Warren Mosler eta inflazioa (2023)

Why The Fed’s Rate Hikes Are Making Inflation Even Worse | Warren Mosler

(https://www.youtube.com/watch?v=MEax1ngTWZw&t=37s)

Warren Mosler, founder of Valance Co., Inc. and author of “The 7 Deadly Innocent Frauds of Economic Policy,” is widely viewed as the intellectual godfather of Modern Monetary Theory (MMT), a framework for understanding money and debt which underscores a government’s ability to print money to pay for goods and services without relying necessarily on borrowing or taxation. Mosler joins Forward Guidance to apply these ideas to today’s financial issues. He argues why a failure to raise the U.S. debt ceiling would be truly catastrophic, and he makes the case that the Fed’s rate hikes are actually contributing to inflation, rather than fighting it, because the government is printing more money in order to pay its debt. Filmed on May 30, 2023.

Timestamps:

00:00 Risk Of Government Unwind Would Be Catastrophic

07:24 “Money Is Just A Series Of Dots Going On And Off In People’s Bank Accounts”

14:52 The Federal Reserve Prints Money

19:07 The Government Spends First, Taxes and Borrows Second

31:23 Permissionless

32:01 Quantitative Easing Does Not Have An Actual Effect On The Economy

33:17 High Interest Rates Mean More Deficit Spending

48:29 Challenging The Narrative of Volcker As The Slayer Of Inflation Dragon

54:00 Challenging The Wage Price Spiral

01:01:13 Currency Itself Is A “Public Monopoly”

01:04:04 We Are NOT In A Recession, Says Mosler

01:11:21 Is The Solution To Inflation To Cut Government Spending?

01:16 Blockworks Research

01:17:28 The Debt Ceiling

01:24:08 The Dollar

Transkripzioa:

0:02

foreign I am very happy to welcome Warren Mosler the founder of Valance

0:09

company and a early early founder and pioneer of modern monetary Theory Warren

0:16

so glad to have you on forward guidance welcome all right good to be here thank you thanks sir

0:21

Warren I heard you say recently that the debt ceiling uh issue if the U.S

0:27

government defaults on uh its debt it could be a really cataclysmic event now

0:32

fortunately it looks like that probably won’t happen but you said that it would be much much worse than many and

0:37

especially in financial press you know economists were anticipating why why did you say that

0:43

yeah they’re understating the risk because um when you come up against the debt

0:48

limit it means uh you might have to cut spending when you get to a certain point because that would be def suspended well

0:55

once you cut spending you’ve also reduced tax revenues and so once you’ve reduced tax revenues

1:01

and you have more spending cuts because you can’t run a deficit now in a simple government shutdown uh when they stop

1:08

paying people and stop spending the deficit goes up and it’s allowed to do that that’s not a violation they can keep paying certain things to keep

1:15

functioning but this has a dynamic aspect to it and it’s not a hundred percent I mean but it’s it’s there and

1:23

it hasn’t I haven’t seen it mentioned by anybody at all so it’s it’s

1:28

you know potentially you could take things down towards zero and almost instantaneously certainly within a few

1:34

weeks and so uh I I just don’t see that risk being discussed therefore it’s not being discounted in the market

1:41

because so walk me through that so the US defaults on it on its debt and it

1:46

doesn’t pay bondholder where where is this it’s not to default what happens is uh

1:53

they’ve run out of borrowing authorities so they can’t pay let’s say social security

1:59

so if somebody gets their social security and doesn’t get it now their income tax liability goes down

2:04

so now the government spending is cut further and so their income tax liability goes down more so it’s cut further you’ve got

2:11

this Dynamic process going on um you see what I’m saying by not

2:17

spending you’re also cutting off revenues and normally that would just

2:22

make the deficit go up because you’d be spending the same but revenues would be down well once you’ve hit the debt ceiling now you have to you can’t spend

2:29

so you have to cut some more so every spending cut that results in a revenue cut results in another spending cut

2:35

and you get a you know a dynamic downward spiral now it’s not in every bit of spending there’s a multiplier but

2:42

um there are things that stop because of this you know somebody you know might close their restaurant for a couple of

2:50

days and so they stopped paint their employees stopped paying taxes but you’ve got this Dynamic downward spiral most of our

2:56

taxes uh federal taxes are transaction based today so they’re highly unstable in an up Market good strong economy they

3:04

grow so fast you know they grow faster than even the government can spend money and in a doubt and the deficit goes down

3:10

and the slowing economy they um you know the deficit goes way up because

3:16

uh tax revenues fall off so quickly so it’s uh you know they’re they’re unstable to

3:21

begin with and that that Dynamic is not even being discussed I adjust a large pension fund

3:28

Global pension fund hundreds of billions under management and I asked them about this I said you’ve talked you get coverage from all

3:34

over the world has anybody mentioned this Dynamic process that might kick in they go no which tells me it’s just not being

3:41

discounted so Warren you said that if the U.S does not uh pay out Social Security you have

3:47

to someone you know a senior citizen who’s eligible then the tax liability goes down tell me about that because

3:55

number one I think it’s integral to mmt which is you know where is money created and where is it spent and what is the

4:01

order in which that happens you know when I was a kid and I first learned about social security the sense was

4:07

you’re paying into it and that you know when I’m seven years old and I’m receiving Social Security it will be

4:12

quote the money that I paid in when my grandfather told me about social security he paid into it he earned it

4:18

and therefore the money that he received as a senior citizen was you know the money that he put in but you know as you

4:25

know money money is a commodity and it’s not that simple so just tell us how is it that if the U.S defaults on uh you

4:33

know the U.S does not pay social security how is it that people who are you know paying the uh payroll tax who

4:38

are funding the Social Security how is it that that tax liability will go down and I guess the more broader point will

4:44

be if U.S government uh does not you know spend on firefighting or police how

4:50

does that make the taxes that people have to pay uh not payable yeah so um

4:57

most federal taxes or income taxes and they’re paid based on your income so if

5:02

the government has to withhold payment to you your income goes down and so your tax liability goes out if you’re going

5:08

to get paid a thousand dollars they might be uh 300 that might go to federal taxes 250 or something like that

5:15

so if they don’t pay you now the federal government uh didn’t get that 250 dollars

5:22

which had been being counted as part of their expected Revenue Stream So it cuts

5:28

into their revenue stream when they cut spending it cuts into the revenue stream like I said it doesn’t like it’s not one

5:34

for one it’s not 100 multiple but it’s a factor that is dynamic and uh if you

5:41

would would have re-spent that money uh paying your bills going out to eat that would have been somebody else’s income

5:46

and their uh tax revenue you know the money they would have paid in tax is

5:51

false and most of the money once it gets spent gets re-spent not mostly but quite a bit

5:57

of it right immediately all right it gets transferred to somebody else and look all my social security that I get

6:02

is taxable income so if I get 33 a little over three thousand dollars a month I’m paying

6:07

whatever a thousand dollars of taxes I don’t get the check I don’t pay the taxes you know I don’t re-spend the

6:13

money so somebody else doesn’t pay the taxes which is probably the larger effect if there’s a dynamic effect here

6:19

and I understand that um just because I don’t get the income uh

6:27

doesn’t necessarily mean that deficit went up at that moment because I didn’t pay the transaction tax but it starts

6:34

this process going whereas it’s re-spent or would have been re-spent transactions taxes aren’t

6:40

getting paid so the first person isn’t necessarily the impact you know

6:46

the negative the dynamic impact but the second the third all the multiplier effects of all these things are in there

6:51

and uh and it lowers tax revenue so that means that spending has to go down more

6:56

and it can be you know severe it has to be like

7:02

at least analyzed to look at to see how much uh damage this is going to do to

7:07

the economy and how quickly because it’s a uh it’s a cascading thing once it’s put in place once things start slowing

7:13

down then they slow down some more then they slow down some more and the federal government’s has to continue to cut

7:20

spending all the way down because its revenues are being cut all the way down that it’s really interesting this

7:26

scenario you describe it actually sounds like the a very uh anti-mmt case that

7:33

you would normally hear of we need to have the money and tax people so that we

7:38

can spend it uh first but I guess it’s because the debt see the debt ceiling you know is a artifact that’s you know

7:45

is it it’s not anti-mmt what what mmt does

7:51

is it’s a lens to view these policies to see what they’re going to do to us now when you talked about people’s idea of

7:57

money okay you know it moves from one you know account to another and it moves from the

8:03

banks and it goes offshore and it does all these things but I’d like to tell the analogy I like

8:09

to get people is if you look at your TV screen you’re watching a football game you’ll see people moving across the screen

8:15

but if you get right up close to the screen there’s just dots going on and off there’s no nothing moving on that screen

8:20

and apart from actual cash which is a very small part of the economy the money is

8:26

just dots going on and off of people’s bank accounts one number is going higher another one’s going lower there’s not

8:32

there’s nothing moving from one account to another okay and as a matter of accounting when

8:37

you increase one you account for that by decreasing another but that doesn’t mean anything actually move if I buy

8:43

something from a non-resident uh my bank account goes down his bank account at let’s say I have a back out

8:50

of Citibank my account goes down his account goes up they’ll say the money left the country

8:55

because it went to a German resident or it’s a Mercedes or something they have an account in Citibank but what did it

9:01

actually do the dollars were debited from my account credited to Mercedes account they didn’t go anywhere and so

9:07

um if he the headline rhetoric can be very confusing and the hardest part about what I say to people is not

9:13

understanding what I’m saying but trying to reconcile it with what you’re hearing everywhere else you’re a founding member of modern

9:20

monetary Theory rather I want to get your definition of monetary Theory but I want to ask it in a slightly uh

9:27

roundabout way yeah what is the animating principle right now in

9:32

mainstream discourse that uh modern that you know modern modern monetary Theory

9:38

uh challenges you know in other words what is kind of a mainstream belief that

9:43

modern monetary series says no actually this is not how this is not true it’s it’s another way okay well one thing is

9:49

the idea of all this uh rhetoric around the public debt and the deficit but I think we’ve

9:57

largely won that battle because when Obama President Obama went to do his stimulus package

10:03

they cut it in half he and uh Hillary Clinton went to China our Bankers to make sure that we could they’d buy our

10:10

bonds so we could pay for it Paul Ryan was talking about how we’re going to be the next Greece and Paul Krugman had

10:16

stack of papers on the president’s desk about how interest rates are going to go higher so all these things we heard

10:21

about leaving debt to our grandchildren and that type of thing by the time covet came around and

10:27

got to give credit uh Stephanie Kelton was on the front line she was on the Senate budget committee she wrote the

10:33

book she she did she popularized it uh to where it is today and uh and by the

10:40

time covet came around they’re talking about a trillion two trillion dollars and they’re the only discussion was

10:46

whether or not or not that spending would be inflationary there was no talk about these other things so that I think

10:52

is tells you how far it’s come and so I think they understand people understand today that the government checks are not

10:59

going to bounce we’re not going to go and solvent there’s something about the public debt they might not understand it but it’s

11:05

you know Ronald Reagan said if it gets to 90 billion we’re doomed all right so they get the idea that

11:11

it’s not something they need to worry about per se they need to worry about inflation right now that’s the biggest

11:16

word how much uh and what’s causing it and if it’s the public debt or if it’s the spending or if it’s Supply level

11:23

chains you know whatever so I think the mmt’s contribution has already been made

11:30

accepted and I’ll say change the world for the better because uh it put options

11:35

on the table that weren’t considered policy options before so that a representative government could you know

11:41

had more choices and use those choices to get us through the covet crisis now

11:46

you know whether you agree with them or disagree with them either you believe in an informed electorate or you don’t and I believe in informed electorate and so

11:53

uh the electorate has been informed certainly not completely about how it all works but enough to get the idea

12:00

that the government checks are not going to bounce unless there’s like a debt ceiling where they bounce their own checks they get

12:07

right and you’re absolutely right the discourse has changed our President Obama’s stimulus proposed stimulus it

12:13

was called you know all this government intervention socialist in retrospect that stimulus pales just in the dollar

12:19

amount to the kova stimulus that was passed under Republican Administration uh as well as uh you know tax cuts in

12:25

2016 also under a republican Administration so I guess that the theory was that that deficits are

12:30

inherently bad and that if you you’re borrowing money now your grandkids are

12:35

going to have to pay you right the reason of that is because the government prints the money it could always

12:41

monetize the debt and print green dollars AKA current dollars to pay off those yellow dollars bonds and that debt

12:47

is money yeah it’s even more detailed than that but this whole um sort of Damocles hanging over our heads

12:54

is not there anymore about nobody’s there’s no doomsday coming because the debt’s going to get to 40 trillion or 50

13:01

trillion what might happen is inflation might go up if there’s sufficient spending or supply chain or whatever you

13:08

know something could happen but nobody’s ever thinks the government’s going to bounce a check they just think the money could go worthless that’s a big set

13:15

solvency was front center before it’s like you can’t do this you’re going to be Greece in front of the IMF on your

13:21

knees shutting down having to them dictate terms to us as to what we have to do to continue if China doesn’t buy

13:28

the debt then we’re not going to be able to spend the money and we had our president and Secretary of State go to

13:33

China to negotiate to make sure they would buy our bonds that’s all gone okay I had Joe President Biden didn’t go

13:40

anywhere with anybody to make sure we could sell pots right that that whole

13:45

you know fear-mongering rhetoric is gone and I’ll declare Victory and move out

13:50

for mmt you know it’s my path the least resistance right now now I can explain technical details why that’s the case

13:57

and it’s it’s sort of because we just print the money but there’s a lot more to it than that we made the uh technical

14:05

arguments which are the same arguments that every stat senior staff guy in the FED has always had

14:11

and so when these people went to the FED to check this out it’s like hey that’s what we do this is how it works when we

14:17

spend we credit an account we change the number to a higher number president Bernanke said he was asked where the

14:22

money was coming from he said we just use the computer to mark up their account that’s where all the money comes from it sort of always came from there’s

14:28

no other place and so uh it’s not like a policy choice or something that’s you know it’s they’re the scorekeeper the

14:35

scorekeeper enters the score and so I can go into all that but it’s probably it’s probably not worth it right now

14:41

because you’ve on a limited time if it is I’d be happy to do it but that that’s gone now you know everybody like okay

14:47

president Trump said we just print the money that’s enough for most people and then we can move on

14:53

right and it when Stephanie kelton’s you know book you you referenced uh the

14:58

deficit myth excellent book I I recommend there’s a passage from that that I’m going to paraphrase that I may you know definitely get some details

15:04

wrong about when the government wants to spend money it simply directs the Federal Reserve to credit the bank of

15:12

the client the purveyor of whatever uh assets the the the the the government is

15:17

spending on and at first that’s really you know taught me a lot opened my mind

15:23

then I realized I don’t actually know if that is how the plumbing works but then

15:29

I realized that when when uh Stephanie Kelton and yourself perhaps refer to the government you really are talking about

15:35

the Federal Reserve the the treasury and the government do do not have these

15:41

Powers it is it is the Federal Reserve which is uh at least nominally independent from the government

15:49

well the Federal Reserve is an agent of Congress formed under the Fed Reserve Act Like chairman Bernanke said I get my

15:56

marching orders from Congress they make all the rules they appoint them all the profits go back to the treasury okay and

16:02

the treasury is an agent of Congress Congress congressmen aren’t going to do this stuff for themselves they’re not going to debit credit the accounts in

16:08

their spare time they’re going to have some people do that somewhere and they call that the FED they’re going to have somebody at treasury keeping track of

16:15

things uh who who they’re supposed to pay and they call that treasury all

16:20

right and they have Janet Yellen over there and they um she signed some money that’s a busy job in itself it’s a lot of work but

16:27

then uh she’s she’s when she decides to pay for weapons to

16:33

go to Ukraine she instructs the Federal Reserve to credit those accounts

16:39

the Federal Reserve gets permission from Congress to do that under certain

16:44

circumstances it could operational you can credit any account the treasury tells it to but if the treasure but if

16:50

Congress says no you can’t credit the account for anything right now because we’ve put a debt ceiling on ourselves

16:56

then the whole system can grind to a hawk but that’s not an operational problem on how it works it’s not because

17:02

the money isn’t there all they do is credit accounts it’s because their boss Congress told them hey you’re not

17:08

allowed to push that button okay you just hold off until we pass this debt ceiling or you can’t treasury you cannot

17:14

instruct Congress to credit any money for Ukraine unless we approve it you can’t do that on your own right and so

17:20

these are agents of Congress they get their instructions their marching orders from Congress and then they get it done

17:27

and operationally they’ve got everything they need to get done whatever Congress wants to get done on a nominal level

17:32

they can change the numbers they can’t create they can’t make it rain they can’t cause the temperature to go down

17:39

but they can credit debit and credit accounts you know you know all day long whatever

17:44

Congress wants it to do in that regard right and so let’s take this example uh

17:50

the treasury is going to buy a plane and send it to Ukraine let’s just say the plane costs a billion dollars or a

17:56

series of planes call a billion dollars from from Boeing the treasury has an account with the Federal Reserve uh the

18:02

treasury general account TGA when the treasury sends the money to Boeing it

18:07

instructs the FED to credit a billion dollars to Boeing and with uh well not exactly Boeing will have a Commercial

18:14

Bank let’s say JP Morgan I think they’re the only Bank left right [Music]

18:19

so the treasury will say debit the treasury’s account at the fed and credit

18:25

the account of JP Morgan for further credit to its CL its client its deposited or Boeing

18:32

and the FED will do that so they’ll reduce the number in the treasury’s account they’ll change it down and

18:38

they’ll change the number in JP Morgan’s account to a higher number and then which the debit occurs first or

18:44

the credit occurs first or simultaneous uh you know they’re accounted for at the

18:49

same time in this case okay and uh and then JP Morgan will change the uh

18:55

Boeing’s account on its books it’ll change the number in Boeing’s account up a billion and so JP Morgan now has an

19:03

asset the billion dollars in its account at the fed and it has a liability which is the checking account of Boeing which

19:10

now has a billion dollars in it of that’s a JP Morgan liability and so everybody’s in balance and they

19:17

wait for the next instructions right and the reason I asked about which

19:22

happens first is the whole uh yeah versus borrower tax Band yeah right

19:28

right right so um what mmt started off pointing out way

19:35

back when I first started and this is three years before I introduces the academic community so in early 1990s

19:42

is that the funds to pay taxes and the funds to buy bonds

19:47

come from the government they come from the Federal Reserve and agent of the government they do not come from the

19:53

private sector now at that point pay taxes yes and the funds to buy bonds treasury bonds or treasury I call them

20:00

Securities because their bills notes and bonds people say guidance but it’s bills notes uh come only from the um

20:08

government itself through its age of the Federal Reserve so what we had was everyone in Congress

20:13

and you know everybody should know what everyone in Congress believing that they had to get the government the treasury

20:21

had to the government itself had to get money into its account to be able to spend

20:28

okay if there was no money in the account they could not spend okay and they

20:33

where they couldn’t get any account through taxing they have to go out and borrow and if they couldn’t borrow if

20:39

China didn’t buy our bonds then they couldn’t spend the money okay well close examination of the FED which is first

20:46

thing Stephanie counten did before recognizing what’s going on here because she she had the same impression after

20:51

studying uh you know getting her PhD and the whole thing all the academics did they came to realize that when you look

20:58

closely inside the FED they have to credit the account of the commercial of the

21:04

private sector like JP Morgan’s accounted if Boeing needs to pay taxes or JP Morgan needs to pay taxes to the

21:10

government and it has no money in its government account and it’s account at the FED it’s Reserve

21:15

account it has a bank account like you would have a bank account but it’s a client of the Federal Reserve Bank if

21:20

they have any money in there if there are no dollars in this account it can’t pay its taxes all right the only way dollars can get

21:27

in an account at the Federal Reserve is if the Federal Reserve credits that account you can’t somebody can’t come through

21:33

the door at night and credit an account you know not tell anybody they debit and credit your own accounts on their books

21:38

so for JPMorgan to have a positive balance the Federal Reserve has to credit it first then they can debit the

21:44

account not the other way around and the whole process of making sure that the funds

21:49

are there so that payments can be made is called offsetting operating factors and that’s I’m only telling you this

21:56

because that’s the job of every senior staff member in the central bank at the FED is to quote offset operating factors

22:03

because these accounts are going up and down all over the place for a lot of different things checks and

22:09

float and you know payments in process and and bounces when the treasury account runs its balances up the

22:16

commercial Bank balances get run down and these are all called operating factors and it makes sure that to offset

22:21

those operating factors to keep positive balances in the accounts of the commercial Banks when it’s time for them

22:27

to make payments and that’s Technically when you look at it very closely that is adding money first

22:34

adding dollars first to the economy before the economy can pay taxes or buy

22:40

bonds that was the initial mmt understanding that everyone had this backwards Congress had it backwards it’s

22:48

a taxpayer who needs the government’s money to be able to pay his tax it comes from the government it doesn’t come from

22:54

himself he can’t generate it if he does it’s called counterfeit and there’s rules against that right and so

23:01

um and that’s my it’s free online books Seven Deadly innocent frauds of Economic Policy it’s really a pamphlet it’s about

23:07

65 pages and so people could get that online at my website

23:13

alsoeconomics.com now they’ll say oh but the treasury is not allowed to run an overdraft at the fed well that’s a

23:19

congressional restriction operationally the FED doesn’t care if the treasury has a balance or not it can credit the account of J.P Morgan but congress come

23:26

in and said no you can’t do that so the FED has set up a walk around all right but what they do is they have

23:32

a system of primary dealers they used to be 42 when I was here I don’t know how many they’re gonna do now probably 20 or

23:38

something but they have a system of primary dealers where the primary dealers are required to buy uh

23:47

government securities when the FED sells them to to maintain their status as primary dealers which they have to

23:53

maintain otherwise the large institutional accounts won’t deal with it your large Pension funds and other

23:59

insurance companies accounts will only deal with primary dealers so the FED kind of has that on the primary dealers

24:06

got a little leverage on it so it says you have to buy these treasury Securities you can buy them you buy them

24:11

at an auction they’ll go to the person offering us a low sealed and you have to maintain your market share and we will

24:18

lend you the money to do it the FED will lend the dealers if they need it and usually they do it’s called repurchase

24:24

agreements we will lend you the funds to do this okay and so they say all right we’re selling you know 20 billion

24:32

uh treasuries today uh or we’re buying excuse me you know we’re selling 20 billion

24:39

treasuries primary dealers will come in with an offer the FED will sell it to them and it will

24:45

allow them the money to do it and they’ll do it at a price that makes them happy and it’s kind of a lost leader for these dealers are the FED will sell the

24:51

treasuries or the treasury will issue new security treasuries If the Fed cannot is not permitted to buy treasuries from the treasury they have

24:57

to have they have to bought them in a private sector they’ll go into the private sector and they’ll say look we’re buyers of 10-year notes or

25:04

two-year notes and then the dealers have to offer to them they have to maintain their market share they have to be

25:09

competitive if they’ve been if their prices haven’t been good and other dealers have been getting them the dealers left out have to give the

25:16

FED better prices or they’re going to you know not they’re going to lose their status so it’s a very competitive market they don’t make any money on it but they

25:23

do it as an entree into the market for the largest institutional clients so

25:28

it’s a very clever thing for the FED to do this they get very good prices it’s not there’s no uh

25:34

it’s not a boondoggle for the primary dealers you know per se it does allow them access to the large accounts where

25:40

they believe they can make some serious money dealing with those people but that’s that’s a different matter they’re

25:45

going to deal with them anyway if they can and so and those people need somebody to deal with right now so um

25:53

and so again if the

25:59

if the private sector if the banks need to the treasury will have an auction they might sell 20 billion Securities

26:05

they’ll settle on the 15th of the month the banks don’t have 20 billion dollars to pay for these Securities all right so

26:13

the the FED will come in and buy Securities on a one-day basis it’s called a repo

26:20

it’s a loan and add to 20 billion so that the dealers can then use that money

26:26

to buy the treasuries or they can buy the treasuries and you and borrow the money from the

26:33

FED to do it and this was true in before 2007 and uh

26:38

yeah it was true before I started okay you know 70 73 yeah

26:44

so it’s been true for a long time and but the important thing is yes

26:50

there is a restriction that the trip not that the government can’t spend first but the government’s agent to treasury

26:56

is not permitted by Congress to spend first but between a fed and Congress they have to

27:01

spend first so the FED does this walk around where they fund the purchases of these securities give the economy the

27:08

dollars first and then those dollars can be used to pay taxes or to buy uh

27:14

government securities now when they did what’s called quantitative easing they just all did this in advance I came in and bought trillions of dollars worth of

27:20

Securities added these reserves spent first and then those funds can be used

27:25

to buy new government securities okay so sometimes they’ll do it years in

27:31

advance right how is it that the fed’s balance sheet was so small relative to the public debt

27:38

before uh in 2007 and and before now it’s so big there’s all these reserves that okay reserves as a dominant form of

27:45

money well you gotta watch it you gotta watch the word money depending how how you define it right so their reserves

27:52

have gone up you know as a Fed okay so let’s look at the sequence because mmt was about the sequence that’s how I used

27:58

to call so the sequence is the government spends first which adds to

28:03

adds balances to uh Commercial Bank Reserve Accounts at the Fed all right so let’s say that the spending

28:10

for the year is 5 trillion so they spend first one way or another either treasury or fed there’s now five

28:16

trillion in those accounts okay maybe four trillion is used to pay taxes

28:23

and so the FED subtracts four trillion from those accounts debits those accounts for Fortune now there’s one

28:29

trillion left that could be used to pay taxes but they’ve already paid all their taxes and so what happens to that last

28:34

trillion well the treasury comes in and sells a trillion dollars of securities

28:40

and the banking system it’s mostly the clients of the backs I mean the banks do

28:45

the buying but it’s on behalf of clients they they don’t own most of these uh but they buy those Securities what happens

28:52

when they buy them the FED debitsar Reserve account they had a trillion dollars in these you know Accounts at

28:58

the FED to zero so now there’s no more money in the reserve accounts and then it credits what are called Securities

29:04

Accounts at the FED okay which are accounts that own treasury security so like savings

29:11

accounts so if the reserve accounts are the checking accounts the treasury Securities the treasury bills notes and

29:16

bonds are the savings accounts at the Fed so the FED when JP Morgan buys

29:22

treasury Securities the Fed shifts those funds A Devastator Reserve

29:28

account and credits their Securities account so the trillion dollars goes from one account to another account at

29:33

the Fed all right this JPMorgan has the same trillion dollars at the FED it’s in a

29:39

checking account in the first instance and in the second instance it goes to a savings account that’s all that happens and what happens

29:45

when that savings account matures the FED transfers the money back to the checking account it debits the savings

29:51

account so the number goes down and credits the checking account so the number goes back to where it was there are no taxpayers or grandchildren in the

29:58

room when that happens and that happens the 15th of every month I don’t know how many 40 50 billion dollars or something

30:05

they when treasury security is mature they debit the Securities accounts and

30:10

credit the reserve accounts today so all they’re doing is um shifting those dollars back and forth so look all the

30:17

public debt is are all the dollars spent by the government that haven’t yet been used to pay taxes the government spends

30:25

some gets used to pay taxes the rest sits there either in checking accounts or savings accounts and they perform

30:31

these operations to move it back and forth between checking and savings under the belief at least it used to be

30:38

that that would somehow affect inflation now all this QE and QT has demonstrated I think beyond the shadow of the doubt

30:44

that it has no effect on inflation but those are the tools they use to move you know uh dollar balances between

30:52

checking and savings accounts so nobody even looks to see if Bank America is checking accounts went down and savings

30:59

accounts went up I mean nobody thinks that affects anything from your JP mortgage but they still think that when the Federal Reserve Bank does it it

31:05

affects things but fewer and fewer people uh recognize that and the market hardly recognizes it at all when they do

31:13

it you might get a small movement of market prices but most Market participants realize that it makes absolutely it’s of no consequence to the

31:19

macro economy where these dollars are checking their savings at the Fed

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that’s guidance 20. thanks let’s get back to the episode

32:01

right so when the Federal Reserve expand this balance sheet via quantitative easing QE or reduces it via QT

32:08

quantitative tightening that does not change the government’s deficit or

32:14

Surplus correct and that’s right that is the government spending money such as it did in 2020 and that can be inflationary

32:21

yes well it doesn’t it yeah so it doesn’t change the public debt it just

32:27

shifts those dollars that they’ve spent that haven’t been yet been used to pay taxes between savings accounts and

32:33

checking accounts at the fed that’s all the QA and QT does is to shift them back and forth

32:38

okay so what does make a difference is spending okay when you buy something

32:44

that makes a difference uh or taxing when you take you know debit people’s accounts that makes a difference

32:50

but not shifting uh dollars between checking and savings accounts at the FED not QE and QT listen enormous experiment

32:58

and you know it showed to all the statisticians it doesn’t do anything it

33:03

has a placebo effect people who think it’ll do something might change their behavior so it has a placebo effect no

33:09

question about it but it doesn’t have uh you know an actual effect on the monetary on the economy

33:16

now if they increase interest rates on the other hand which is what I’ve been on for the last year since I started I

33:22

you don’t even call that mmt that’s just this is just monetary operations you know what does happen

33:30

well the deficit spending goes up to pay the interest because the government’s got 31 trillion of outstanding dollars

33:37

in checking accounts or savings accounts they both pay interest now the FED pays interest on all the checking accounts

33:43

it’s the treasury Securities pay interest uh those interest payments go up only on

33:49

bills that have to be rolled over right if you issue a 20-year note as one percent and then interest rates go to

33:54

five percent you’re still paying that one percent the treasury still paying the one percent so it’s gradual right right but a lot of those are Six

34:00

Trillion of them are owned by the FED they bought them so that so that and the FED pays interest on the deposits it

34:07

created when it bought them and so it shifted people’s money from treasury Securities to you know savings accounts

34:13

to checking accounts to Federal Reserve accounts and they pay for the full rate on that full five and a quarter instantly goes up straight so that

34:19

shortened the duration is the way market participants would say of your portfolio now the other thing is reinvestment

34:25

rates matter if you’ve got a bond coming in in a month or a treasury bill that’s going to mature in a month

34:31

and your reinvestment rate went from zero to five percent that that affects your planning your behavior especially

34:37

if you’re an institution affects it dramatically so the effect of rates acts

34:43

on these Securities that haven’t matured yet they they’re in all of the calculations of all these institutions

34:49

make for um you know their asset liability management and so uh they they have an

34:55

immediate effect now it’s not identical to um

35:01

you know the zero duration it’s just an overnight accounts where the interest goes up immediately because it is

35:07

delayed but it still has a substantial effect on you know on markets the way

35:12

that I can kind of wrap my head around at Warren is that if if you’re a company and you issue a bond at a very low rate

35:20

and then rates explode higher you had a good deal in the same way that if you uh you know got a mortgage you bought a

35:25

house with borrowed money you borrowed it at three percent and now mortgage rates are at seven percent you feel you know winner winner chicken dinner

35:30

likewise the federal excuse me US Government treasury issued a ton of debt when you know the 10-year was you know

35:38

1.1 percent 1.3 percent and now that the 10-year is close to four percent the

35:43

it’s like the US government made made a lot of money uh that way yes and now if

35:49

you have a mortgage you don’t three percent you didn’t get any money your income didn’t go up okay you just you’re glad that your

35:56

income’s not lower than it was but it didn’t go up when they raise rates it just stayed the same right but the opportunity if you were to

36:03

borrow now you’d borrow at seven percent so that’s right that’s right that’s right right so that might slow down somebody’s decision to borrow but if his

36:10

income went up more than that then he might say all right you know I’m going to buy this house so if you look at the

36:16

number of housing starts in the late 1970s when people in my generation were paying 15 and 18 for mortgages we had

36:24

more housing starts then than we do now and mortgages are seven percent because the incomes were going up fast enough to

36:30

cover it and uh you know you can go through the statistics most of us

36:35

history had mortgage rates higher than this and most of us history had housing

36:40

starts that were much higher than this okay and our lowest housing starts came when we had the lowest rates because

36:45

it’s a policy move right so anyway but the thing is at the macro level if you

36:51

look at the economy as a whole there’s always winners and losers you picked out a person who won and there are people

36:57

who lost who had to get a mortgage the next day and their income didn’t go up and uh they were

37:03

you know they just lost their job even though there’s unemployments at a record well there’s three or four million people losing jobs

37:10

every month and five million and five million people getting new jobs so there’s you know millions of winners and

37:15

losers so we that’s fine you know I don’t you know I certainly respect that but let’s look at the total first if you

37:22

see what’s going on at the Mac what if we call the macro level at the macro level government interest expense is

37:27

going straight up the amount they’re actually paying and particularly when you include the interest the net

37:33

interest the FED is paying it gets interests from the treasuries but then it’s paying out more a lot more on these deposits because like you said the

37:39

treasury rates are fixed so the fed’s been from an accounting point of view the loser it’s not losing anything I mean

37:45

they’re not the former the interest expense of the treasury going up if I were to look up you know the St Louis

37:50

fed Fred fred.com that would certainly appear the interest expense is going up but the second part

37:55

the fact that the Federal Reserve is now losing money because they basically are a bank and they’re paying five percent on reserves and they bought more special

38:01

Securities that yield two percent that would probably not appear on the on Fred website because official does it does

38:09

but it shows up as the drop in the fed’s capital account

38:15

uh forget the exact phrase um a deferred asset right right so when the FED spends

38:22

more than it takes in the accounts have to you know uh debit

38:28

some account and they debit their Capital account it’s a way to keep track of it it doesn’t affect operations or

38:33

anything else it’s just a accounting is just keeping track of what already happens so the FED credited an account they keep

38:38

track of it by debiting another account it’s called the capital account you can see that going down and that tells you

38:43

how much they credit the other accounts and you know a Six Trillion at five percent it’s 300 billion a year or

38:50

something and uh annual rate it’s up there you know over one percent of GDP

38:55

so it’s it’s substantial now if you look at uh government interest payments

39:00

without just those two together we’re annualizing it somewhere around 1.2 or 3

39:05

trillion dollars which is substantially larger than the military budget and if you look at the deficit spending for the

39:12

country it’s seven percent of GDP now or something like that maybe four percent is interest expense it’s pretty high

39:18

number and so we are raising rates has increased the federal

39:25

deficit which is a stimulative effect it’s a it’s a uh adds to income and adds

39:31

to savings and it’s like kind of like a stock split or something like that for stock Traders out there right here at

39:37

stock dividend where they’re just giving out more of the same thing and uh you know when they give out a stimulus check it sort of goes to lower

39:44

income people right at least Theory people higher propensity to spend yeah but when they pay out interest it’s

39:52

going only to people who already have money in proportion to how much they already have so it’s kind of like a

39:57

stimulus check for people who already have money in proportion to how much they have and it’s you know multiples a

40:03

lot many times larger than the stimulus checks they handed out on the other side so if you just look at it uh I’ve never

40:09

seen this debated from a social Equity point of view oh we gave out 500 billion in stimulus checks but we’re giving out

40:15

a trillion and a quarter in interest payments which is kind of the same thing basic income but for people who already

40:20

have money and it was done by a few people at the FED it wasn’t like debated in Congress

40:26

do we want to do this and they’re doing it to fight inflation so they’re fighting inflation by flooding the

40:31

economy with dollars with money over you know it’s a massive flooding the economy

40:36

with money it’s a massive increase in the deficit and so a year ago I’m saying like this is not going to cause a

40:42

recession this is going to cause a strong economy now I agree with you that this money these dollars are paying out

40:48

don’t have as high a multiple maybe as the stimulus checks you know you never know that until after the fact when you

40:53

look at what people did it turned out a lot of that money was saved and not spent right personal savings went way up if you look at what happened instead of

41:00

going into recession we’ve been growing at I don’t know two and three percent real growth which is pretty good so it

41:06

means a pretty good portion of this this interest money is somehow getting spent

41:12

and supporting the economy and it’s supporting prices it’s not a deflationary factor it’s an inflationary

41:18

Factor but there are other deflationary factors like Supply chains sorting themselves out and uh

41:24

the oil Spike from the war reversing and bringing prices down and whatnot so you

41:30

know there’s all kinds of factors going on so I’m just talking about one factor this is not like the end-off for this CPI next month or anything but what

41:38

we’ve got underneath this is uh and the other thing that’s happened is the debt

41:43

to GDP the amount of debt we have based on the size of our economy is triple what it was before covet so before covid

41:51

we were like 30 35 of debt to GDP so if GDP was 20 trillion

41:57

back then we had maybe 6 trillion in debt today we’ve got over 100 debt to

42:02

GDP so with GDP of 25 or 6 trillion we have 30 trillion of public debt which is

42:10

over 100 and the public debt held by the uh economy not by any government agencies is 25 children that’s about 100

42:16

percent so the amount of debt held by people in the economy not intergovernmental has has

42:23

effectively tripled so an interest rate increase has three times the fiscal impact now that it did in the last cycle

42:30

right I just looked it up uh from the Fred uh

42:35

yeah that federal debt total public debt as a percentage of gross domestic product yeah that change said it was

42:42

already pretty close to a hundred percent uh in in 2015. so you’re saying you’re canceling out the fact that a lot

42:48

of government agencies look at it look at it in um 2007 before the uh last crisis before

42:55

the last cycle 60 and then it went to like 100 yeah oh yeah right now look at the percentage

43:01

held by the public that’ll be there and it was like in the 30s back then and now that’s up around 100.

43:07

ends up because the FED bought so many of the treasury Securities yeah well a lot of them go to a Social Security account stuff like that you know back

43:14

then and uh yeah and uh then after covid it it went all the new deficit spending

43:21

disproportionately went to the economy rather than to like Social Security trust accounts which is kind of a fixed

43:27

number got it I just want to say yeah most of what we’ve discussed uh uh Warren so far

43:32

for the audience is part of you know mainstream modern monetary uh theory

43:37

that framework you know which which you helped create but yes I heard you say earlier uh your intro your theory that’s

43:44

interest uh higher interest rates are inflationary and lower interest rates are deflationary not only uh does

43:51

that challenge mainstream economic thing thinking but uh it’s not this is not a mainstream view of mmt right well four

43:58

four or five years ago now when I talked to mainstream economists like I had a conversation with Paul Krugman and he

44:05

was in a debate with Stephanie Kelton and Bloomberg over deficit spending to sustain full employment this argument to

44:11

me was look I said well why can’t we just sustain full employment he said well if the deficit gets too high as a

44:17

percentage GDP then the then the FED can’t raise rates to fight inflation

44:22

because the interest payments at that point would be inflationary because they’d be so high so the FED would lose

44:28

its tool to fight inflation if we let the deficit get too high so I’m thinking

44:34

because High interest rates are inflationary yeah because when race when they raise race it increases deficit spending

44:41

causes inflation and so you’ve got countries like Argentina with very high rates and their

44:47

deficit spending can be 20 or 30 percent of GDP okay not four percent because the

44:52

rates are so high well that causes inflation you can’t just spew out that much money and not expect to have inflation right

44:58

and so um you know they might they’ve got 100 interest rates now and debt to GDP is low it’s only 30 but that means

45:05

the interest is 30 of GDP right big numbers okay and so um

45:11

so what what Paul said was absolutely correct and there that this was straight

45:16

mainstream under argument about why we should not allow the debt to GDP to get

45:22

high this is where this was all their arguments you can’t let the debt to GDP get too high because if it does you

45:27

better not raise interest rates okay are you going to create inflation so Japan the debts of GDP is like 200 maybe 160

45:34

held by the public if they were to raise rates that would be the interested interest payment saved would be making

45:40

would be inflationary they’d be paying out all this interest to people you know huge amounts because the debt’s so high

45:46

you paid interest based on the debt and so that was the mainstream argument against deficit spending to sustain full

45:54

employment of course my answer was well if you have a permanent zero rate policy it doesn’t matter you’re never going to raise rates you’re going to leave it at

45:59

zero where they belong but that’s a different argument I’m not going to make that for there well what I’m saying is the mainstream argument was don’t let

46:07

the deficit get to where it is today or you take away your ability to raise rates it’s going to cause inflation and here we are and they’ve they’re

46:15

silent on it they’re quiet they’re not talking about it uh Peter Coy did an

46:20

article of when I explained it the New York Times about a year ago and uh now he’s seen it all happen so I think he’s

46:26

going to come back and follow he talked to Michael Whitford who’s the number one Mantra he’s excellent major Economist

46:32

the feds Economist and you know he’s not he doesn’t have this bias and he said

46:37

well you know you don’t know because we don’t know about the multiples but if it does then you know we’d have to raise

46:43

taxes or cut spending to offset the increase in interest payments okay and that’s exactly right that’s

46:50

exactly what I’ve been saying now he’s going to go back to him again to see if he believes we’re at that point where it’s been supporting the economy to me

46:57

you don’t know until you look at the data so when I was saying it a year ago you know it was pure speculation about

47:02

what’s going to happen maybe the propensity to spend Interest really is zero and none of the mmt academics

47:08

jumped on this bandwagon because maybe the propensity to spend is zero and it’s we’re going to go into recession

47:15

but it didn’t happen instead the economy’s been growing which tells us the propensity to spend has been above

47:21

zero and that as we raise rates further it’s only going to support support growth you know you know in employment

47:28

we’re at a 50-year low for unemployment after raising rates for a year no record number of basis points or whatever uh

47:35

and we’re going to overheat if we keep raising rates like this uh that’s what

47:40

the data is telling me okay I have one person you know it might be telling you something else you know but that’s what

47:46

it’s telling me that these rates are direct increase the deficit spending one for one because they’re 100 of GDP so you

47:53

raise rates one percent over time you’re raising the deficit by one percent of GDP for every one percent

47:58

rates yes there’s a delay and there’s reinvestment I understand duration but that’s roughly what you’re doing

48:04

and you keep doing this you will get we raise rates from five percent to 15 we’re going to see the deaths that go up

48:12

to from seven to six or eight you know to I don’t know

48:17

another six percent will be up to 12 or 13 of GDP which is I think is going to be highly inflationary if we raise rates

48:24

that high if we go full vocer now what did Paul Walker do who happens to be Jerome Powell’s hero but yeah that was

48:30

just my next question so volcker you know then you’re familiar with the narrative yeah tax interest rates to 18 inflation drop like rock then yeah then

48:39

he raised him back up and yeah how do you doubt that narrative because you’re absolutely right Zimbabwe inflation yo

48:46

um uh interest rates way above 100 and inflation is you know close to it but in

48:53

developed Market countries typically you’ll higher interest rates uh associated with causing recessions

49:00

causing deflation causing a credit crunch right also budget surpluses are

49:05

causing credit Crunch and you have to look at the budget deficit or Surplus in real terms because

49:11

people’s savings are in real terms you know I used to walk around with twenty dollars in my pocket and I thought I had

49:16

a lot of money when I was a kid that but I didn’t have 20. I had a dollar it was a lot you know and now it’s 200 if you

49:24

go shopping and you need 200 and prices double you need 400 if your Apple computer with 200 billion and price is

49:30

double you need 400 billion so the the savings needs the cash needs the net Financial assets of Pension funds when

49:37

price is double it all doubles so it you gotta they look at it in real terms how

49:43

many how many dollars do we have based on prices you know we’ve got to give an employee enough money to live off of

49:48

when he retires okay so what happens is you have to look at the public debt and then you look at how it changes from

49:55

year to year it goes up by the budget deficit but it goes down because of inflation people caught the inflation

50:01

tax right and so when Boker was around back then the public debt uh

50:09

the annual deficit was about six or seven percent of GDP in the late 70s but

50:15

inflation was 12 or more and so we had the real public debt going down by six

50:20

percent all right so we had a massive fiscal contraction going on uh it was the first

50:27

decline in a real public debt in a long time an economist pointed it out at the time and that is what caused the economy

50:34

to crash okay along with what OPEC was doing with the price of oil which caused a Glock in Jimmy Carter’s deregulation

50:41

of that gas a lot of people switch out of oil into gas but that took a while that didn’t happen in one day

50:46

but there were all kinds of factors uh substituting out a 40 oil oil going from

50:52

3 to 40. okay it was up like 11 times which is you know going from 70 to 800

50:57

right yeah yeah yeah it was a massive inflationary thing going through the economy and that caused a real public

51:03

debt to collapse and we had one of the worst recessions we had and and the they

51:08

credited the interest rates on that now the ins I credited the fiscal collapse because when I look back at every uh

51:15

recession every economic cycle there’s always been that kind of fiscal contraction associated with every single

51:22

time and the interest rates were adding income they were adding to the deficit

51:27

but not enough okay with the inflation he had what we used to call bracket creep I don’t know if we call it that

51:33

today but when your income doubles your tax payments double and you go into a higher tax bracket so we had this

51:39

ripping inflations of tax receipts were going up even faster than the government could spend money even faster than the

51:45

interest rates were causing the government to spend money and the budget went into a real Surplus where the inflation was higher than the deficit

51:52

and we had that collapse it’s a little bit technical but it’s you know I don’t think there’s any

51:57

dispute when you look at it that that’s what’s happened now somebody else could say oh I still think it was the interest rates well that’s fine

52:03

counterfactual is kind of factual but it’s my my narrative is entirely

52:08

consistent with what happened then it was what I was saying back then you know in real time when it was happening I was

52:14

I was on the trading desk I saw fed funds 28 bid no offered on a Wednesday the Absurd

52:20

monetary policy to cap you know borrow reserves it’s like what’s that all about

52:26

it’s just like you know I don’t want to go into it but it was embarrassment as

52:32

an American to see a Federal Reserve chairman doing that and then they build a statute to him for having saved the world but that’s you know that’s the way

52:39

it is if volkrud kept interest rates where Arthur Brunswick I don’t know you know eight percent are you uh

52:45

speculating that inflation would have gone down faster that’s a good question because that last

52:50

move in oil went from like I don’t know 30 to 40 or something we have 25 move

52:57

and it would have been hard to stop CPI from adjusting and it wouldn’t have even been good policy to do that you know

53:04

when you have a far in monopolist setting price like that either your real terms of trade go down where you just you know got to export that much more to

53:11

get the same amount of oil or you adjust your prices and you’ve got what I call dually monopolies right and uh

53:17

so um but but I can say that the high rates contributed to the income that was able

53:23

to pay the higher prices and they they supported the inflation that then brought down the real public

53:29

debt because the inflation that’s the inflation tax on everybody’s savings cost everybody to be relatively broke

53:36

because they had the same money but it didn’t buy anything so now you there’s a money shortage it causes a money shortage inflation causes a money

53:44

shortage money defined as net Financial assets as defined as Savings in the economy inflation causes a shortage of

53:50

savings it destroys them and then you’ve got a that’s a deflationary or let’s say

53:55

a contractionary not so much difference but a contractionary event that causes a recession

54:00

right so inflation eats away at savings and it eats away at a government surplus

54:07

in real terms so as you say inflation itself contractionary disinflationary like the inflation the the inflation

54:13

reaps disinflation that there’s a narrative that challenges that inflation itself is inflationary because that you

54:19

build this intuition yeah yeah the wage price spiral you know people’s price of cereals going up 15

54:25

year over year so people need a 20 raise year over year and then yeah the serial company paying you know 25 they have to

54:31

raise prices by 25 what do you think about that yeah if you get

54:36

wages leading prices because of I don’t know you have countries like

54:42

turkey where for political purposes they’ll get a lot of inflation but they want to make sure their constituency is

54:48

okay so they can keep winning elections so they’ll give workers you know 50 in increases so they keep up in real terms

54:55

and don’t get hurt and that’s their political constituency it works from the bottom up it’s actually Progressive in

55:01

that sense financially I’m not saying their society is Progressive but it’s a financially Progressive way to do it and

55:08

then the people the rest of the people who aren’t the lowest wage earners have to scramble to somehow save theirs but

55:14

the government advantages at the lower end and that kind of indexation can create more inflation and they just keep

55:20

giving those people enough to stay ahead and politically it keeps them winning elections and so it’s sort of a

55:27

progressive way to do it although I’m not again making any claim that it’s a progressive Society overall but just to

55:34

finish that Financial that narrow particular Financial aspect is Progressive

55:39

and that’s been done by a you know in South America and other places where the political leadership looks to index

55:45

wages government wages to keep up so their constituency keeps their real

55:50

incomes up and they just keep doing it we denominate them money whatever and

55:56

they stay in power for long periods of time

56:02

I’m not proposing it’s not my proposal okay yeah but but a motivating uh Force

56:08

for Central bankers at least you know in the developer world to keep inflation low that two percent is if people get

56:14

used to six percent inflation they’re going to demand a wage increase of 10 8 and you know so it will feed it on

56:21

itself so you have to sort of crush this inflationary psychology I’m pretty sure I’ll believe that yeah yeah I think he does but I don’t think that the way

56:29

the institutional structure is that wage earners are in a position to demand anything you know at the end of the day

56:36

they need to work or they’re not going to eat and they can’t just walk off the job um you know they can’t do that and so um

56:43

it’s this huge disparity of power and uh you know business only hires if it likes

56:49

to return on equity it’s going to pay too much they just won’t hire anybody they’re not forced to do that people

56:54

have even if you’re the last guy being hired you’re the last guy unemployed you

56:59

get offered a job if you don’t take it you can’t eat and so you’re you don’t have a whole lot of power in there so I

57:05

I think that it’s simple Game Theory you know that people have to work to eat business only hires because it likes the

57:11

numbers you know there’s a huge disparity of power here which will keep wages at some kind of minimum which has

57:17

happened since 1980. for example I think I think that perfectly describes American labor life uh 1980 to February

57:25

2020. are we not in a new era now where you’ll uh Atlanta wage tracker it’s

57:31

going up I don’t have the exact numbers in front of me but for the lowest uh quartile of wage earners it’s going up a

57:36

ton you know service workers uh they are you know seeing wage gains that they have not seen you know prepped for their

57:42

entire lives you know I’m not saying that’s a bad thing by it by any means no but it hasn’t kept up with inflation and

57:48

it hasn’t gotten them ahead yet okay but and also look if somebody’s make was making ten dollars an hour and they go

57:55

to 15. that’s a 50 increase it’s still only making 15 an awkward that you still have to live home you

58:01

know they still have nothing right and so the bottom half gets a large percentage it’s not a lot of money

58:08

[Music] just just saying right yeah so I’m seeing yeah overall

58:16

it’s up six percent yeah so it’s it’s pretty yeah real personal income you’re

58:21

right it is actually slightly negative and yeah so how is it that we have this boom

58:27

well it’s growing okay and it you know we don’t have we don’t have

58:35

like a five or six percent GDP but we’ve got one or two right and um you’ve got

58:40

um during covet people’s uh what we call savings was actually they

58:46

didn’t borrow credit cards and whatnot were run down so deaf service is extremely low people are in a position

58:52

to leverage and a lot of this boom is by higher income people who’s whose income

58:58

has kept way up because they’re getting a trillion and a quarter of interest income so Rolls-Royce sales are sold out

59:04

for the next four years at 425 000 a car and and you know now we’re seeing people

59:10

at the lower end are getting squeezed they’re not keeping up with inflation so we’ve had a a big shift uh you know in

59:17

terms of distribution of consumption underway with this in with these interest rate increases with a zero rate

59:23

policy we actually saw a distribution of consumption starting to you know it stopped going the wrong way maybe you

59:30

went the right way a little bit I haven’t seen any real good numbers on it but now that the interest rates are back up and the higher income groups are just

59:37

getting free money you’re seeing it start to go the other way uh right but you said that so yeah

59:45

people didn’t borrow money in 2020 and 2021. I think that is because they had XX savings like if Bank of America put

59:51

out if you know someone had 500 in their bank account in 2019 they now have three

59:57

thousand dollars I mean that I I think people’s savings account you know went up by a lot and but when I say boom I was referring to 2021 uh that that time

1:00:06

I I personally am I believe that we were in a boom now but it is obviously true that the recession fears of last year uh

1:00:12

didn’t know it’s the economy is not bad the deficit got up to 15 of GDP during covet okay and then it collapsed to like

1:00:19

four and that’s when everything went down we had two negative quarters last year and I know it’s inventory from what

1:00:25

not but I when it just gloss over that without getting too detailed but it was still down and I thought it was going to

1:00:31

keep going down and then they started raising rates and started pushing the deficit back up it’s like okay now we’ve got a new fiscal cycle proactively going

1:00:38

the other way and so that Ray Heist kind of saved us from the recession that was

1:00:44

happening because of the collapse and deficit spending and if you look at what inflation was doing the collapse in this

1:00:50

real savings but then it turned around and went back up from the interest expense government interest expense now

1:00:57

deficit spending Plus uh increases on Social Security 8.9 or something plus all the military spending

1:01:04

okay so we had all kinds of fiscal spending kick in to reverse that decline

1:01:09

in the deficit and cause it to proactively go up one of those things were pegged to inflation right yeah yeah

1:01:16

yeah yeah yeah military spending is all pegged to inflation

1:01:21

you know they’re going to buy a certain number of bombs no matter what they cost and so we’re given that your framework

1:01:29

mmt places the government at the center of of all sort of monetary operations

1:01:34

yeah I want to ask you about the reason the currency itself is a public Monopoly

1:01:40

so it has to be at the center it’s it’s based on coercive Taxation and

1:01:45

which is government and the private sector has nothing has to comply yeah I knew I was saying it that I was not

1:01:51

going far enough it’s it’s not only the center it is the entire map what about Banks which yes they are regularly

1:01:57

chartered but when uh you know a bank let’s see JB Morgan wants to make a car loan

1:02:02

when interesting when interest rates are a lot higher people are not going to want to uh borrow as much and people who

1:02:10

are borrowing money to finance uh their their lives and their livelihood they’re going to pay a lot more as well as by

1:02:16

the way uh very wealthy people are not the they’re not you know exclusively Savers a lot of very wealthy people are

1:02:22

very much in debt they they borrow a vast amount of money to finance their product Equity Real Estate and stuff

1:02:27

like that so if there’s winners and losers but overall the total deficits looking at I don’t know 1.8 trillion for

1:02:34

the year somebody’s getting that money okay and no the winners are getting 1.8

1:02:40

trillion More Than The Losers of losing it’s a lot and so Car Sales have gone up

1:02:45

even though rates have gone up housings I’m like calling this but it looks like housing

1:02:51

may have bottom November December sales starting to pick up a little bit that’s the one area that you thought would have

1:02:56

collapsed housing prices are like flat year over year I think they were up 0.7 and one index and down point four or

1:03:03

another but basically that’s you know after it’s shooting up as much as they did to just go flat that’s not much of a

1:03:09

collapse right and it’s because we’re flooding the economy with money for interest expense and Military and Social

1:03:16

Security but the interest expenses is you know one and a half times larger than the military

1:03:22

it’s the largest single expense out there and it’s not getting any credit for running up the deficit and

1:03:27

supporting the economy zero I mean have you heard any other economists point to the interest expenses one of the reasons

1:03:33

the economy is doing well I have it no and I did hear people say that

1:03:39

um the talk about that introspect is going to go up and that’s a bad thing that the

1:03:45

government the government can’t afford to pay it’s debt I do hear that yeah it might be bad but they don’t say oh that’s what’s supporting the economy so

1:03:52

again I was at that pension fund I asked them is there anybody else and they talk to everybody in the world they’re

1:03:57

covered by the oh is there anybody pointing out the fact that the deficits

1:04:02

up to seven percent that’s what’s supporting the economy the answer is no they’re just looking at the interest rates saying with these rates we expect

1:04:08

a recession the fed’s been forecasting recession what every two quarters ahead for the last year hasn’t happened uh

1:04:15

Jerome Powell himself fed chairman chairman Powell his forecast differs from the staff he thinks the economy is

1:04:22

going to be okay so that’s kind of interesting now you know maybe he follows me on Twitter or something

1:04:30

uh but so you said there are winners and losers but yeah people tend to they’re a

1:04:35

lot more borrowers than there are no no the economy is a net saver of

1:04:42

25 trillion dollars for every dollar borrowed in the private sector there’s a dollar saved and then the government is

1:04:47

a net payer of interest on 25 trillion which is 100 of GDP and I think the

1:04:53

total borrowing some savings that add to zero or about 40 trillion maybe in the economy 40 trillion borrowed 40 trillion

1:05:00

saved and you have different propensities for those people that maybe the borrowers get hurt more than the Savers but now there’s another 25

1:05:06

trillion more Savers so the Savers are 65 trillion and the borrowers are only 40 trillion they’re just dwarfed by this

1:05:13

interest payment from the government is is my narrative and

1:05:19

the data tells me that that’s consistent with my narrative that is consistently binary

1:05:24

right yeah I guess it is the propensities so yo Savers if you know Bill Gates family

1:05:30

office is getting all this extra money because of yeah interest rates are at five percent you know Bill’s not going to be spending that much more money but

1:05:37

there’s people who are you know were borrowing at three percent when interest rates were at zero now they have to borrow a nine percent eight percent that

1:05:43

can hurt their spending a lot and you did you did see that right adjustable rate mortgages 2005

1:05:49

yeah and if that was a dominating effect you would not have you would we would have been a recession just like they all

1:05:54

forecast yeah but we’re not because it’s not the dominating effect there’s an extra trillion and a quarter

1:06:00

you know coming out of the fire hose that they’re not they they’re not factoring in oh nobody spends any of

1:06:06

that it’s like okay I don’t follow this nearly as closely as I should but when the deficit is you

1:06:12

know huge you know much bigger now than in 2019 where is that extra money gone to the economy I know I know you know we

1:06:19

did uh extra Unemployment uh PPP but not all those programs are behind us in 2020

1:06:25

21. where is the extra deficit compared to 2019 going well it’s not as high because it got up to 15 of GDP revenues

1:06:33

were way down but in numbers the spending was high the spending’s higher than but tax revenues are higher also

1:06:39

but it’s going to military spending Social Security and whoever’s receiving the interest and infrastructure we had a

1:06:46

couple infrastructure programs kick in you know they weren’t a lot but it’s adding something and it’s seven percent

1:06:51

the government’s spending seven percent more than it’s taking in and uh

1:06:57

I mean seven percent of GDP more right so that’s next to almost 2 trillion

1:07:02

and if somebody’s getting it okay and the data tells you whoever’s getting it somebody’s spending some of it they were

1:07:10

saving the whole thing and not spending any of it we’d be in a depression right now it’s just a question of how much of it

1:07:16

gets spent you know and so the more you pump out there whatever percentage gets spent the more spending there is let’s

1:07:24

say half gets spent so if you add another 100 billion you’ll get another 50 billion in spending let’s say 10 gets

1:07:30

spent so if you had 100 billion you’ll get 10 billion and spending you know so you can look at this the size of the

1:07:35

deficit you can look at the economy and you can calculate how much of it’s getting spent and that number is not

1:07:41

constant that will fluctuate and you also have to look at the deficit spending of the private sector how much

1:07:47

are they doing and that’s gone down a little bit because of the banking scare but you notice we went right through

1:07:52

that okay that was a liquidity issue that had nothing to do with bank earnings or anything else earnings are

1:07:57

strong corporate corporate earnings are up the only reason they will report it down a little bit is because they count

1:08:02

the FED earnings the defense losing which is deficit spending but if you take that out corporate profits are up

1:08:08

why well the government’s people thought about the FED I didn’t really understand that corporate profits were down a little bit

1:08:15

well they include the fed’s profits as part of corporate profits those numbers so where where is Bank earnings or what

1:08:22

do you mean oh the total corporate profits for the economy at the FED St Louis if you look up corporate profits they include the Federal Reserve Bank as

1:08:29

a corporation that’s earning profits oh really I didn’t know that yeah strange so they do that and uh so the course of

1:08:36

fed paying interest on reserves has a big loss so if you if you don’t count that loss then the real corporate

1:08:43

American outside the government is it’s it’s hugely profitable it’s a record profit levels because we’re spewing out

1:08:50

all this money it’s because it’s somebody’s income it’s going to be corporate income personal income you know and

1:08:56

such as profits it’s the old leading profit equation hire the deficit the higher the profits

1:09:01

it’s not like new mmt stuff this is all mainstream economics

1:09:06

but they’re denying their own economics they’re denying it from they would have been saying this four or five years ago

1:09:12

now they’re in they’re not they’re just you’re only silent on this which was

1:09:18

their main thrust if you look back about all this deficit fear-mongering if the deficit gets too high all the interest

1:09:23

is going to bury us well now we’re paying all the interest and they don’t even talk about it yeah

1:09:29

well maybe bury us they were right about the barriers just not in a uh insolvency

1:09:34

spiral and More in an inflationary spiral maybe but oh yeah so so but they’re not there they’re not saying hey that’s that’s why we’re still at five

1:09:41

percent because the interest rate’s five percent but it kind of correlates yeah I I just want to go back to the

1:09:47

point I made of so you know are you a little over a year ago interest rates were at zero so the interest expense

1:09:53

from the federal government was very low not good and dropping and dropping yeah

1:09:59

and dropping not counting the FED just looking at the treasury yeah the roughly

1:10:04

the weighted average maturity of the treasury I don’t you’re gonna know the number six years seven seven years wouldn’t only one-sixth of the debt have

1:10:11

rolled over by now and what isn’t that a relatively small increase in interest expense well yeah but you

1:10:17

have to it’s fed by it so yeah the FED didn’t earn any more interest from the treasury but if you’ll get interest paid

1:10:23

to the economy you know if the FED had eight trillion at one point I think but Six Trillion now that’s all overnight

1:10:30

money getting the full rate so that’s as if the treasury had that many treasury bills it’s like it’s a treasury yeah you

1:10:37

know exchange their treasury Securities for you know one month treasury bills or something and so it just went up

1:10:43

immediately on Six Trillion right so you’re you’re thinking of the treasury and Federal Reserve combined as an

1:10:50

entity I’m but for purposes of the analysis of trying to determine the income of the economy you have to look

1:10:56

at the income we’re getting from all the government agencies not just the treasury you know we’re getting income

1:11:02

from all of them and it all spins the same so you know if the you know put them all together

1:11:08

yeah and the the way that I can wrap my head around that is yeah the FED is now paying more than what it is earning on

1:11:15

the Securities that it bought so it is basically massively massive yeah yeah it’s 250 billion a year okay so if uh

1:11:22

rates are at five percent are high and that is inflationary as you say and the US government continues to run a quite

1:11:28

large government deficit not as large as 2020 but still quite large with the solution to that be to curb government

1:11:35

uh expenditure because I know modern military Theory reading Stephanie kelton’s book you know what one side of

1:11:41

the coin is if inflation is low the government can do a lot more deficit things possible but the correlated the

1:11:47

other side of that coin is if inflation is high maybe it’s time to cut spending sure what’s the easiest way to cut a

1:11:53

trillion two trillion in spending go back to zero rates

1:11:59

all right are they gonna do that no they’re going to go to 10 right they’re going to be spending another do you

1:12:05

think they’re going to go 10 percent well you know Volker had a situation like this where

1:12:12

um they were kind of like at these kinds of numbers and then suddenly the employment numbers came out and the

1:12:18

inflation numbers were higher than expected and they just went from they had like an emergency meeting or

1:12:25

something and they over the weekend they raised rates by Wheels 200. and then they went up from there because as they

1:12:30

raised rates the inflation kept going up which is exactly what will happen now if they raise rates

1:12:35

you know to five by another five percent it goes to ten or something 10 and a quarter

1:12:40

and now we’ve added another trillion of deficit spending on interest so it’s over you know 2 trillion now that’s just

1:12:47

going to make it worse and and so they do it again and it makes it worse now if the inflation gets high

1:12:53

enough where it brings down the public debt even after these payments we could have a recession right so I was in

1:12:59

Argentina a year ago April and uh met like this by q but it was ahead of

1:13:06

the Central Bank and he had a couple of people with and the first thing he says you know we’ve been reading here for 10 years so

1:13:11

you don’t have to introduce yourself which is kind of nice and like one of his analysts had some paper by I don’t

1:13:17

know Sergeant Wallace or some major you pay for showing them but I was just telling you about how if the interest the public debt gets too hard and we

1:13:24

talked about Argentina so they have 30 interest rates the IMF told them they have to keep the rate above the uh

1:13:30

inflation rate so they had 25 inflation at 30 interest rates and he said you know we really can’t do

1:13:37

what you’re talking about we you know we have to do this it was a nice meeting but it didn’t change anything so after I

1:13:42

left inflation went to like 35 so rich went to 40 and inflation went to 50 and

1:13:48

rates go to 55 or 60. and they just raised rates to 97 percent

1:13:53

uh and inflation’s up there at 90 or 100 or

1:13:59

something like that and clearly the interest payments are driving this thing over there

1:14:04

the people who get these pesos they don’t want sell them in the foreign exchange markets peso goes down imported

1:14:10

prices go up so inflation goes up so they raise rates and give them more pesos they don’t want they sell in the Foreign Exchange Market so they got this

1:14:17

this vicious cycle going there and it hasn’t ended their unemployment’s way

1:14:22

down the economy is good you know it hasn’t caused a recession so like when you got it backwards where

1:14:29

does it end does the head of the Federal Reserve say look we’ve had this backwards and now uh we’re going to have

1:14:35

to cut rates to control and fight he can’t do that he’s scared to death that if he ever anything like that happen

1:14:41

that the whole monetary system would collapse because they believe it runs on faith I’ll tell you it runs on tax

1:14:47

liabilities they’ll tell you it runs on faith okay I’ll tell you if it ran our faith it would have been gone a long

1:14:52

time ago I’ve seen lots of times where there was like no faith and it keeps going because you got to pay taxes but

1:14:58

they don’t know that okay and they are afraid that this can’t get out

1:15:05

um there’s um I offered to give him a briefing Jerome Powell you know what I was thinking and

1:15:12

the answer came back is that he can’t talk to me because it would be on their logs that the FED that he talked to me

1:15:19

and they were concerned that if it got out that he talked to me there’d be some kind of monetary collapse

1:15:24

this is systemic collapse well I do maybe he’s right but the media would be

1:15:30

all over that it well as soon as it’s released radical Economist Warren Mosler exactly

1:15:36

so he can’t even talk about it right that’s what that’s where that’s where we’re at right now

1:15:41

so how do you forecast what’s coming next it’s like you can’t you’re on you’re second guessing what these people are going to do with their buttons that

1:15:48

they have to push yeah look at this Insanity of the deaf ceiling that’s like every Congressman

1:15:55

has a button on his desk where if he pushes it he watches 10 nuclear warheads and he says if you don’t cut spending

1:16:00

I’m going to push this button it’s like government by extortion right it’s the button has nothing to do with

1:16:07

the expenses he wants to cut it’s just a way to blow up the economy if I don’t get my way and it’s interesting times I mean I’m

1:16:15

74. I’m glad I got to see this but uh you know it’s it’s

1:16:21

I I guess I could say things were worse in the 60s and in the 70s but they’re not good now

1:16:29

okay there sorry to interrupt a lot of forward guidance listeners are not into

1:16:34

crypto if that’s you please skip ahead get back to the interview some forward guidance listeners are into crypto some

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1:17:25

let’s get back to the interview uh I spoke with recently with two two

1:17:31

very smart people who outlined a bunch of mechanical ways the Federal Reserve

1:17:36

can help the treasury if the Congress does not get its act together in order

1:17:41

to prevent a default and I’m not even talking about the coin I’m afraid we won’t have time to talk about the coin uh on today but yeah

1:17:49

but the larger point is which President Biden made is that the will of Congress is to do

1:17:55

this destroy the economy or whatever default and have a dynamic downward spiral it’s not for the Federal Reserve

1:18:03

an agent of Congress to override the will of Congress it’s not for the executive branch to override the will of

1:18:08

Congress is to carry out the World Congress and that’s their macro principle now you can say okay but the

1:18:14

Constitution says you’re not allowed to default the Constitution also set you up is there to carry out the will of

1:18:19

Congress and they’ve taken the path the position that that’s their role and so

1:18:25

they’re not going to do any what I call gimmicks okay I’m not saying gimmicks in a disparaging right but they’re it’s a

1:18:31

way to get around the will of Congress clearly the will of Congress right now until they pass something is

1:18:38

to block all payments and to create a default situation and these other agencies you know

1:18:45

branches of government don’t see themselves as as their job is not to overcome the will of

1:18:52

Congress and so that we’ve got to get past that first before they’re going to do anything they have to see it as their

1:18:57

responsibility and not the opposite right Supreme Court could call it

1:19:03

unconstitutional I guess Congress can pass something the Supreme Court can say it’s unconstitutional so they could say

1:19:09

that debt ceiling is unconstitutional if they could find a way and that would change it and then everything would fall

1:19:14

into place but I don’t think anybody else can has any authority to override the will of Congress and I don’t I don’t

1:19:20

there is no case being brought up before The Supreme Court to have the debt ceiling unconstitutional and it may not

1:19:27

be I mean I’m not saying it is I’m just saying that’s the Avenue for another branch of government to override the

1:19:33

will of Congress well Warren you’ve given me and uh okay

1:19:38

he was here a lot to to think about if I if I had to just look back at our conversation and sort of draw some

1:19:46

conclusions uh one would be that high interest rates is not necessarily

1:19:51

deflationary in fact you think it is inflationary because the private sector is net net a

1:19:57

lender not a borrower it’s a receiver of income it’s a net saver the private

1:20:03

sector is a net saver of the entire public debt the government’s deficit is our savings and when they start paying

1:20:09

interest on it they’re just paying basic income to people who already have money and proportion of how much they have a

1:20:16

lot of people like basic income but nobody like there’s nobody just supporting doing it that way right what about if if all the extra

1:20:24

interest is going to foreigners uh you know China other other holders of U.S treasuries whereas yeah well they might

1:20:30

not spend it they might not spend it but some of the stimulus checks went to me you know I didn’t spend it okay so let’s

1:20:36

say instead of this trillion and a quarter going to interest it had gone to stimulus checks

1:20:42

everybody be screaming you know you’re running off the deficit stimulus checks inflation you’re giving people all this money well you give it

1:20:48

to the high end and they they don’t even comment it yeah I’m not saying they’re going to spend it the same way but the

1:20:55

data tells me they’re spending it enough to offset these inflation these recession forecasts permanently and turn

1:21:01

it on to expansion and the more you add to it the more of an impact it has becomes a larger and larger percent of

1:21:08

GDP it’s almost one for one if interest expense goes up to uh if rates go to 10 interest expense

1:21:15

ultimately goes to 10 of GDP if interests if the public debt’s 100 a GDP

1:21:21

it’s actually higher than that so it goes up roughly proportional to GDP so

1:21:27

one percent interest when they raise rates a quarter of a percent deficit spending went up a quarter percent of GDP roughly now I know it might only be

1:21:34

0.2 or something but roughly and so that’s what they’re doing and of course

1:21:40

the more you do it the higher the public debt becomes as a percentage of GDP so it gets worse and worse

1:21:48

and and the mainstream Economist up until covid were screaming about this that’s the risk of the deficit and now

1:21:54

they’re quiet not a word it was it was mainstream belief up until covid that um

1:22:01

High interest rates caused inflation if the debt to GDP is high enough to offset

1:22:07

the prevention the difference in propensities between Savers and borrowers if it’s high enough to offset that then it flips over and the FED

1:22:14

can’t use that as a tool anymore they didn’t specify whether that’s it 70 100 120 they just said if it gets high

1:22:21

enough now they’re not even talking about it okay not mentioning it at all they’re saying oh yeah the rate hikes

1:22:27

are going to be deflationary because you know the borrowers get hurt they’re not they’ve just left that out of their

1:22:33

equations and it’s in their textbooks it’s in their model it’s in the new Keynesian model it’s got the interest

1:22:38

income right there they it the deficit is a calculation in the new Keynesian model they see it as four percent of GDP

1:22:44

from interest but they’re not directing any attention

1:22:50

there’s not there’s nothing mmt about this this is this just arithmetic does that relate to the crowding out of a

1:22:56

theory that mmt challenges that that if if so much money right such a large

1:23:02

deficit then there’s no more money for the private sector right right we that got dismissed with the idea that you

1:23:08

spend first and then you’re borrowing some of the money you just spent so you’re not crowding out you’re adding

1:23:14

the money first some gets used to pay taxes the rest has nowhere to go money and fed accounts can’t go anywhere

1:23:19

except to another set account you give them another account called treasury security certain interest you haven’t crowded out or affected anything in

1:23:26

nominal terms now if the government buys you know all the bananas it’s crowded people out nobody can have any bananas

1:23:33

that’s different but for money nominal terms there is no such thing because of the sequence spend first and then borrow

1:23:40

so clearly it’s it’s not applicable to that’s the idea of crowding out in terms of monetary terms is just not applicable

1:23:46

and this is to a floating exchange rate system okay the things you’re talking about crowding out they are applicable under a

1:23:53

fixed exchange rate system where the FED has to have the money back by gold or something like that and it could run out

1:23:59

and there’s not enough gold to go around and so they compete with rates the market can drive up rates all these

1:24:04

other things where you know anachronisms from the gold standard right and one other thing is when the

1:24:12

currency raises interest rates Central Bank fed raises right that tends tends to not

1:24:18

always uh maybe uh all things being equal strengthen that currency as we saw the dollar strengthen a big time in uh

1:24:26

last year and therefore uh you know if you’re selling Goods to Europe and China

1:24:33

uh it’s really bad for producers right so that’s that’s yeah but look at

1:24:39

Argentina you know there it only happens for short periods of time it’s more of a placebo effect you’ve got everybody

1:24:45

raising rates at the same time and you have different inflation rates and you have different effects on trade from the

1:24:52

price of oil that was the biggest mover of the currency the dollar got hurt less in terms of of trade balance from the

1:24:58

big run-up of oil than like Japan so the Yen went down because they’re a major importer of energy they have to spend

1:25:03

all this again flood the world with you know and so that was part of this but also part of it was that Yen rates were

1:25:08

at zero right well they’ve had the lowest inflation with the zero rates and we’ve had higher inflation much higher

1:25:14

with the higher rates and so is everybody else not that that’s everything yeah but it’s it’s

1:25:20

you know I it look all the central banks have done a lot of studies on whether interest rates can be used to support or

1:25:28

not support their currency and I used to read those reports all the time the famous one was the bank of England

1:25:34

showing no correlation that interest rates are not you know the currency level level the currency is not a

1:25:40

function of rates in the direction they’re wanting to do that was about 15 or 20 years ago I think I haven’t read one since because there hasn’t been one

1:25:47

because they can’t find that kind of correlation so they don’t even publish it remember the central banks used to

1:25:52

publish all these studies that showed all one percent increase in rates would cause inflation

1:25:58

to go down by a tenth with a two to four year lag in it I don’t remember that actually before my time yeah that was

1:26:04

like 20 years they haven’t come out with those have you seen any study by any Central Bank showing that if they raise rates or bring down inflation no because

1:26:10

the staff can’t find it in the data because the interest expense

1:26:15

dominates is what I’m saying and it dominated when debt to GDP was half of what it is today now it’s double or

1:26:22

three times if you look at held by the economy rather than held by the government it’s three times it’s got triple the impact I can’t see any way

1:26:29

it’s not dominant but you know I could be wrong I mean I’m just sitting here and saying crying in a pair of shorts

1:26:34

talking to you yeah well I’ll say just is that

1:26:41

the Federal Reserve losing tons of money that being stimulated for the American economy that makes sense to me now

1:26:47

because the treasury bought tons of low low yielding paper but in you know 1996

1:26:52

when the FED balance sheet was not that large and they didn’t buy tons of you know mortgage-backed Securities when

1:26:59

people were paying a mortgage at three percent and then they wouldn’t refinance I yeah that’s that’s interesting and also I’ll say on the the currency thing

1:27:05

that when Argentina raises rates to 20 it’s not enough they raise it to 30 I

1:27:11

can see that spiral but you would you agree that the US dollar is the the at

1:27:17

the top of the pyramid it’s the Courage the hegemon there will always be a bid for the dollar while we’re in the dollar

1:27:23

system and you know people betting against the dollar system uh it has not been a great track record for uh 70

1:27:29

years yeah I say absolutely not it’s there for other reasons that’s just it’s

1:27:34

a new mirror internationally and what we have fortunately are countries that are

1:27:40

what I call it heaven export-led growth narrative okay so you have Japan Korea China and

1:27:49

they buy US dollars because that meat causes them to be net exporters to the

1:27:54

United States to support their exporters at the expense of their macro economy and it

1:28:00

keeps the dollar firmer than it would be otherwise they don’t care they’re doing it for other reasons all right and uh

1:28:07

and so I have a whole different narrative for uh what’s going on there and it’s got nothing to do with

1:28:14

the headline narrative in the media and that would be a good one for another show yeah go with another show well uh

1:28:21

Warren you’ve given me a lot to think about my favorite types of interviews are ones where you know my mind is blown

1:28:27

a little bit I’m a little bit confused I feel like if you’re not confused you know you’re a lot learning so uh thank

1:28:32

you so much for coming on on forward guidance so I just want to say yeah people should uh check out uh your book

1:28:38

Seven Deadly innocent frauds of Economic Policy as well as the white paper uh which you wrote in 2021 was it two or

1:28:45

three pages yeah yeah that can be found on your website uh anything else uh Warren where people if they want to find

1:28:50

out more about your your thinking well on Twitter you know I keep uh pretty much a running commentary going on

1:28:55

Twitter I used to use a email list but now I just use Twitter it’s been easier for me yeah there we go well uh Warren

1:29:01

thank you so much for coming on sharing sharing your views and thanks everyone for watching and thank you very much appreciate it

1:29:07

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