your country needs/wants without unwanted levels of inflation.

[@galactus1111]

wish Kevin had been the one to do the interview instead...

[@nicholasscholten4838]

MMT is no different than just having the US treasury issuing currency per the constitution. The government should not be borrowing money from a central bank, i.e. end the fed. Of course that will never happen.

[@steviewonder417]

The government doesn't borrow money from the FED to spend. The debt to the FED is not monetizable. Which is why all interest on the bonds the FED holds on its balance sheet go directly back to funding the TGA. You are misinformed.

[@nicholasscholten4838]

@@steviewonder417 Chico from a third country, I am not miss informed. Ah...the government is running a trillion dollar DEFICIT......

[@steviewonder417]

@@nicholasscholten4838 Yeah that's the private sector surplus

[@nicholasscholten4838]

@@steviewonder417 i get the hole mmt thing. My point is that the constitution states.......the treasury will issue or print the currency. There is no need to issue bonds. That is my point.

[@Achrononmaster]

@@nicholasscholten4838 Correct, there is no need to issue bonds, unless they want to maintain a non-zero interest rate. The question is why the CB desires a positive interest rate? Since it is a cost to firms and basic income for people who already have money, it promotes inflation. And I agree, the Fed is an anachronism. Congress should consolidate the payments system and merge Treasury and Fed operations. It is a ridiculous pretence that the Fed somehow disciplines Treasury. There is no such discipline. Congress gives the Fed its marching orders, and _voluntarily_ conceded interest rate policy. But functionally the Fed+Treasury is already consolidated. The value of making consolidation formal (i.e., Congress directly hires the Fed Board) would be political --- it would remove the myth in so many people's heads that the central bank is independent. They've never been independent, they only think they are. They have always answered to Congress. Congress _voluntarily chooses_ to not discipline the Fed. Why? Because Congress are infested with neoliberals who are sheep following voters--- they ideologically hate it to be known they are responsible for anything, so they psychologically need the pretence they have no control over the "independent" Fed.

[@stevearnold4613]

On the point of why people who know this is how things work, don’t educate and confirm the truth to those who oppose, I feel as a trader that someone has to take the other side of the trade! Otherwise we would not have a functioning market.

[@Achrononmaster]

What? Trade relations asymmetries are not the same as knowledge asymmetries. It benefits no one if currency monopolists are ignorant that they are the monopolist, because the usual result is mass unemployment, which in one way or another reduces everyone's potential rate of increase in standard of living.

[@somejohndoe3004]

First !

[@johnnyt1175]

Low interest rates caused an explosion in housing prices. That's asset price inflation. Warren hasn't addressed this.

[@thomasd2444]

See the documentary , THE CON

[@johnnyt1175]

@@thomasd2444 But that's just about fraud. It's not a documentary by Mosler, doesn't express the views of MMT.

[@Achrononmaster]

Wrong Johnnie clamps. House price inflation is driven by willingness of banks to extend mortgage credit, often fradulently, not by low rates. Banks make profit off the rate spread, so do not actually care what the interest rate is, they care only that it is relatively stable. Banks will lend to any credit-worthy borrower regardless of the IR, since they do not lend reserves or deposits. The loan creates the deposit.

[@johnnyt1175]

@@Achrononmaster Is that what Warren Mosler, Randall Wray claim? I wouldn't argue with them. If the interest rate on savings is higher than mortgage rates then money from speculators will go into savings instead of bidding up house prices, but that is the spread, as you say, I guess. If interest rates were to rise suddenly there would be plenty of defaults, and that would cause a fall in prices, but again you may be correct, the prices were not set by the interest rate in the first instance, not in the way that the Mises school asserts that they are. So that has certainly changed my thinking on it.

[@somejohndoe3004]

If I'd have an ennemy nation I would want to subdue without using the army I'd try to convince them to go MMT.

[@19battlehill]

You are thick

[@somejohndoe3004]

@@19battlehill Reported as harassment/bullying

[@Achrononmaster]

Dude, the USA, Japan, UK, Australia, Canada, NZ, ... they are all already running MMT systems. What part of "monetary operations" did you not understand? When MMT describes monetary operations this is not referring to CB monetary policy, it is referring to the accounting rules and software used. All the world, for the most part, is already operating MMT systems, and have been since getting off the gold standard. You do not "go to MMT" instead you try to understand it to improve employment with price stability. Why would you not want that? If I had an enemy I'd want them _not_ to understand MMT, but then really that just is nasty and hurts their workers, who are innocents, so I would not wish ignorance on even my enemy. It is healthier to have friends. Every rationally acting enemy is really a friend or ally in waiting, you just have to understand each other.

[@somejohndoe3004]

@@Achrononmaster 'There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.' - John Adams 1826 Does the USA, Japan, UK, Australia, Canada and NZ look like conquered nation to you ? You can add a few European nations in there for good measure. If it quacks like a duck... but we can agree to disagree, that's just as fine.

[@mustavogaia2655]

I wonder whether those who think that MMT is a intellectual breakthrough or a controversial idea had ever manage a company or kept a business running. The descriptive aspect is terribly plain. The issue is that if it is applied in a economy strong enough to keep up with the govt spending or a govt prudent enough to act when MMT consequences start to show. At best is a good narrative or "academic" support for politician prone to spend.

[@steviewonder417]

The federal government is not a business but it has to be provisioned.

[@mustavogaia2655]

@@steviewonder417 Ok, but I sincerely dont see where people take the notion that the money spent in a year by a govt is previously on the gobt coffers. At least on modern systems (executive under legislative supervision) the annual budget is an authorization to spend, mostly, on future revenues.

[@steviewonder417]

@@mustavogaia2655 the policy making in question is to determine spending beyond revenue capacity. The idea that the gov is borrowing to spend at all is a misnomer and a hold over from a fixed exchange rate era.

[@mustavogaia2655]

@@steviewonder417 yes, I agree and that is exactly I dont see how revolutionary MMT is. "Spending beyond debt capacity" is probably the problem.

[@Achrononmaster]

@@mustavogaia2655 MMT is not all that new knowledge, everything used to be understood. The knowledge was corrupted. Mosler often points out the only new contribution of MMT is that, (1) CB "borrowing" is functionally the same as Treasury debt issuance = interest rate maintenance, not a funding operation, and (2) taxation by design generates unemployment. No one in writing had stated this truth before in known literature. But it is revolutionary, we've made MMT revolutionary, precisely because this knowledge was lost in history, and deliberately obscured by fraudulent orthodox academic economics taught in all schools. When you are overcoming an entrenched orthodoxy I say you are pretty much a revolutionary (a Copernicus to a Ptolemy) even if your knowledge is ancient and simple to comprehend.

[@nyxjoy1277]

Has this so-called guru of MMT never heard of credit creation by the commercial and shadow banking systems?!! Shockingly ignorant.

[@555frontier]

He said engineering was too difficult for him, what do you expect?

[@steviewonder417]

All dollars have the same origin. All endogenous credit is liabilities against deposits lol. It all cancels out to zero. Snider and co. are wrong.

[@Rob-wx2rq]

Third

[@chel3SEY]

A pity Mr Bezic's voice is SO boring.