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How Economists Hide TRUE Money Mechanics To Sell Wars | Prof. L. Randall Wray

Transkripzioa:

0:00

this is on purpose they are purposely being misled and it goes back to the um

0:08

late 60s I would say the kinds of things that mmt uh is known for

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saying I think was pretty common knowledge at the end of World War

0:21

II if you go back and say look at War

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Finance if you look at the television ad advertisements of the time if you look

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at the campaigns to get U Americans and British uh to buy the government’s bonds

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patriotic saving it was well understood the government didn’t need the money it was

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well understood that the reason you sold those bonds was to get consumers to spend

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less why did you want them to spend less to release resources for the war effort

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so in other words they understood the government can buy all the resources it can outbid the private sector but you’ll

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get inflation we in every war before World War

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II uh we and everybody else always got very high inflation why because the

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government just spent more money [Music]

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hello everybody this is Pascal from neutrality studies and today I finally got an economist with me to talk about

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modern monetary Theory this is a subject that I wanted to discuss for a long time and I’m excited to have Professor Larry

1:43

Randall Ray with me who wrote an entire textbook on it called modern money

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Theory a primer on macroeconomics for Sovereign monetary systems Dr Ray is a

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professor of Economics at Bard College and Senior scholar at the Ley economics

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Institute Professor Ray thank you very much for coming online today glad to be

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here um Professor Ray mmt in a nutshell and can you explain to us a little bit

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what it is and how it is different from the standard neoclassical model that

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most students these days still learn when they take uh micro 101 and macro 101 um just as a brief introduction to

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this okay so uh modern money Theory we’ll

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just say mmt because most people know it by that um

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mmt uh is looking very specifically at the monetary systems in

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countries that have their own Sovereign currency and so uh what we mean by that

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is countries that come up with their own money of account so in the United States

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we have the dollar Britain has the pound and so on so they have what we say their

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own currency a currency is used in in many different ways but um so I’m

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talking about the US dollar is our money unit and then governments also issue

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what we also call currency and that is the paper money and the coins okay and

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so it’s used in both those senses um and most countries do this they have their

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own money account and they issue their own currency the second point is that um

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if a government issues debt uh in addition to issuing currency

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such as government bonds in the US we have us treasuries sometimes they’re

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called notes sometimes bills um and other and bonds depending

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on the the link to maturity so if they issue their own debt they issue it in

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their own currency that’s important so the United States government does not

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issue Bonds in UK pounds however there are many countries that do issue debt in

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foreign currency and we argue that all the things that we make claims about uh

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for Sovereign currency Nations will not apply 100%

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to countries that issue debt in foreign currencies um and then uh the the

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governments also impose obligations in the old days it mostly was fees and

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fines today it’s mostly taxes uh in their own currency and they accept their

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own currency and payment of those taxes and again in the United States you use

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US dollars to pay your taxes if you go way back in time up to about 1840 the

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United States government actually took foreign currency and payment of taxes we don’t do that anymore and most countries

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don’t do that okay so if you meet those qualifications we say that you have a

5:14

sovereign currency and then the the claims that we make about these would

5:20

apply the most important one the most controversial one I guess but I think

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the most obvious one is you cannot run out of your own money

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if you create your own money you cannot run out of it okay and so we argue the

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US government cannot run out of US dollars they can always issue more now in the

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old days when we said issuing dollars we actually meant you run the printing press and you print up paper money stamp

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it says this is $1 on it uh that’s how they actually made their payments today

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modern governments don’t spend that way okay and so we can go into detail how

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modern governments spend but uh it’s no longer printing the money but they are

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creating money every time they spend a dollar okay it takes a different form

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mostly electronic now but they create money every time they spend they can’t

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run out of money so that’s the most important point you know the reason I

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wanted to talk to you is that model mon mmt makes a lot of sense and I usually

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do international relations and in international relations um realism is the kind of school that tries just to

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analyze how Stuff functions and to me mmt is the equivalent of that in in the

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economic world because you Tred mmt tries to look at how money is actually

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circulated created and how it interconnects with politics um the standard neoc classical model tries to

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not look at that at all uh pretends it’s a given and then talks about demand and

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Supply in order to explain anything and everything and the things he cannot explain then usually makes up some funny

7:09

money multiplier or other ideas um but the why is it that mmt at the moment is

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not a mainstream way of teaching at at at universities about how the monetary

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system works I mean is my interpretation correct that mmt is still a

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um a minor school of thought within the economics profession um so let let me back up to

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um 1996 um so that’s when we started this

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project the mmt project and um so what the textbooks tell you is the government

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collects taxes gets money and then spends it okay

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and that’s what most people believe the government is waiting for that tax revenue to come in so that it can

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finally spend and we knew that that is not correct

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okay uh without even looking at how

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governments really spend we knew it couldn’t be correct because we came out of a

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Keynesian macroeconomic tradition um and so here I would have to

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get deeply into the theory so we can just skip it let me just say we knew that that wasn’t right said you know

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what are the operations that government goes through in order to spend we know that it is not

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that they take in money and then spend that okay so how is it that they are

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creating the money that they spend just around and I think I can uh

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honestly say no Economist had any idea how the government actually spent

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and so we started going into the deeply into the details um to see how they spent and so

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that was the first step let’s look at the actual operations involved in

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government spending okay and to to to just state it very succinctly what

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happens is that the Central Bank actually makes the payments for the

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treasury that’s how it’s done and they make those payments electronically by crediting a private

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bank’s reserves and then the private banks credit the demand deposit of the

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recipient of the government spending so if you’re getting Social Security retirement checks you deposit them in

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your account what happens is the bank sends those on the checks onto the FED

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fed credits the bank’s reserves and the bank credits your bank deposit that’s how the government spends

9:59

okay so it starts from the Central Bank creating reserves that’s how the uh the

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government spends but you know within the

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concepts there are a lot of Concepts in the social world of how we think of of

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things and some of them are poorly named and some of them are very very badly

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named and to me the reserves of the FED is an example for an extremely poorly

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named concept because when we think of reserves we think of something that you accumulate and have in the background

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but that’s not what it is is it could you could you tell me what reserves in the in for the federal uh uh for the FED

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is Yeah well yeah there so this goes back historically uh to the time when

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Banks actually would keep some Bank of England notes in their vault as a

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reserve so if you came in and say hey I don’t want uh this uh country

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Banks paper money okay that I received in payment I

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want to convert that to Bank of England notes I trust the bank of England more than I trust this little Bank out in the

11:17

country so they had some of those on reserve okay so that’s where the term uh

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comes from they actually had a reserve of those today the reserves take the form of a deposit account that every

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private bank has at your central bank so in the case of the United States all the

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banks have Accounts at the Federal Reserve Bank and so we still use that

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term Reserve in fact Federal Reserve Bank Reserve uh there’s a deposit account

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that is at the um tread and these are just electronic entries just like your

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deposit account at your bank is only an electronic entry it has no existence

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except it’s an electronic entry it is your asset your demand deposit is your

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asset the demand deposit is your bank’s liability what do they owe

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you okay they owe you the right uh to draw down that by having

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them make a payment for you so your private bank makes payments for

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you and you write a check or or um you can make an electronic

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payment the bank must make the payment for you as long as it’s legitimate you

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actually have a deposit at the account or an overdraft facility they must make the payment for you this is exactly what

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the Central Bank does for the treasury the Central Bank makes a payment for the treasury just like your

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bank makes a payment for you where does the money come from the banks create all

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the deposits so your bank created your deposit the Central Bank creates the

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treasury’s deposit uh so there what I’m saying is

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there’s a you know an analogy that private Banks do for you what the

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Central Bank does for your treasury okay so there’s nothing mystical

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magical about this your private bank cannot run out of deposits anymore than

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the Federal Reserve and run out of deposits for the treasury because they can always create them now they might

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not be willing to do it for you okay but they always could do it for you how do

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they do it we call making a loan they can always make a loan to you or let you

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run an overdraft which is the same thing and the treasury

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can always run an overdraft at the central bank as long as it’s within the rules of operation the essential Insight

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that mmt provides at least to me was that you cannot have money in the in the sense

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that we use it today in in today’s world without also having debt the two go hand

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in hand privately the two go hand in hand for the state and they Interlink in very important ways and the other word

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that’s so um misunderstood is sovereign debt because we use this idea that the

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debt of the N of the state of the country of the state is equivalent to the to to our debt that we have in

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everyday life and that is a pretty misguided picture isn’t it yes because uh private

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entities uh can always be forced into default on their debt while the um

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government cannot be forced into involuntary default now you know that in

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the United States we have this debt limit that the which we just had the

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other day yeah yes so we go up against that uh and the the treasury if Congress

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will not get its act together and raise that that limit then the treasury may be

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prohibited from making payments that it easily could do

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but will not be allowed to do because of this dead limit that the Congress has

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put on the treasury now that would be a vol I would call that a voluntary

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default because Congress voluntarily decided to force the government to

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default so voluntary defaults can occur they’re extremely rare because it’s

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stupid policy uh it makes you you know not credible it makes your government

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debt not credible so countries don’t uh do this very often uh but involuntary

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default is literally impossible it would be impossible for

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the US Treasury to not be able to make the payment because it’s made by the

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Central Bank the fed and the FED cannot run out of its own liabilities because it creat itself it

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creates its own it creates its own asset it’s the only Institution uh that’s that’s not true banks are also allowed

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to do that but it’s only few institutions are allowed to do this so it is a political yeah but think about

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it can you run out of I your own IUS no

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I can always write more you can always write more and so can they the difference is that the bank’s IUS are

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widely accepted and yours are not that the central banks IUS are even more

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widely accepted than Bank IUS so that’s the difference anyone can write I owe you

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$5 uh but um you can’t always get them accepted the the difficult thing to wrap

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your head around is that we think that all debt at some point needs to pay be paid back and when we hear that the US

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uh government owes what is it at the moment uh how many trillions at the moment 30 32 trillion somewhere around

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there which is a stupid measure to start with but um when we hear that then it

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makes us feel anxious and the the mainstream narrative is it that it’s future Generations that will have to pay

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back today overspending can you talk about this a little bit well first uh US Government

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debt has only been paid back one time in one year that was 1837 we have never paid back the debt

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since then now there are periods where we run a a budget surplus those are very

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rare when you’re running a surplus you’re actually retiring some

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debt when anytime if you run a balanced budget the the quantity of debt

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outstanding Remains the Same if you run a deficit the quantity of debt outstanding will be increasing if you

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run a surplus the quantity of debt outstanding will be declining because

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when bonds come due say a five-year Bond comes due they don’t renew it they don’t

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roll over into another five-year bond that only happens if you’re running a

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surplus so we do have times they’ve been very brief we’ve only had seven periods

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where we ran budget surpluses um and were able to retire some of the debt otherwise the debt has

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grown every single year since 1789 so it’s simply not true that you

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have to pay back the debt¹ our uh debt to GDP rati it’s not just that the debt is

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growing it’s growing faster than GDP by almost 2% per year since

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1789 so it grows faster than our economy grows and it’s been doing it for over

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200 years and I always think you know almost 250 years if something can go on

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for 250 years it probably can go on a few more years okay now now do you have does the

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government ever have to repay the debt no it doesn’t what it has to do when if you’re

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holding a fiveyear bond and it comes due and you demand payment they’ll pay you that’s it okay but they will issue

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another fiveyear because there are plenty of people who want more government bonds the the bond market is

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always oversubscribed in other words the lucky people get to buy them The Unlucky

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people walk away without a bond so there’s always more people want to buy them then there are bonds being sold I

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mean from the theoretical point of view it’s not even that difficult to wrap your head around the idea that in a

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growing economy you have growing demand for more money that will be spent on more things

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right so naturally that would that would go up but the thing is the the national debt is kind of a mirror image of the

20:23

economy growing because and you make that point in your book and it’s very

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important to know that uh public debt is private assets can you maybe talk about

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this just briefly right so when most people say money they they are thinking

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of their um deposit account at the bank and the paper money and the coins um and

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generally that does grow with the size of the economy so we can say the money supply typically grows with the economy

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uh government bonds are more like a savings account so that is the savings

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that is growing and yes as the country gets richer and richer people generally

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want their saving to go up and government bonds are the safest asset in

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um in any of the rich developed countries the safest asset you can own

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is your government’s debt safer than gold yes gold Gold’s value goes up it

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goes down it’s probably always going to be worth something but you don’t know what it’s

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going to be worth the government bonds uh they if you hold a maturity

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they never go down in value now when the interest rates change the value of a

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bond uh will change uh in inversely so when the interest rate goes up the value

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you could get to sell your bond right now before maturity will go down at

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industry goes up but if you hold them to maturity you will get the money the government promised and meanwhile you

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will always get interest on it so that’s why people buy government bonds they are

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risk-free in terms of default and the promised money will always come now

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there is the the capital risk which means as interest rates change if you

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decided to sell your bond before maturity its price could go up it could go down

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um there are instances though um maybe just to add to this I live in Japan and

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it is so interesting that people have been predicting Japan‘s collapse for like 20 years now because Japan’s

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government debt is the largest in the world and it keeps growing and growing and growing and Japan doesn’t collapse because exactly this it can’t it prints

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its own money but there are instances when when governments go into uh default

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and we have Argentina notoriously and had the example of Greece um why do why

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does it happen to those countries well these are always or with

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one exception uh they are foreign currency denominated debt and so if

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you’re Argentina and you issue US dollar denominated debt you have to get a hold

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of dollars to make those payments so that’s the difference they can’t simply

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uh print up dollars uh they’ve got to earn the dollars usually through exports

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or borrowing you go to the IMF you say I need dollars to cover my debt payments

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on US dollar denominated debt you go to the IMF and the IMF says well the only

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way you can do that is to downsize your government sector lay off your workers

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bust your labor unions uh and increase your unemployment then we’ll lend you some dollars so they

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say well you know on those terms we’re not going to do it we’re going to default so that

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happens um but uh countries that issue their own currency and their Bonds in

24:14

their own currency don’t default yeah and Greece was of course uh indebted in

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Euros which is not their own Sovereign currency yeah we we we were warning uh

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well when Godley who was the Levi Institute with me was warning I think his first first article was

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1992 uh warning the UK do not join the Euro it’s giving up your own currency

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and you will lose the The Sovereign power uh and you will become like other

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borrowers anyway it turns out he was right so we were warning all along that this could happen and uh they decided to

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make an example of Greece if if you don’t follow our rules then uh you will

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be punished now eventually you know that the

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ECB decided that that was a bad strategy and drogy said whatever it takes from

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now on we won’t let that happen unless it turns out later unless you’re Romania

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then maybe it will happen to you uh so the ECB always had the ability to

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protect any member nation and probably they won’t allow something like Greece

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to happen again a question a real question I have

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that I don’t understand though is why is it that sovereign states don’t print other sovereign states currencies or why

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is it not possible that let’s say Switzerland stly starts printing US dollars as in not printing as in

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stamping them but as in like just digital entries they could I mean the Swiss Central Bank could open a

25:58

spreadsheet and call it USD and just enter them there and then trade them right why not but you you need to be

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able to convert in order to ensure that your so-called dollars are worth the

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same as US dollars so ultimately you have to be able to convert them so

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Ecuador uh issues dollars and they are um the equivalent

26:26

of US dollars and both of those circulate within Ecuador but Ecuador has

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to maintain a reserve of US dollars to ensure that they don’t get a run out of

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Ecuadorian dollars into US dollars and a demand to convert all of those so that’s

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why it’s not in fact uh countries do do this um and private banks in Europe do

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this too they they have Dollar demand deposit accounts they make dollar

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mortgage loans uh they did a lot of that before the great uh financial

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crisis and uh when when the FED had to step into the financial system to save

27:15

the US Financial system they also saved the Global Financial system by providing

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dollars to central banks in European

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countries in um South Korea in Japan that had issued dollar denominated

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counts because they had to cover th those promises of being able to deliver

27:43

dollars so the the FED eventually spent and lent $29 trillion

27:50

dollar to save the Global Financial system uh at the end of the global

27:56

financial crisis and about 40% of all of that was outside the United States

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because there was so much dollar denominated debt issued by uh foreign

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Banks so you can do it but when when push comes to shove you actually have to

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be able to get a hold of those dollars so the principal problem is that if somebody who’s not the United States uh

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government in the form of the FED issues US dollar um deposit accounts or or

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whatever it is it’s basically doing its own mini currency that then other Banks

28:33

still need to be willing to to accept as payment and if they don’t then it it it it collapses it doesn’t work right yeah

28:43

there the FED has to be the central bank for all of the the global dollar

28:53

system in order to prevent those from collapsing

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and and the FED showed that it would do that um and you know what is this out of

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the goodness of the heart of Americans no it’s because I the the dollar is the

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international Reserve currency and to keep that status you have to believe the

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FED will do it okay and the FED showed that it would do it and so the dollar

29:23

Remains the international Reserve currency What If the Fed had not done it who knows

29:29

another currency might have come forward to replace the dollar around the world

29:35

there’s one more really really interesting institution in this entire pyramid of um of of the uh the balance

29:45

sheets among among the banks and that’s the bank for international settlement which at which a lot of central banks

29:53

have uh accounts does the bis have a structural role in the global

30:00

monetary system yeah it does I told you I I don’t really do

30:06

International and um other than the the rules that are agreed upon uh I don’t

30:15

know much about its operations okay um and but for the for

30:20

the national level um if the idea is often that that the

30:28

government can run run out of money and we already talked about this but and and we the US just again averted a shutdown

30:35

because it made a political decision to avert it to raise the the the debt ceiling but um this I I think this is

30:43

believed I think people believe that this government debt is a bad thing and they want to avoid it um at the same

30:51

time we have Central bankers at the fed and we have especially investment bankers and so on people actually make

30:56

money with money they need to understand mechanics and they do um but the general public still thinks of government Deb as

31:03

something bad um how do you think in in in the population in general how well is it

31:10

understood how the monetary system actually works oh it’s not it’s definitely not

31:17

understood um and I think to a a a larger extent than you

31:27

probably would have thought this is on purpose they are purposely being misled

31:34

and it goes back to the um late 60s I would say the kinds of things that

31:41

mmt uh is known for saying I think was pretty common

31:47

knowledge at the end of World War II if you go back and say look at War

31:55

Finance if you look at the tele ision advertisements of the time if you look

32:01

at the campaigns to get U Americans and British uh to buy the government’s bonds

32:09

patriotic saving it was well understood the government didn’t need the money it was

32:15

well understood that the reason you sold those bonds was to get consumers to spend

32:22

less why did you want them to spend less to release resources for the war after

32:28

so in other words they understood the government can buy all the resources it can outbid the private sector but you’ll

32:37

get inflation we in every war before World War II uh we and everybody else

32:45

always got very high inflation why because the government just spent more

32:52

money uh and bid the prices up so that it could devote those to the war effort

32:58

so you always got high inflation all of our high inflations were associated with Wars that was very typical and it

33:04

happened in World War I for the United States World War I wasn’t a a big war so

33:10

it wasn’t as bad for us as it was for Britain so kanes wrote A John Maynard KES wrote a little pamphlet how to pay

33:17

for the war and he emphasizes he’s not talking about where do you find the money he’s talking about how do you

33:23

release the resources you need to get the uh private sector to stop consuming

33:30

and so he said one way is patriotic saving and then of course you can have tax increases you can have rationing you

33:38

can have wage and price controls and all that stuff to try to prevent inflation so the big issue was fighting inflation

33:45

so when World War II hits they’re using the Cane’s plan and the United States

33:51

also adopted very similar strategies so you try to get the population to save

33:57

you try to uh postpone all the wage increases so the government worked with private uh

34:02

firms and with labor unions to agree uh to to hold wages steady through the war

34:11

when of course we were Way Beyond Full Employment and workers could have demanded higher wages we say we’re going

34:17

to give you the reward at the end of the war so it was really well understood that um the government can’t

34:24

run out of money finding the money was not the problem finding resources was the problem and that was understood but

34:32

in the 1960s economists and uh maybe all of your your

34:39

viewers know this but uh economists tend to be very conservative free market

34:46

oriented and anti-government not all of them of course but the majority especially in

34:54

America and in Britain what was called British political economy uh which then

35:01

is moves over the United States and because our our modern uh new classical

35:07

real business cycle Theory new monetary consensus and all this so it it’s the

35:12

vast majority of the mainstream Economist they’re all anti-government and so what they did was

35:19

they took the consumer budget constraint idea that’s being taught in all of the

35:26

microeconomics courses the consumer faces a budget constraint which of course is more or less reasonable in the

35:34

case of a consumer you can you know spend your uh wages or you can borrow

35:41

but you got to be very careful about borrowing because you can get in trouble they applied that to the government that

35:47

happened in the late 60s there had never been this notion that there’s a government budget constraint out there

35:53

that’s similar to a household budget constraint until the late 60s so economists did that and they convinced

36:00

the politicians that just like a household you got to balance your budget okay

36:07

governments never behave that way um except on gold standards uh but you know

36:16

if you go back in time uh to uh Britain

36:22

it it was common to for the government to be in debt in early America in fact

36:28

our the founding fathers understood it was good for the government to be in debt that it was good for the population

36:36

to hold government debt so that’s when it started to change there was a

36:42

reaction against so-called Keynesian economics and um the budget constraint

36:48

became uh applied to government s this is fascinating do you think that it has

36:57

some something to do with this also ideological fight between capitalism and

37:04

communism and the and the necessity to re in the left because the left are those who say like just spend just give

37:11

people what they need and you need a counternarrative in order to say like we don’t have the money we don’t have the money right and that’s the narrative

37:17

we’ve got and the funny thing is the narrative always like goes away or is on pause when it’s when it comes to a

37:23

military spending we are these days we are clearly military can ists right but

37:29

social uh what what should we call them social austerity austerity Fanatics um

37:36

do you think it goes back to this one the Cold War well yes

37:42

uh now in in um Europe the um in general

37:49

the the social welfare safety net was better stronger than the United States

37:57

um at the end of the 60s uh labor unions were stronger in

38:03

general than they were in the United States and it is possible that um the inflation they

38:10

started getting uh was due to too much demand and uh so there’s a reaction

38:18

against that part not against the military spending of course but a

38:23

reaction against the welfare spending because they were getting um uh too much demand and a reaction

38:32

against labor unions they were uh asking for wages that were too high and therefore they were getting some

38:38

inflation I think in the case of the United States the same argu arguments were made but I think they were false

38:45

for the US even though we were expanding the welfare system we were fighting the

38:51

the Vietnam War and so the argument was you know the war on poverty and the war

38:57

in Vietnam was causing inflation and that’s why we had to re in government spending

39:04

um I don’t think it it was true our inflation uh came later than in Europe

39:11

it was lower until OPEC quadrupled the price of oil that’s really what did it

39:17

for the United States that’s where our high inflation came from so I I think they’re pointing the finger at the wrong

39:24

wrong place it wasn’t the welfare system but yes that opened up the possibility

39:30

of blaming welfare and then we had a a very long period that um finally

39:38

climaxed with Bill Clinton who got rid of welfare he ended

39:43

Ware uh the welfare system in the United States a Democrat but uh that was sort

39:50

of the capping uh that uh that whole um

39:56

era of a reaction against the waare state I’m fascinating the under your

40:04

breath earlier you said you you were Whispering gold standard and um I think

40:09

that was a huge shift wasn’t it when Nixon dissolved the gold standard and in my mind the monetary system in a gold

40:17

standard and then what came after what was it 72 73 are two different beasts is that

40:23

correct like it it why was that such a fun mental shift yeah U let me just

40:30

begin most people think that the gold standard was normal that if you went

40:36

back hundreds even thousands of years that gold was money and coins the value

40:43

of coins was determined by the quantity of gold in them and so on this is just

40:48

false uh the gold standard

40:53

uh was mostly 19th century uh countries went on and off gold in bad

41:01

times they would always go off the gold standard and then when they recover they try to go back on it never lasted very

41:08

long because the gold standard puts too much of a constraint on uh government

41:15

spending uh and uh it forces austerity on the country the only way you can win

41:20

on a gold standard is if you are an exporter uh so that’s why mercantil ISM

41:27

was a very popular thing Adam Smith wrote his book 1776 against

41:34

mercantilism but the reason it was popular was because of the gold standard

41:40

so anyway sort of ironically the one

41:45

exception where uh the the currency was pegged to Golden then silver that lasted

41:53

a really long time was Britain so the UK uh really did have a metallic

42:02

uh standard and they kept the pound um

42:07

fairly uh rigidly pegged to it for that

42:12

entire period from Queen Elizabeth uh until they went off it in

42:18

the Great Depression um so no nowhere else did you

42:24

have such a long experience with the gold standard so what I’m saying is it’s

42:30

it wasn’t a normal thing except in England for 400 years okay so that’s

42:36

where the idea came from from them um so all the countries went off the gold

42:42

standard in the Great Depression and I think there’s a paper that shows the ones that went off earlier actually did

42:49

better than the ones who went off later so if you got went off early you uh

42:55

didn’t have such a bad experience at and then we went into World War II so

43:02

at the end of World War II there’s a meeting held at Bretton Woods in the United States uh KESynes was a

43:09

representative of England uh to decide what kind of monetary set system we’re

43:14

going to have after World War uh two and uh they didn’t want to go onto a gold

43:23

standard because typically those only lasted one generation at most and then

43:29

the countries would go off um keynes was proposing a bankor system in which you

43:37

had this uh International currency not linked to any particular country so no

43:43

particular country would get an advantage like the one that Britain had enjoyed before the war and like the one

43:51

the US enjoyed after the war uh but uh Britain was too weak in the negotiations

43:58

the US got the system it wanted which is that everyone is pegged to the

44:04

dollar and the US promises to Peg to Gold it worked okay but it only worked

44:11

for a generation which is as long as they last um by

44:16

19 19 early 1970s There Were Far More Dollar claims

44:24

out in the world that could be converted to gold uh by the way Americans generally

44:30

don’t know this Americans could not convert dollars to Gold so this sort of

44:36

a strange gold standard only foreigners could convert uh dollars to Gold but

44:44

anyway uh in the early postwar period the US was the major exporter because

44:50

industry was destroyed in Japan and in Europe and so it worked out okay uh

44:57

because the uh countries needed the dollar to buy US exports so there was a

45:02

big demand for dollars by the late 60s there were lots

45:08

of extra dollars out in the world and the US was no longer the major exporter we were losing our advantages to that as

45:14

everybody recovered and Nixon could see the the writing on the wall and France

45:20

sort of I guess deal uh sort of pushed it by threatening to convert all the

45:26

dollars they had to gold and so Nixon went off and that was the end of the gold standard we have just been on a

45:33

floating exchange rate dollar standard uh system ever since

45:41

then um second last question a a new change that is about to

45:48

come is that at the moment the only the only um um Central Bank asset that we

45:57

private people are allowed to own are Bank notes and points right that’s the

46:03

only Central Bank asset we can have uh without going through one of the big institutions but we there’s a proposal

46:09

on the table now to change that and actually also make digital currency directly issued by the central banks

46:16

available to us do you think that this will have an impact on how the monetary system works or is it just a a minor new

46:23

form of asset um well it depends on on uh

46:31

exactly how it’s implemented so if every individual is going to have a deposit

46:37

account at uh the Central Bank um for me that raises two two questions uh one is

46:46

about um privacy so now the government

46:52

directly uh has information your financial

46:57

information um or at least has access to it now they

47:04

they they might try to enforce some kind of privacy and um I don’t know how they would do that

47:11

the second one is uh how is that going to impact the banking system if you look

47:17

at what what does a Traditional Bank do I’m not talking about Investment Bank

47:22

Morgan Stanley or something like that because they’re in a different kind of business well they issue deposits and

47:28

they make commercial loans so that’s traditional banking so they make loans

47:34

to firms so the firms can buy the raw materials and pay wages to workers until

47:40

they get the output and can sell it to get Revenue so you’re creating deposits

47:46

that uh firms use to pay wages and those wages are used to buy

47:52

the output of firms so there’s sort of like a closed loop it’s f financing the

47:57

production and sale of consumer goods mostly uh and other inputs to the

48:04

production processes okay well what if uh the uh the Central

48:11

Bank becomes the issuer of deposits what how are what kind of

48:18

liabilities are the commercial Banks going to be issuing the advantage of the um uh had

48:26

having control over the demand deposit system is it’s a relatively cheap source of

48:32

funds I today in the United States demand deposits pay about

48:40

zero um and there’s some cost of you know operating the teller and the ATM

48:48

machine and having a reasonably nice uh Lobby in the bank uh but they’ve

48:55

economized a lot on that by getting people to use their computers and never going to the bank right uh my college

49:03

students have never seen a check before they they don’t even know what they are right they do everything on their uh on

49:10

their watch so uh they’ve greatly reduced the costs of managing the

49:16

deposit system uh so how are they gonna uh what kind of liabilities will they

49:21

issue in order to finance their position in commercial loans now uh smaller Banks still operate

49:30

this way the big Banks uh Chase Manhattan and so on uh for them it’s

49:36

much less of an issue because they they’re involved in all sorts of things

49:41

Comm the commercial loan Market can go away and probably won’t affect them at all what they do is securitize

49:47

everything anyway just put package Securities and they sell them off to Pension funds but small smaller Banks I

49:55

don’t know how this is going to impact them so your worry is that cdbc might put

50:00

smaller commercial Banks out of business and you know I was I was at a at a um meeting in here in in Tokyo five six

50:07

years ago and one of the Swiss Central Bank Governors was was here and she was asked like when are you finally going to

50:13

do a cbdc uh project and she she said look this is this is delicate we are not

50:18

in that business that’s not our role at least for now that’s what she meant

50:24

right it’s like it would be directly Central Bank would start directly completing with little local um retail

50:31

Banks I think so and you know I don’t it’s hard for me to see the

50:37

argument as to why we need this because everything’s digital now already Yes um

50:44

so the arguments are one is well we’re gonna use blockchain so you really do

50:50

get privacy okay fine uh are you going to trust the central bank

50:57

uh to not have some way to get in there

51:02

um because we know that blockchain actually is not completely opaque the

51:08

governments can get into there um and the the other argument which I

51:14

think is valid is that uh Banks uh

51:20

discriminate against uh especially really lowincome people so in the United

51:26

States we we used to have 25% unbanked uh population I don’t know if

51:33

it’s still if that’s still the right number or not uh Banks obviously prefer

51:39

bigger deposits over tiny deposits um because it’s it’s costly to have one

51:46

person who has a million dollar deposit versus a million people who have $1 deposits so uh we have an unbanked

51:53

population my my alternative would be a postal savings system which we had in

51:59

the United States till 1965 Japan had the biggest bank in the world

52:05

was the Japanese postal Savings Bank use the post offices okay and make it free

52:11

and give people cards why do you need a central bank to do this stuff you already have the post

52:18

office everywhere uh unfortunately United States we have been closing them partly

52:24

because of President Trump when he was president um so uh reopen the ones we

52:31

closed most people can walk or write a bike to their post office give them a

52:37

free account and let them do everything they can do at a bank uh through the post office and that that solves that

52:44

problem I think I think it’s a better solution than Central Bank this is a fascinating discussion

52:50

and I would still like to continue this for quite a while but um we have to wrap it up um where do you recommend people

52:57

should go to find maybe your writing and in general to educate themselves about a realist way of looking at the economy

53:03

what’s the best One-Stop shop okay well uh the levy Institute uh

53:11

www.le y.org I don’t think that’s the official one but that will get you there

53:16

uh we have I think thousands of Articles uh posted up there

53:24

different kinds working papers policy briefs policy Notes One pagers

53:31

um many of those most of those are on policy issues including mmt policies but

53:38

all kinds of policy issues uh and a lot of those are rent for General audience some of them are are more technical um

53:47

and then for uh mmt you mentioned one of my books I

53:53

there for the really basic one I have a a cartoon book on mmt money for

54:00

beginners² that anyone can read uh my uh six-year-old daughter took it to the

54:07

classroom to read um and I can give a an understanding of money and then another

54:13

one called um uh uh making money work for us³ which

54:20

is aimed at say high school and above high school and college uh students or

54:26

general population on mmt Stephanie kelton’s book uh is also

54:33

um very simple for a general audience and finally let me just say there is a

54:39

documentary on mmt it’s called finding the money⁴ that uh is now available for

54:46

streaming uh it’s in English but it’s going it’s going to be dubbed very soon

54:53

in Chinese and I don’t know what other languages that um is really fantastic it’s

55:01

entertaining it’s completely accurate uh on the mmt view of the way things work

55:08

it’s historical um and uh uh really gives you

55:15

a lot of information about the mmt view of the world I will find that the link

55:21

to this one and put everything into the description of this video Everybody check it out um Professor Larry Randall

55:27

Ray thank you very much for your time today okay thank you

oooooo

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