Warren Mosler-ek: kapotaren azpian (2025)

Gower Initiative for Modern Money Studies@GowerInitiative

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Warren Mosler: Under the Bonnet – Phil Armstrong & Warren Mosler

(https://www.youtube.com/watch?v=c-9XmTlvL9s)

Video of the presentation of Warren Mosler’s biography, Warren Mosler: Under the Bonnet (Phil Armstrong). Saturday, August 30th, 2025. University of Westminster – Cavendish Campus, London, UK.

00:00:07 Prue Plumridge

00:08:31 Phil Armstrong

00:14:17 Carlos García Hernández

00:17:13 Martin Short

00:23:25 Warren Mosler

Transkripzioa:

0:07

Good afternoon everybody and a very warm welcome to this event to celebrate the

0:13

publication of Phil Armstrong’s biography of Warren Mosler under the

0:19

bonnet. We’re really delighted to have Warren with us today and look forward to hearing from him a little later.

0:28

A week or so ago, Deborah Harrington, a founding member of Gims, posted a memory

0:34

on Facebook reminding me of where seeds of Gims were

0:39

sewn. Although I seem to remember that Deborah did most of the work, we had

0:45

collaborated on an event entitled Reframing the Debate: Economics

0:52

for a Progressive Politics. We could not believe our luck when Bill Mitchell who

0:59

was in the audience in is in London at the time agreed to speak at the event.

1:05

It drew a large audience. Then after an event in 2017 at which

1:11

Bill presented his just published co-authored book reclaiming the state

1:16

followed later by a meeting in London at UCL Gala Street. A small group of us

1:24

began to feel that the time had come for that the time for just talking about NMT

1:30

was over and that we needed to formulate something real and concrete more than

1:37

just a talking shop. Sarah, Claire, Deborah, Patricia, Jessica, and I set up

1:45

a group out of which the Dow Initiative for Modern Money Studies was born and

1:51

launched in October 2018.

1:57

Deborah reminded me in that same post of our enthusiasm to challenge the nar

2:03

narratives that prevailed and our shared desire to make a difference

2:09

since that time. And as Deborah also reminded me, the

2:15

world has irrevocably changed and we have all changed in the face of it. Our

2:22

enthusiasm whilst still there has turned into a quiet determination to keep

2:28

plumbing away in whatever way we can. to remember that whilst our objectives were

2:37

to challenge the household budget narratives of the state finances, our primary aim was to show that the

2:45

technical explanations, although ex exceedingly important, were secondary to

2:50

discussing what they actually mean for public policy.

2:56

to demonstrate that all spending derives from political choices about how wealth

3:02

and real resources are distributed and who benefits and that the limits are

3:08

never money but actual resources. to challenge the notion very much in the

3:15

news of late that the public finances must be restored to uh balance that the

3:23

public services and social security payments are unaffordable until the god

3:29

of growth any old growth delivers the taxes to pay for it. We would like to

3:36

thank that Hims began an important public conversation that has sewed the

3:42

seeds for an informed public debate.

3:47

However, whilst Gims has primarily focused on the problems faced at home in

3:53

the UK, it is clear that we can no longer view the challenge as purely a

4:00

domestic one. We do not live in splendid isolation. We are part of a connected

4:07

world and there is much more at stake. If we thought things couldn’t get worse

4:14

than they already were, Granchi’s monsters are now out of the shadows and

4:20

full view. At the same time, great shifts in the balance of power are

4:26

taking place as a multi-nodal world is slowly forming. bricks and the global

4:32

south nations are challenging the neoliberal status quo and the colonial

4:38

theft and exploitation the west has lived off for decades well actually not

4:44

decades for centuries. the promotion of national sovereignty,

4:50

not of a flag waving sort, but rather the idea

4:56

that countries should be able to serve their own domestic interests while at

5:01

the same time work cooperatively with their neighbors.

5:06

And then the real work that many like Fidel Kaboo are undertaking to bring

5:12

about an understanding of how government spends, what the real limitations to spending

5:19

are and how countries can be supported to set their own path towards real

5:26

independence, prosperity and national resilience in the face of a changing

5:32

world. We are living in a time of global uncertainty and instability. While our

5:40

leaders fan the flames of endless wars in their great game for power and influence, the climate crisis in that

5:47

time has been put on the back burner. Governments tell us that on the one hand

5:54

saving that saving the planet and addressing the key challenges of our time is unaffordable while at the same

6:02

time committing to billions in spending for war and bloodshed. The warfare not

6:10

welfare model of government spending being promoted in Brussels and Downing

6:15

Street. It is these contradictions that are slowly but surely raising questions.

6:23

Decades ago, Tony Ben expressed it thus. If we can find the money to kill people,

6:30

we can find the money to help people. He may not have been MMT, but he understood

6:37

the contradictions and what was possible. This is the time to expose the deceits

6:45

that serve political objectives that have nothing to do with serving public

6:51

purpose. That the core of the argument is not about money in itself. It is

6:57

about the political decisions taken by governments about how real resources and

7:04

wealth are distributed and the beneficiaries of those spending and policy decisions.

7:11

questions about who governments are serving. Questions about a political

7:17

system which promotes a neverending revolving door designed to keep the

7:22

status quo in place. As a parent of two boys now in their

7:28

late 40s, I could never have imagined what sort of world was coming. But it

7:34

seems to emphasize the reasons why we started Gims. Our enthusiasm may not be

7:42

what it was, but we keep going because we care about the future. We care about

7:48

generations to come. Our children, our grandchildren, those who will inherit either a mess or

7:56

a better world. We’re only a small organization and frankly we can only do

8:03

what we can do. But as such, Gibbs aims to remain committed to contributing

8:08

through its website and social media to playing a small part in creating a

8:14

socially just world that puts people before profits and seeks to deliver a

8:20

livable and kinder future for all. Thank you so much for listening.

8:25

[Applause]

8:32

Time for the glasses. Right. Uh, thanks everyone for coming.

8:38

Um, it was it’s the plans for today changed slightly because uh, we were on

8:44

the train and uh, my son sent me a message saying he just proposed to his

8:50

girlfriend. So, if you look behind, you want to stand up there. Sorry.

8:57

There we are.

9:04

I was like, you know, I’ve done the most important things. Uh, congratulations.

9:11

You I’ll never forget this day and probably you guys won’t, I hope. But

9:17

there we go. So, thanks for coming, uh, John and Jenna, particularly on this day. Uh thanks to my wife,

9:24

long-suffering NMT widow. Uh and then uh my wife Isa’s sister Kathy for you’ll

9:31

see next to her there. Uh they and there’s probably

9:36

not many people probably greater MMT widows than us. But we have of course

9:44

the Mnt widow who’s heard more and knows more about

9:49

MMT than anyone else probably including me. And uh so thanks for coming

9:55

Elizabeth. That’s great. Uh and many thanks for everybody else. So many familiar faces that that have come down

10:01

with us today. I want to thank Mark there. You see at the front he designed

10:06

the cover. He also told me the first few pages were really boring and I better change my

10:12

style or nobody will buy it. And he was right. So if you like it now, Mark takes

10:19

the credit. If you don’t like it, it’s all my fault. All right. So he’s a nice

10:24

guy. Uh Neil’s come obviously to a talk. Uh we both found that we both use the

10:31

same bag and we got the same phone. So, it’s a little bit woody in the Armstrong Wilson show, but he’s he’s following me

10:38

very soon. So, thanks everyone for coming and I I’m going through my list. There’s a chap called Steve Lorton

10:44

who’ll be watching this. He’s really helped me a lot. Read through all the various drafts and things like that. Uh

10:51

Carlos, I think, is going to publish one of his books maybe. And if so, I’ll be reading his drafts. So, that’s where I

10:58

kind of repay that. Uh obviously I’m going to come on to Warren because um

11:04

I’m going to say about 5 years ago I was on a Zoom call asking him technicalities about you know Fed operations.

11:11

Uh and then I just there on the screen Elizabeth was calling him for his tea as

11:17

we call it here and I said has anyone ever written your biography Warren and he goes laughed as he does no so if you

11:24

don’t get a better offer I’ll do it. And then I started to go on like I do

11:30

sometimes, don’t I, Johnny? Talk too much. And Warren goes, “Don’t keep talking. You got the job.”

11:37

Only later did I know that he knows Robert Skidellski, the greatest

11:42

biography of the 20 as a biver and he’s hired me like a school teacher from York. Anyway, I’ve done me. And then

11:50

Warren proceeded to introduce me to all the people that he knew from his past like brother, sister,

11:58

uh, old school friends, um, his lead Mosler car driver, Martin

12:06

there was pretending not to be listening. Now, uh, Martin knows about cars and, uh, I’m going to ask Martin to

12:14

come down in a moment after Carlos. I’m just going to have a couple of words after it again. Then Martin’s going to

12:20

pop down because this biography is not just about Warren’s life in changing the

12:27

world of economics, which he has. He’s also done some spectacular car stuff.

12:33

And I hope Martin will give you a few tales. They won’t necessarily be kind, but I mean, he’s a car driver. He’s a

12:40

tough guy. So, we’ll see. I’ll go preempt Martin. Um, I’d like to thank

12:46

all the people that have been watching this, the interviewees that give up their time to help me write the book.

12:51

Uh, Carlos, I couldn’t have done it without you publishing it. Um, and also though the

12:58

whole MMT community who kind of put up with me talking about stuff over the years. Uh, and of course, I’ve got to

13:06

finish by talking about Gims. I mean, I’m I’m not going to shed the tear or anything embarrassing, but it’s just so

13:13

like it’s like coming home. You know, when you come up the stairs, you see the Gims for those of you who spent half the

13:20

morning wandering around London trying to find it, but suddenly you see the Gims banner, you think you’re home. Uh

13:27

the three ladies have kind of, I don’t know, come out of a little bit of a hiatus for this. And I’m massively

13:34

grateful for them doing that. Uh I work for them. I’m an associate at Gims and I

13:39

wear that badge with pride. So without Gims, I couldn’t have done this. And so thanks then to to my family and to uh

13:47

Gims in particular for everyone who’s here. Um I’m now going to hand over to

13:52

Carlos the publisher. And uh the books will be available uh 15 or 20 depending

13:59

how wealthy you’re spending. Uh and then I’ll try and sign them at some point.

14:04

and also Warren will be able to sign them as well. So, thanks for coming and

14:09

I’ll hand you over to Carlos and then it’ll be Martin and he’s just preparing his speech now. Thank you.

14:20

Well, thank you very much, Phil. I’m going to keep it short. I’m I am Cablo from Lola Books. I I have published the

14:27

book and I am very proud to be the publisher of Warren Mosler with whom I

14:32

have traveled the world in several continents really and we have met uh we

14:38

have known each other for so long and I really think this is an excellent work by uh Phil because uh I always compare

14:46

the work of u of of of Warren with the big thinkers of our time in only one

14:52

page of uh a conversation with feel you have condensed more uh knowledge that

14:59

than in several uh volumes of of empty theory that nowadays uh we find in

15:06

economics. So I really think that uh that Warren Mosler is uh is one of the

15:12

of the brightest thinkers uh that that we of our generation and for me I’m

15:19

really really proud to have uh published him in Spanish in German and now in in

15:25

English uh language through the work of Phil and I also would like to thank to

15:30

to Gims I uh I am really really uh proud to be friends with Pru and with other um

15:38

the other members of of GIMPs. I really think that everybody in in Britain should uh uh support Gims like Pru has

15:46

said because we are I I really have the feeling that Gims reflects the best part

15:52

of the British society and uh I am also very proud of of being a friend of of of

15:58

Gims and uh um of of PU and the rest of the crew. So I invite everybody uh to

16:06

read in this book because we are going to find not only uh the normal uh Warren

16:13

Mosler text but we are also going to find the way he lived the way he thinks

16:19

and the way and and all the problems and all the the successes that he has uh

16:25

that that he had during his uh life and that really helps to understand the

16:30

whole work of of war because in the way he lives, we can also find the way he

16:36

thinks and the way he he comes up with his wonderful ideas. So I really uh hope

16:42

that everybody enjoys this book and uh I thank you uh very much again for all

16:48

your efforts and thank you work [Applause]

17:00

just to say to everybody coffee and cake will be in the basement around about

17:06

2:00 you know depending on and how long how long you

17:12

Thank you. Just to say Martin uh is Mr. Mosler in the cars and uh his interview

17:20

was extremely interesting informative for me. That’s the last of the series stuff. Here he is.

17:27

Uh thanks for dropping me in the deep and brown. Thanks mate. Um well I think there’s

17:35

probably two non-academics here. Maybe a few. Um, but me and Elizabeth and everyone else has obviously got brains

17:41

the size of a planet. Um, so I’ve got nothing to do with MMT. I’ve been

17:47

listening for to it for 20 odd years. I still don’t understand it. Um, Warren

17:53

bounces baby’s uh grandchildren on his knees and explains the MMT. I’ll focus

17:59

on it and I still don’t get it. So, I’ll leave it to you guys. Uh what I do know about Warren is um uh he’s a car nut. Uh

18:09

he used to race uh back in the day a Volkswagen Rabbit or as we used to call

18:14

it a Golf GTI uh the boxy thing. And um uh his uh

18:21

obsession, manic obsession with cars meant that eventually he started manufacturing cars in uh uh Palm Beach

18:30

and West Palm Beach. And um and he start pardon Riviera Beach.

18:35

Riviera Beach and Riviera. Riviera Beach. Um yeah, something to do with Blue Heron Drive.

18:42

and um he um uh he started off with uh cars that were completely different to

18:48

everybody else’s. It was uh uh one of the very first Kevlar

18:54

uh fiberglass composite car, full body, full chassis with just a couple of subframes on um with a Dodge

19:01

turbocharged engine in the back. And he built this car. It rated uh in the top

19:07

10 ugliest cars in the world. Um which I’m sure Warren’s going to throw darts

19:13

at me for, but uh but but top three top three but but bizarrely now is um I

19:20

Warren gave me one of these cars and it sits in my house in St Ives, Cambridge and uh and when I take it out, young

19:28

people love it um because it’s uh so different. But in in its day, um it won

19:34

multiple 24-hour races. And every time it won, they threw more weight at the

19:39

car and tried to slow it down. And then it won again. Three 24-hour races uh in

19:44

a row, it won annually at the Nelson Ledgers until eventually they just banned him outright and said, “No more

19:51

Moses.” Um, which pretty much sums up Warren and my racing career with the

19:57

with later on with his next developed car, which was called the MT900. And on page 129 in the book, there’s a

20:04

beautiful picture um that I first saw in um 2002.

20:11

Uh basically as somebody had uh told me about this car, I was racing in British

20:17

GT and uh these people hadn’t been able to get to look at this car because of

20:23

they were due to fly on September the 11th and um so they didn’t do that and they ended up buying a car from me. As

20:30

soon as they left the the workshop, I got on the internet and found this car and I couldn’t believe what I was

20:36

seeing. was so beautiful and had a Corvette engine and it was like a sci-fi

20:42

car but it was underneath it was you know like a normal race nor well it was built as a race car and it was what I

20:49

needed and so within 3 days I’d flown out and met his mechanics at a racetrack and then I flew down to uh Riviera Beach

20:59

and um and I sort of think we sort of met but it was a little bit of a bounce

21:04

off each other but we actually bonded over a swear word and um and uh which

21:10

I’m not going to say it but but um I was trying to buy this

21:17

race car from Moser Automotive and I was dealing with a a very tough American

21:22

lawyer, one of Warren’s best friends, and he was he was pretty mean. and I thought we’d done a deal and we got back

21:28

to England and we were emailing and and uh he was disagreeing with how much I

21:33

could buy an alternative car for him. It was getting quite feisty. And then eventually I just emailed him and I made

21:39

sure that Warren was copied in and I just said I said, “Look, Alan, it would just be a lot easier if you told me to f

21:45

off.” 3 minutes after that email, I got an email from Warren saying, “Martin, we’d

21:50

love to do business with you.” And that’s Warren. He sees things in people

21:56

that most people don’t see. I’m quite an asserbic character, but he saw something

22:02

in me. And ultimately we ended up winning multiple 24-hour races with that

22:08

car. Uh we went around the world. We went to Baurst. Warren came uh and

22:13

Elizabeth to the 24 hours of Baurst. Um we won at Silverson 24 hours. We won uh

22:20

Mosler won at Daytona 24 hours. We won the British GT Championship.

22:26

And um and he kept me in employment and 20 odd people in England. in fact more like 40 people cuz we ended up building

22:34

race cars and road cars in England. And this all came out of the imagination of Warren. So I find it uh quite uh fitting

22:44

that the book is actually called Under the Bonnet because most of you probably don’t realize that his real passion is not really the economics, he’s really

22:50

the cars. But if he hadn’t done the cars, he’d he’d be a lot wealthier than

22:55

he is now because I think for every car cost him a small fortune because they

23:01

were very expensive and we didn’t sell them for a lot. But just to close, um uh

23:06

Warren, congratulations on your book. Um he’s uh the most philanthropic,

23:12

kind person that is always right.

23:18

And on that note, thank you very much. [Applause]

23:25

Oh, to warrant. I just want you to know that I had met new knew Robert

23:31

Scandidski, Sir Roberts. And uh back at but he used to attend

23:38

some postcanesian conferences and he does not hold a candle to

23:47

[Applause] put them in an economics discussion and

23:53

it’s night and day. Not even close. But he’s a very nice guy and he’s brilliant.

23:59

But then there’s Phil. [Applause]

24:08

Okay. They haven’t told me what I’m supposed to talk about. Uh, but I do want to thank all the

24:15

organizers and not just for this event, but for everything that’s led up to it over the years,

24:21

right up to the publishers and um it was just an overwhelming experience to go

24:27

through uh with Bill calling up people I’ve known I haven’t heard from or seen

24:33

in 30 40 years, listening to their stories and all the memories it brought back are a lot of it I still don’t

24:42

remember as having happened but uh a lot of it I did and uh and uh to just get it

24:50

kind of relights those days uh rekindles what was going on in the atmosphere back

24:57

in the early days when I uh first was working at the savings bank in Manchester then bankers uh uh at

25:05

beige bankers trust in New York and then William Blair in Chicago and he just went through talking to those people and

25:12

so so many things came back that happened and it it was just a fantastic

25:18

experience. I mean I got more out of it I think watching the proc of the process than you can imagine than anybody. I

25:24

just very appreciative that it happened. I’m glad I lived long enough to see that

25:29

76 this year. Uh what you call in the fourth quarter

25:35

and uh we’ve got people that have taken up the torch who are substantially

25:41

younger and more vital like Neil here fortunately that have the implicit

25:47

understanding of what it is. So, I I know this is just the beginning of something that’s going to be there

25:55

uh pestering the authorities for a very long time until they get it right, which they will, which they will. And we can

26:01

see it coming around. Two very uh I guess the word important or critical or

26:07

interesting things uh changes happened in the last two weeks. Uh first I see

26:14

this article on China banking news from a economist named XUGao

26:22

Zu Gao. Uh he’s sort of lead economist at the Bank of China. Now there’s like

26:28

two sections to it. One’s pension and one’s operations but he’s the head economist at one of them. And there’s

26:35

been an ongoing discussion inside China about their public debt because it’s

26:41

considered to be enormous and whole everything you hear about our public debts and what should be done about it.

26:48

And there’s the one school of thought call it the Wall Street school, the mainstream economic school and something

26:54

has to be done about it. It’s a ticking time bomb. It’s going to bring the Chinese dynasty crash down. And then

27:02

there’s the other side which is the MMT side as you said uh which says this the

27:10

debt the number is not a problem it’s just offsetting operating factors whatever it is and they need to just

27:17

focus on the real economy and flows the economy and the number itself the debt

27:22

is just a res an economy residual it’s not something that’s going to make any difference and he comes down uh

27:30

you directly. He’s on the MMT side. He he says, “Look, the MMT side is right. All

27:37

these other people are wrong.” Now, what’s important about that is it’s not

27:42

it’s coming from the top down saying the MMT side is right and all you other

27:47

economists are wrong. It’s coming from the top arguably the top economist in the world because China is 1.4 4 billion

27:55

people and they’re have you know very large economy and their growth rates

28:00

have been far exceeding the rest of the world and they’ve been look up looked up to and there’s uh and

28:08

so to come from the top down is not anything we’ve seen this whole MMT movement has been grassroots it’s all

28:16

come from the bottom up it started off as just one which was me it wasn’t and

28:21

then it was my partners in my firm we got it and then there were other clients and suddenly it’s eight and then

28:29

three years later I send this uh

28:34

I there’s a postcian discussion group on the internet back then which was a new thing and I in

28:42

January I think of 96 I sent him something explaining what would be very familiar to all of you just a short

28:48

paragraph the government money comes from the government they spend and introduce it to the academic world. Then

28:54

suddenly there’s 10 or 12 or 15 and it starts they’re teaching it and it

29:01

spreads and it’s 200 30 years later it’s I don’t know how many it is today maybe

29:07

a million or 300,000 big numbers of people who were exposed to it. If you do

29:13

a search for Jerome Powell, Federal Reserve Chief, modern monetary theory,

29:19

there’ll be a quote from him that says MMP is wrong, something, but he’ll he’s talked about it. Lagard, they’ve talked

29:26

about it at the ECB, you know, and all the way up. Any world leader has talked about it. So, it came

29:33

from it did that from people like yourselves from all different walks of

29:39

life. Literally a lot of them were most of them have nothing to do with the financial sector but recognized

29:45

something and it spread around and it it came up. Now there have been a lot of grassroots movements in the world but

29:53

not for monetary operations. Who ever heard of that? Who would think

30:00

you know that Sarah up there would become an activist in monetary operations? So maybe you know save the

30:07

whales and I was just in Wales. They seemed okay if okay but uh you know or something for

30:14

the environment but gee you know central bank has to credit accounts before they

30:20

debit them. How are people non-technical people out there pushing this to their

30:25

leadership? Well they they recognize the value right that it’s affecting their lives. They’re the ones you know the

30:33

people they know and the world they live in is being adversely affected. their other causes are being adversely

30:38

affected by this. But it’s been enough for whatever reason to go global is in

30:43

you know probably every country in the world I’m getting you know MFTt stuff on the way up and totally improbable but it

30:51

was done without any celebrity. There’s not a single celebrity that’s been

30:57

involved. There hasn’t been a single celebrity involved in propagating this throughout the world the way it’s done.

31:03

It’s all come from the bottom up. Suddenly, for the first time ever, somebody at the very top is now it’s now

31:09

coming down from the top. That’s that’s a massive shift. You know, a tech what

31:15

do you call it? Tectonic plates moving or something like that. That’s a paradigm shift. Paradigm shift. Right. Right. And uh

31:25

and that comes from somebody who does have a paradigm. So,

31:30

and and we’ve got this that is a sign of a paradigm shift. Now, a second thing happened a week later of lesser slightly

31:38

lesser prominence and consequence. But I’ve been talking about trade

31:45

and I’ve been saying that we’ve had another

31:50

tectonic plate now moving in trade with what Trump has done. there’s been a major shift and what’s happened is the

31:57

US has been the big importer in the world for trillion and a half net you know imports every year and how do we

32:06

get to be there and there are people who say well because the dollar is the reserve currency and then it’s all based

32:13

on the value the investment value of the dollar it’s a safe asset you know uh

32:18

they’re recycling exporters sell to the US they have dollars and it gets

32:23

recycled Then there’s Petra dollars that the Saudis do this with and you know and they’re uh the interest rates in the US

32:30

and the US is strong military. They go into all these so it’s secure and they go all these investment reasons that the

32:38

dollar is where it is what it’s been and that

32:43

is borders on total nonsense. Okay. And even if it is true, it only explains a

32:49

very small fraction of why the US is importing that much in goods and

32:54

services on a net basis every year. Okay. The real reason is something I started to talk about before is that

33:03

nobody can decide to net import anything.

33:08

Okay? Unless somebody else um decides to hold uh your currency

33:16

and people might decide to hold US currency for those reasons and it might cause us to be a net importer but it

33:22

would be very small. There’s been a much larger reason that the global exporters

33:28

have decided to hold US dollars. They’ve been doing this for 50, 60 years. And

33:34

the reason is the political forces inside China, inside the UK, uh are such

33:42

that they’ve got this narrative that controls they they control the narrative

33:48

that export-led growth is a good thing. And you hear that all the time. Okay,

33:53

we’ve got a trade surplus and good job and oh, we have a trade deficit. What are we going to do to change it? You

34:00

know exporting is like the holy grail of economics and growth and China with all

34:06

their exports is the largest growing country fastest growing country in the world and if you want to grow you

34:11

emerging market countries you have to be net exporters and okay so export-led

34:16

growth has taken over. Now we all know but I’ll explain it anyway that

34:23

if exports exports are real costs you’re taking your you got to look at your real wealth

34:30

okay and I’ll use a small table your real wealth can be thought of as your pile of stuff okay and everything you

34:36

produce domestically when you go to work all your goods and services produces this pile of stuff which includes

34:43

educational services and uh you know things that you produce in facto

34:48

factories and food that you grow. It’s all your pile of stuff that you produce by working. And of course, if you have

34:54

more people working, your pile gets larger. So, that’s good. So, we all want to get to full employment, which we’ve

34:59

been talking about, cuz now you’re maximizing your pile of stuff. And unemployment, your pile is deficient.

35:06

The real loss from not having everybody working is larger than all the losses from all the wars combined in the

35:12

history of man. That’s how large the losses are from unemployment. So, you really want to get that. Okay. Now

35:18

imports when you bring something in it makes your pile larger. That’s good. You have more stuff. Exports makes your pile

35:25

smaller. You have less stuff. So give you another way of understanding that if you were to exports are so good. If you

35:32

were to export everything and not import anything, what happens? Okay, everybody

35:38

dies. All your foods been exported. All your shelter, all your clothing, you’ve been

35:44

working. Everything you have, you exported. You got to credit some central bank account, but you have nothing. You’re dead.

35:51

Now, let’s say you import everything and you don’t export anything.

35:56

Okay? Well, for as long as you can make it last, you don’t have to work. You’ve got everything. You’ve got UBI and

36:03

realtors. You know, everybody’s gets all this free stuff and somebody else has a credit in your central bank, whatever,

36:09

you know, maybe whatever that means. It’s a tax credit. But if you’re just importing and you don’t have to export

36:14

anything, you’re you’re living high. Okay? You’re thriving. But if you’re exporting everything, not importing

36:21

anything, you’re dead. Now, we live somewhere in between. But it just another way to understand, okay, that

36:27

the reason you send things out is because you want to get something in in return. You don’t do it just for the

36:33

sake of sending something out. If that was the case, you might as well just send it out in the ocean and let it sink because you’re not going to get it

36:39

anything in return anyway, right? So, um, tying that back to what I was saying

36:46

before, we’ve got these countries who believe that exports per se are winning.

36:54

Okay? And you’ve got China. The other example I gave I used to give is um if

37:01

General MacArthur had gone into Japan, he did go to Japan. He was in Japan, the winning general on the US side, the end

37:08

of World War II. If he had said to the Japanese, look, you lost the war, okay? You have

37:15

to send us 2 million cars a year. That’s war reparations. And we’re not going to send you anything. Okay? War reparations

37:23

mean the loser sends things to the winner. Okay? That’s because it’s good to get things, right? If you win the

37:29

war, if the winner doesn’t send things to the loser, it’s the other way around. So, if General MacArthur got in, like

37:35

Caesar when he went to Gaul, you’re going to send us food and we’re not going to send you anything. If he had gone into Japan and said, you’re going

37:41

to send us 2 million cars a year. They said, you can’t do that to those poor people. They lost the war. They’re bombed out. They have nothing. You know,

37:48

you’d be exploiting them. Okay? We tried that with Germany at the end of World War I. Treaty of Versailles. you have to

37:54

send something. Don’t don’t do that. Okay? So, they didn’t do that.

38:00

Okay? Instead, we did what we did and what happened for the next 75 years.

38:08

Japan sent us 2 million cars a year and we sent them nothing. Okay? That was the

38:14

biggest case of war reparations in the history of the world, apart from all the stuff Germany sent us from that. Okay?

38:20

the the war reparations that we got from World War II were larger than anything.

38:26

And the ones sending us the war reparations, the cars, Japan sending us

38:32

two million cars a year, they thought they were winning the trade war. Okay?

38:38

And we thought we were losing. And I remember President Clinton had Mickey Cannard, trade secretary in Japan,

38:44

negotiating with them to try and end this trade surplus and our trade deficit

38:50

and he was going to put tariffs on just like Trump. Same thing. This is bipartisan. And they had this whole big

38:57

thing and we didn’t whatever happened and uh it didn’t work out and they got

39:02

criticized politically and Japan kept sending us stuff. you know, the first president to finally succeed in stopping

39:11

these war reparations that we’ve been getting this President Trump. Okay, it’s the most it’s the largest pirick victory

39:17

in the history of the world. This is just complete madness and we’re going through it now in real

39:24

time. Okay. And what’s happened is how did they what is the technique they used

39:31

to and Japan used to export to us? They bought US dollars. And what does that

39:36

do? It makes their currency go down and our currency go up. So that for us,

39:42

because we have dollars that they’re buying, driving the price up, Japanese cars look cheap. And for Japan, every

39:48

American cars look expensive. We’re not going to buy those. Okay? And so the back of Japan with what they’ve done in

39:54

the currency has caused their people their real standard of living to drop.

40:01

Okay? The real wages are lower because of the exchange rate. They can’t afford the rest of the world stuff. Ours is

40:07

higher. Our real wages are that much higher because of the exchange rate. We can buy all these imports. And the

40:13

evidence is we’re last year for last quarter, our imports were running at positive. Uh net imports a trillion and

40:20

a half dollars a year. You know, about 140 billion a month, 130 billion a month.

40:26

Okay. It’s been going on for really since World War II, but in big time the

40:32

last 50 or 60 years. Uh when Trump won

40:37

came along, he put 10% tariffs on. So how did they respond? They bought more

40:42

dollars. They depressed their real wages 10% more. They were still competitive. We got still were able to afford their

40:48

stuff and pay the tariffs. Okay? Their our real terms of trade didn’t get hurt.

40:54

Okay? they took a hit and for that amount. So the economists, the analysts

41:00

looked at it and said, “Oh, we see tariffs cause the dollar to go up, but the tariffs didn’t cause the dollar to

41:06

go up.” It was their policy response to buy more dollars to make it go up in

41:13

order to depress their own wages and their own standard of living so that we could keep buying their stuff. Now, who

41:19

wins in that? The ex car exporters wins. Toyota, Mitsubishi, Chinese uh car

41:26

exporters win, but the rest of their population loses. But the large exporters have political control.

41:32

They’re consolidated. They have a lot of people. They have influence. They influence the Communist Party. They influence the parties in power in Japan,

41:39

right? So the exporters influence the UK policy. So when you’re driving exports,

41:46

you have policies that drive exports. It’s at the expense of your own wages. So you can’t afford our stuff, but we

41:52

can afford your stuff. And if you look at foreign exchange reserves for the United Kingdom, they’ve been going up.

41:58

No, it hasn’t gone to the point of a trade surplus yet, but it’s kept the

42:03

deficit a lot lower than it would have been. Okay? It’s worked against you. All you have to do is look at your

42:10

accumulation of foreign exchange reserves. if they’re buying these reserves, your currency is being pushed

42:15

down to keep your wages down, to keep your exporters profitable, whether they know it or not. And and both sides of

42:22

the political spectrum think this is a good thing. Okay, so

42:28

Trump this time has says, “Okay, I raised I had tariffs last time, but you guys got around it. You’re not going to

42:34

take advantage of me again. We’re going to make sure that we cut off these

42:39

imports we’re getting.” Okay? We’re going to stop these war reparations you’re sending us. You’re

42:44

taking advantage of us by China, you’re evil. You’re not charging us enough for your cars. Canada, you’re evil. You’re

42:51

not charging us enough for lumber. Trump put taxes on tariffs on lumber because they were evil. Not charging us enough.

42:57

Biden comes in, he doubles the tariff on lumber because they still weren’t charging us enough. I mean, who would

43:03

think that the person not charging you enough is evil, right? But that’s the way the numbers have caused these people

43:08

to think. They’re the way they view the numbers. And it’s it’s I know it’s nuts.

43:14

I’ve been watching all my life. So anyway, so now Trump too comes in. This is not going to happen. 50% tariffs,

43:20

200% on pharmaceuticals, whatever. And we don’t want you uh manipulating your

43:26

currencies anymore. Okay? But we don’t want you going off the dollar, whatever that means. There

43:31

is no going on or off the dollar. So he talks out of both sides of his mouth and he’s made it clear that if they figure

43:40

out a way to import even what he’s doing, he’s going to do something else. Okay. I think that has ended this

43:48

strategy they had of export growth. Yeah, they’re exporting in control, but they’re not anymore because that’s

43:55

doesn’t work anymore. This this uh nutcase that the United States has is

44:00

not going to allow this to continue. if we do something, we’re not going to make a big investment in something because

44:06

he’s going to cut it off. It’s not worth the investment setting up supply chains and all that. We’re not going to do this

44:11

anymore. We have to like export to other countries. We have to increase domestic

44:17

consumption of all things, right? So, China’s keeping their 5% growth rate and as their exports to the US fall off,

44:25

okay, their domestic consumption is going up, their exports to other countries are going up and their imports

44:30

from other countries are going up. So things are happening and the United States is being left off to the side and

44:38

they are no longer buying dollars to support this the old system of export

44:45

weight growth to the US which means the dollar returns to where it would have been if they hadn’t been doing this for

44:50

50 years. Now there are other factors around it’s not just the amount of dollars. there’s prices and relative

44:56

values and all kinds of things that go into wages but that’s just a important factor of it and so you will

45:03

see the U and the US dollar is already down 10 or 12% you know in the first half of this year uh and they’re all

45:09

talking about interest rates the Fed and confidence it’s got nothing to do with it these guys are not buying any selling

45:16

but they’re not actively supporting the dollar to to target the US for uh

45:22

exports okay And so the prices of imports even without the tariffs are

45:28

going up because they’re not keeping them down. They’re not keeping their own wages down. Their real wages are going

45:35

up. The Chinese uh yuan has actually gone up more than 10%. It’s leading the

45:40

charge. And they’re buying other currencies instead of dollars. And so those currencies are doing better against the dollar also. Uh and um

45:49

and so and how far will the dollar go? How far will this adjustment go until the US can’t afford to buy imports

45:57

anymore? And so our trade deficit will go back to where it would have been, which is pretty close to zero like where

46:03

any deficit would be if you didn’t have this currency manipulation, currency intervention to cause it to be where it

46:10

is. It won’t be exactly there, but it won’t be gaping up or gaping down like you know what’s differential. Uh what

46:19

does this mean for the US? Our consumers

46:25

used to buy everything they produced domestically, their pile of stuff, plus a trillion and a half net imports.

46:31

That’s a lot of stuff. More than they that trillion and a half’s not going to be there anymore. It’s like a crop

46:36

failure. It’s called a negative supply shock. It’s gone. Okay? Instead, that’s

46:41

going to go to somebody else in the world. Everybody else is going to benefit from this. Okay? Except the exporters. But that’s okay. The

46:48

beneficiaries are 95%, the exporters are 5%. I’m at the macro

46:53

level. It helps the rest of the world enormously. And it’s a huge opportunity for the rest of the world, including the

46:59

UK if you understood it. And we’re in a position to take advantage of it, which isn’t hard, but you have to know what

47:04

you’re doing. Okay? It sounds complicated. You don’t need to know math or science or anything, but you do have

47:10

to know what you’re doing. And uh you have to know how the checks clear in the Bank of England. And uh you know that’s

47:17

a that’s a steep hurdle to get over. So it may not you may not but um for the

47:23

United States this is going to be devastating. Okay. Because that 3 or 4%

47:29

of GDP that trillion and a half is a much higher percentage of somebody’s discretionary income because a lot of

47:35

your income goes to things you know that you have they’re kind of automatic. It’s the money you have left over after tax

47:41

and everything else that you’re spending. Your standard of living in the US on average is going to be down 20 or

47:46

30%. Because all this stuff that you used to buy is going to be too expensive. We can’t make it domestic.

47:53

They say, “Well, we’ll just make the stuff domestically. We’re going to bring that back home.” Well, we’re already at what they consider full employment.

48:00

It’s 4% unemployment. Do I consider that full employment? Not particularly. I’d like to see two, but you know, we

48:06

consider it full employment to the point where the Fed’s saying we have to keep interest rates high because unemployment

48:11

is so low. So politically, we’re at full employment when they decide policy.

48:16

Okay. When you’re at full employment, you can’t like add to your output.

48:22

The biggest your pile can get is the amount as large as it is with everybody working. If suddenly we need to produce

48:29

something that’s being produced in China, maybe more cars, I don’t know. It means we’re going to have fewer

48:34

healthcare workers or fewer something else. It’s a tradeoff. Your your output is based on how many

48:42

people are working, what you can produce, plus any productivity growth, which is maybe 1% a year or something,

48:47

something that’s not zero. And our population is going down because we’re deporting all our workers. This is like

48:54

nuts. So, we’ve got a declining all of a sudden we’re in full employment. We haven’t been getting any

49:00

new jobs. We used to need we used to get two 300,000 new jobs every month and the economy was growing and now all of a

49:06

sudden it’s like we’re getting 25,000 unemployment didn’t go up. How’d that happen? Cuz people are gone and they’re

49:12

getting older. So we’re losing it from both ends and everybody thinks we’re

49:18

winning. You know the government it’s like no this is not winning. This is losing. Well, now we’re finally winning

49:24

the trade war. We don’t have a deficit. No, we’re losing. And you’re going to see the US settle back to consumption

49:32

levels. And what you look for now to say our output will we’ll still have full employment, but your paycheck’s not

49:37

going to be buying anything anymore. Okay. So, and uh anyway, I don’t know if you got me up

49:45

here to talk about this. Um let’s shift gears a little bit.

49:51

Uh the car that Barton first got which it first hit the racetrack in 25 years

49:58

ago before his oldest son was one year old.

50:04

His youngest son hadn’t been born yet. Now uh 25 years later in the same car.

50:12

Those two boys are taking like first and second get their car on the pole which

50:17

means the fastest class in the field. recently in a GT3 class against the

50:24

latest from Porsche and all the other sports car manufacturers who are six generations on this. They’re still

50:32

beating those cars from 20 years ago. Okay, you know what? Haven’t those people

50:37

learned about making cars? Well, for one thing, the new cars look that they’re

50:43

coming out with that are finally actually running neck and neck. for for 25 years they would add weight and put

50:50

restrictors on our engines so we couldn’t run with them. Now they’re kind of caught up so it’s more of an even race, you know, but they also now look

50:56

exactly like, you know, our cars, but it’s 25 years on and so it’s a real

51:03

thrill to see the second generation driving the original pieces of of stuff

51:09

we made and being competitive with the latest and greatest from all the factories uh workers out there.

51:17

uh the uh boat design I did which was designed so that people could go from

51:23

St. Croy to St. Thomas without getting seasick. That doesn’t mean everybody but most people who get seasick don’t uh but

51:30

uh is still out there after eight years doing that and no one has copied the design which is a lot like what’s

51:38

happened in modern monitor the it took 25 years to them to catch up in

51:44

the car side and that’s the same kind of thing we’re up against. I guess the same

51:50

thing’s going to happen on the boat side. And um the theory of the boat, the idea of the

51:56

boat was I was driving around that boat going over the waves. I’m going like,

52:02

okay, the boat’s p it comes to a wave, goes up, the whole boat goes over, it pitches down and it goes back up and

52:08

then the whole thing pitches down and it accelerates down and accelerates up. Like what’s going on here? And it dawned

52:16

on me that this is the exact same thing that happens in a car. If you have a very short wheelbase car, a small car

52:22

where the front and back wheels are close near each other, short car, the

52:27

front goes up at a pretty steep angle. If you hit a bump, then it goes over and the back goes down. But if you have a a

52:34

bus where the front and back wheels are really far apart, the front of the bus goes up. The bus is not nearly as tilted

52:42

as that little car would be. You raise the front of a small car by a foot, you’re at a pretty good angle. You raise

52:48

the front of a bus by a foot, you don’t even notice it, right? That’s the wheelbase. The short one, the same bump

52:54

is a big motion. The long one, the same bump is a smaller motion. So, a boat is

53:01

like a very short wheelbase car. In fact, it’s a zero wheelbase like a bulldozer or something that only has two

53:07

treads or a tank, army tanks. when you go over a bump, the whole thing has to go over, falls down, crashes, pitches,

53:13

and does exactly what a boat does. So, I said, “Okay, well, why don’t we build a long wheelbase boat?” And there’s a

53:19

picture of it in the book so that the front will go up, but just a little bit because it’s way out in front. The angle

53:25

of the boat won’t be so bad. And then it’ll come down. The whole boat doesn’t have to go over the bump. Just like your

53:31

whole car, the whole bus doesn’t go over the bump, just the front wheels. Then a little bit later, the back wheels. And

53:38

so the boat the there’s two holes way out in front. They go up and over the wave. Then a little while later the wave

53:44

hits the back ones and they go up and down. So it’s articulating like a bus

53:49

going down a bumpy road. Sort of like a something that has to jump and go over

53:54

the hook. Nothing complicated. No moving parts, right? And the boat company

54:02

wouldn’t build it for two years because they didn’t think it would work and they thought they’d have reputational damage.

54:08

I I offered Martin talk to them, right? And tell me if I’m wrong. So, uh I

54:14

offered to sign a release saying that if it doesn’t work, I take full responsibility and all do that. So, I

54:20

had to build these small ones like 15 ft with the four holes outboard motors. It

54:27

took a while because, you know, we’re small island to get people to do anything. you know that that we had

54:32

quality people, but it just takes two guys with, you know, foreign resident stuff a lot longer than if you have 20

54:39

people doing something. Uh, and they went and it worked. And they went out on this and they said, “Oh, yeah. Now, now

54:46

we understand how it works. We get it. You know, we think your boat work.” It’s like, “Thanks.” And so, they built it

54:54

and they um sent it to the they got it Coastg Guard approved, which was also very difficult. Coast Guard didn’t think

55:00

it was going to work either. And it’s been out there eight years without any damage. And all the other boats after

55:07

about a year need to be rewelded and rebuilt because there’s another very important thing about a car with a long

55:12

wheelbase. If you get a flat tire, you jack up the front wheel. The cars to to

55:19

repair the front wheel. You’re not going to bend the frame because you’re jacking the car up at the middle. I mean at the

55:25

wheel. So, it just kind of tilts the whole thing. It’s not putting a lot of stress on the frame or the back wheel. But if you jack up a car in the middle

55:32

between the wheels so that both ends are hanging over it, you can bend the frame. You’re putting a lot of stress on that

55:38

frame of the car. Okay? That’s what happens to boats because when they go over a wave, at one point the waves in

55:44

the middle of the boat and they’re trying to break the boat in half, its own weight. And you’ll see tankers

55:51

abandoned and broken in half in the ocean if you look it up online. Uh from

55:56

after a certain number of time they break themselves in half. And all these boats that have been going across

56:01

carrying passengers and cargo after a certain period of time the whole frame is flexing and bending and needs all

56:08

kinds of structural repairs in it. Well this boat first the wave lifts up the front. It’s not stressing the frame.

56:16

Then it lifts up the back. It’s not stressing the frame. It’s been out there in waves that are four to six feet high

56:21

regularly going across this two-hour running back totally unstressed like the

56:27

frame on a bicycle or the frame on a normal car because it has a long wheelbase.

56:32

Okay. So, Martin, is there anything else in that book I need to cover? Carve got MMT trade. Um

56:41

what uh if you if anybody asks you about the public debt, I find the easiest thing to

56:46

say is look, everybody knows the movie theater, the football stadium, they

56:52

don’t collect the ticket first and then sell it. They sell the ticket first and then collect it. And likewise, the funds

56:59

to pay taxes to buy government bonds come from the government through its agents, Bank of England and so forth.

57:05

These are all agents of government. They are actually spending the money first and then collecting it. Okay. And so

57:12

what is the public debt in the US? We spent $7 trillion last year, but we

57:17

spent it first. It’s already been spent. We then deleted $5 trillion from

57:22

people’s accounts to pay taxes from money that was already spent. We didn’t tax to get the money to spend. It

57:29

was already, you keep repeating, already spent. Okay, that left $2 trillion that

57:35

was already spent. We then sell bonds that people can buy with that two trillion that’s already been spent

57:42

whether they buy the bonds or not. It’s too late. The money’s already been spent. We really don’t care if they want

57:47

to keep their money in a checking account without interest or they want to buy bonds with higher interest. It’s

57:53

their choice. It doesn’t matter to a government that’s already spent. And and when they buy bonds, what are the bonds?

58:00

They’re just a different account at the Bank of England for the same money. It’s either a cash account or it’s in a

58:06

securities account. And how do we pay back the bonds? Well, first of all, they already are the money. A bond is money.

58:12

It’s just get money with interest. But how do we pay it back? We just move it back into the cash account. They debit

58:18

one and credit the other. This is money that’s already been spent and it’s floating around out there. Yeah. Just think, you know, one of my

58:24

favorites is the old Italian bond story lookalike. That’s all.

58:31

But the the last thing about the deficit spending, why is the deficit so high? What’s the answer? There can’t be one

58:38

penny of deficit spending unless there’s a saver out there who wants to save. And

58:43

the more the savers, the higher the deficit. It can’t happen. Okay? Because

58:48

nobody wants to save it. It means you can’t buy anything. Because if you’re going to buy something, what are they going to do with that money? Okay? This

58:55

is deficit spending. There’s no tax involved for this. If they’re holding it, they’re savings. If they don’t want

59:00

to save, they’re going to try and buy something with it. Who’s going to They don’t want to save it. They’re going to try and buy something. Prices are just

59:06

at infinity. You can’t buy anything to begin with. You can’t get it started just by spending something nobody wants

59:12

to save. What is the motivation say to sell

59:17

the to sell bonds? Yeah. Yeah. Okay. So the government um spent 7 trillion

59:25

first, then deleted 5 trillion. Why does the government care about that other two

59:31

trillion? Because under the gold standard, people with that money could cash it in and take your gold and

59:38

default. To eliminate that, eliminate that risk, you sell them a bond, which says you can’t have money to be your

59:45

money can’t be cashed in till your bond comes due. It’s a two-year bond in two years. a 10-year bond in 10 years and

59:51

there’s some interest rate that’ll cause you to okay I’ll have a 10-year bond. I know I can’t get my gold, but at 5% I’ll

59:57

take that chance. Okay, now the gold standard’s been gone. There’s no reason

1:00:02

there’s no valid reason for the government to sell bonds anymore. Something to do with maintaining the overnight interest rate.

1:00:10

Huh? I thought it was to do with the overnight interest rate. Okay. If

1:00:15

Yes, but it doesn’t have to be a 30-year bond. It could be one day. you just pay interest on reserves.

1:00:22

So okay uh savings thing. So the debt is $36

1:00:30

trillion in the US. That’s only because there’s some everybody wants to save

1:00:36

desperately wants to save $36 trillion. Why? It’s government again. They’ve decided

1:00:43

there’s virtue in savings. So if you have money taken out of your paycheck to put in a pension fund, there’s no tax on

1:00:49

it until 30 years later when it comes due and the interest has no tax on it. So that gets saved too. Okay? And so

1:00:57

they’ve created all these tax advantage reasons to save money because they think you need savings to have money for

1:01:03

investment, which is completely wrong. Who would have thought they’d get this

1:01:08

wrong? But they do. Okay? And if you look at how much money is in pension funds, it’s

1:01:14

like the same 30 or 40 trillion. Not to the penny because there’s insurance reserves and there’s other savings, but

1:01:19

it’s, you know, orders of magnitude. It’s you can see what’s going on here. You put money in your personal IRA or

1:01:26

we’re going to give you an tax advantage. No tax on that income tax on that money, but later you figure out how

1:01:32

much you’re saving. It’s compelling. How do we know it’s compelling? You all want to do it. Where does it come from?

1:01:39

any unspent income like that has to come from somebody spending more than their income which in this case is a

1:01:45

government deficit spending. So there is no deficit spending. You can’t borrow to

1:01:50

buy a house unless somebody wants to sell the house and save the money. If

1:01:56

they all just want to spend whatever you borrowed the prices would just go to infinity and nobody would ever sell their house if they didn’t if the

1:02:03

economy did some where in that economy want to save the money. So whether it’s private borrowing, which I always talk

1:02:08

about MMT doesn’t understand private borrowing. Yes, thank you. Or public borrowing, it falls under it’s all

1:02:15

deficit spending, public and private. None of it happens without savings. We

1:02:20

create these savings. If we stop these tax advantage savings, the deficit

1:02:26

spending would go away. It would have to go away. There’d be nothing there’d be nothing to spend it on. It wouldn’t exist. Okay? It’s not dead. So, uh,

1:02:34

back to the Italian tennis. So, Maurice Samuels, who I just saw a few

1:02:41

weeks ago, uh, worked at Harvard management. Well, we’ve got Dave Middleman who’s not not

1:02:48

with us anymore, but he um we were observing back then that Italian

1:02:56

bonds were paying 12% interest roughly and we could borrow LRA to pay for them

1:03:02

at 10%. So, this is pretty easy money. You borrow at 10 in LRA, you invest at 12,

1:03:09

you make 2% in LRA. But what if the LRA goes down? Okay, you’re still going to

1:03:14

make a profit. It’s just not going to be worth as many dollars, but it’s still free profit. So, if the LRA drops 10%

1:03:20

instead of making, you know, a hundred million spread, if I borrow $100 million

1:03:26

worth, invest $100 million, instead of making 2 million, I’ll only make 1 million or whatever, but I’m going to

1:03:32

make money. I’m not going to lose. As long as I can, you know, borrow at 10 and invest L at 12, I’m I’m secure here.

1:03:39

The problem is everybody thought the Italian bonds were going to default. And Rudy Dornbush was a MIT economist

1:03:47

had this stack of papers about Italy’s certain default. Their debt to GDP was

1:03:53

124%. And their taxes were this and it was un unsustainable.

1:03:58

Okay, this was in the 1990s, right? And so nothing’s new, right? This is what was going on. Um, and so I I’m there as

1:04:07

a fund manager. I knew how the money worked and everything, but I’d never thought about this because I’ve never seen this opportunity before.

1:04:14

So, I said, you know, if I can come up with a good reason why Italy wasn’t going to default, there’s a lot of money

1:04:20

to be made for my investors. This 2% spread can turn into a 5 or 10% annual

1:04:26

return for investors, which you know, above and beyond the interest rate, which is a lot. And um

1:04:33

so I’m kicking it around and I was talking to Tom Schuli who was my research guy at the time and it just

1:04:38

dawned on me that I said Tom if we buy Treasury securities

1:04:46

from the Treasury, okay, or if we buy them from the Federal

1:04:51

Reserve, it it doesn’t make any difference to us. The money goes to the same place, okay?

1:04:59

We own the same thing. It’s a security of the Fed. I said if it doesn’t make any difference to us, it’s the only

1:05:05

difference has to be how they account for it on their side of the lecture. It can’t be any actual difference.

1:05:15

But when we buy from the Treasury, supposedly we’re funding the expenditures. They need that to spend.

1:05:22

We buy from the Fed. to your point, they’re doing that to uh hit their

1:05:28

interest rate targets. One’s monetary and one’s fiscal, but it’s it’s got to

1:05:33

be all the same thing. Otherwise, it’ be a difference to us. Okay? So, if you have a company selling oil, we buy it

1:05:41

and there’s two parts of the company. We buy it from one or we buy from the other. It’s got to be the same to that

1:05:46

company. They’ve got less oil. whether they call it A or B or put it in their left pocket or in the right pocket, it’s

1:05:52

got to be all the same thing. So you think of the government as a black box and we’re just buying treasures. And I

1:05:59

said, and it and once you understand that, you realize it’s all monetary. It’s all about

1:06:05

the fact that it has an effect on interest rates. It has nothing to do with funding expenditures.

1:06:10

At which point putting the last bit together you know I understood that the

1:06:15

government has to spend first before the that the money the government spends is

1:06:21

the money that is used to buy securities. It’s it’s all the same thing that first happened in 1977.

1:06:28

I was at Bankers Trust in a trading meeting with Alan Rogers. He used to talk without moving his mouth

1:06:34

and uh I was a new guy there been hired from this little savings bank and I’m at

1:06:40

this trading meeting and he goes, “Okay, there’s two billion two-year notes this

1:06:45

week coming from the Treasury. Now there’s like 200 billion that was two billion.” Where’s all the money going to

1:06:51

come from to buy those? You know, I I don’t see how it’s going to happen. They’re going to have trouble selling

1:06:56

two billion. There just isn’t that much money in the system. And I I say Allan,

1:07:02

it’s the same money the Treasury is spending. They’re going to be deficit spending two billion. That’s why they

1:07:07

sell two billion of Treasury securities. So when they spend the two billion, that two billion buys a Treasury security. It’s debit credit. It’s just a

1:07:14

spreadsheet. It’s the same number. And he looks at me for a couple seconds. Then he turns to somebody else and asks the question, “So where do you think the

1:07:20

money’s going to come from?” It’s like I was completely how did I know this when nobody else on

1:07:27

the desk understood it? or could even fathom the answer. It made no sense to

1:07:33

anybody. That was 1977. I don’t know. I don’t know why that made sense to me. I

1:07:38

mean, I guess I’d been there watching auctions happen, watching Treasury spend, watching bonds buy, watching the

1:07:44

Fed funds markets, and kind of understanding that when you add money to

1:07:49

your account, the balance goes up. When you take it out, the balance goes down. You know, they weren’t noticing. There’s

1:07:55

not much else to it. Uh but there was enough of a veil of numbers buzzing

1:08:01

around where they just didn’t occur to them. Maybe something they learned in school that they never looked at caused

1:08:07

them to not see things clearly. I don’t know. But but they did. So that was 77.

1:08:12

So now in 1992 93 with this Italian thing it’s you know I already had that in my toolbox

1:08:20

and we realized that um and so I said okay let’s check around.

1:08:27

So I called the rating agency standard of course and said have there ever been any defaults with local currency? Oh

1:08:34

yeah there have been lots of them. They sent me a list. So I start looking at them half a dozen of one. Uh

1:08:42

there were things like Mexico or Argentina defaulted because the exchange

1:08:47

rate that the inflation got so high that this million pesos worth of bonds which

1:08:53

used to be worth something was now less than a penny US and so they just let it

1:08:59

go and nobody cared about it. We classified that as a default. It’s like okay. Uh, in 1943,

1:09:06

Japan defaulted to the United States on Japanese bonds in yen. Okay,

1:09:13

not surprising. Not because they didn’t have the yen, but they were having like um some kind they were involved in a

1:09:19

dispute of some sort. They decided not to do it, right? A couple of the others

1:09:25

were fixed exchange rates and so they didn’t actually default in their own currencies like St.

1:09:31

But there were no instances of ever this happened. But that’s not enough. Okay.

1:09:37

But after understanding this with Tom, you know, I understood why they don’t

1:09:42

default because they’re spending first and then later they’re making the payments. Well, the important thing was

1:09:49

for Italy to understand this. Okay? Because I’ll skip ahead to 1998 in

1:09:55

Russia. Russia had a fixed exchange rate. it blew up. They did not have to default at

1:10:02

that point. They could have just made the payments and rules and not honored the exch the conversion. Okay? But they

1:10:09

didn’t because they didn’t know how to operate their currency. Instead, everybody in the central bank walked

1:10:15

out. They didn’t even turn lights off. Okay? And rubles didn’t clear for three months. Nobody could make payments. Uh

1:10:21

then they went back to work and everybody got paid. Okay? So, but back in back to 1993, uh, we’re ready to do

1:10:29

this trade. We understand why you don’t default in real currency because it’s just a reserve trade. It’s just a

1:10:35

monetary operation. You’re selling the securities after the money’s been spent just to support your interest rates, not

1:10:41

not to uh fund expenditures. But the guys from Harvard said, “Well,

1:10:47

let’s go over and talk to people in the league to make sure they know that so they’re not going to do something stupid, which is good, good place.” So,

1:10:54

I went over with Luise. We met with Professor Luigi’s Vventa who wears that, you know, finance ministry and uh we

1:11:02

walk in and he’s wearing this three-piece suit. He’s he looks like a he’s imitating Canes or something. He’s

1:11:08

got the pipe. He’s got Brit his English was learned in UK, so he had this

1:11:13

British accent. And I go, “Professor Spenta, I’ve got a rhetorical question. Don’t answer. Why is Italy selling all

1:11:21

these BTPs, CCTS? Is it because you need the money to spend or because you’ve

1:11:27

already spent the LRA and if you don’t uh issue these bonds, your interest rate

1:11:32

will fall to zero and not hit your 12% target. And

1:11:40

he he looks up and he doesn’t say anything for a while and all of a sudden

1:11:46

he says, “Um, no, they won’t fall to zero. They’ll fall to a half a percent because we pay a support rate on You

1:11:53

don’t have to know what that means. But what it told me is that he knew what I was talking about. Okay. They were paying half a percent

1:11:58

interest on reserves. I didn’t know that at the time. Nobody did because it was so far off. It was like an old rule on

1:12:04

the books or something. And uh it’s like, okay, this guy gets it. And then he doesn’t say anything else. He jumps

1:12:10

up, pulls out the pipe, and he starts going into this rage against the IMF.

1:12:16

And they’re making us act proyical. They’re trying to get austerity and they’re saying we need this, you know, because you realize this there’s no

1:12:22

default risk or anything. You don’t have to do anything. And the IMF has been trying to get them to do what they do to

1:12:28

all the emerging market countries today. And we were supposed to be in there for 20 minutes. He starts calling in people

1:12:34

from the other world. The place was had been total depression. I mean, it it was

1:12:40

gloomy when you went there. And he had that papers on him from Rudy Dornbush saying that Italy was going to default.

1:12:46

They all thought that. And the way his mood just changed. It’s like he lit up like a Christmas tree. And he calls

1:12:52

these people in from the other room and tells them they’re all celebrating. They had this cappuccino machine about this

1:12:57

big, you know, with all these pipes and everything. And they start making us cappuccino. Mauricio and I are like,

1:13:04

partying with them with this cappuccino. You know, two hours later we had to leave because we had another meeting. A

1:13:10

week later, the announcements came out of Italy. No extraordinary measures will be taken. all payments will be met

1:13:16

because they didn’t have a solveny problem. Okay. And we wound up being the largest holder of Italian bonds outside

1:13:23

of Italy. They all just matured normally. There was no there were no fireworks. We made our 2%. Our investors

1:13:30

made 10 or 12% of their money and uh everybody was happy. And then after that

1:13:35

is when I wrote soft currency economics. Go ahead. Um, what I don’t understand is

1:13:42

when they made that announcement, it’s the equivalent of Mario Draggy saying, “We’ll do whatever it takes to support the Europe.” Why did the spreads not

1:13:48

close? They did. They started to close, but not a lot because all he said was they’re going to make their payments. People

1:13:53

didn’t know if they that was just talk or they actually could make their payments. Yeah. Right. So, uh, and they closed

1:14:02

gradually. It took about two years to close all the land, but they went 200, you know, 175, 150, 125. Maybe it’d stay

1:14:10

there for a few weeks or months and stayed 100, 1% for a while, and it just gradually went down as they continued to

1:14:18

function normally regardless of what their debt to GDP was. They were able to make all their payments, you know, and

1:14:23

if you look at Argentina today, they’ve made all their payments. They haven’t defaulted. 200% rates, you know,

1:14:29

inflation going crazy, the currency going up by thousands of percent. I

1:14:34

mean, going down by thousands, can’t go down. That’s Trump, right? Collapsing.

1:14:41

The uh number of pesos of dollar buys going up dramatically, right? Uh it goes

1:14:46

on. It doesn’t default. There’s no default risk. Turkey, 100% inflation,

1:14:52

100% interest rates for 15 years. There’s no default risk. that got nothing to do with it. And um so that

1:15:00

was for film. How’d I do? Anyway, that’s in the seven deadlines properly.

1:15:07

And um anybody have any other questions about anything else that uh

1:15:14

so I’ I’ve come up with this thing about uh quantum mechanics. Any physicists in

1:15:20

here? So the universe, how far back in time

1:15:25

does it go? Does it go? Well, with their models, it goes back infinitely in time. It’s an infinite regression. Where else

1:15:32

do we see that? The mainstream economist inflation understanding

1:15:40

doesn’t have a source of the price level. They don’t understand the currencies of monopoly. Monopolist set price. And so

1:15:47

where do prices come from? Well, they came from they can tell you they they’ve come up with a way to guess forecast how

1:15:55

prices might change from this year to next year. We think they’re going to go up 3%. They’ll give you all these reasons. One of them is inflation

1:16:01

expectations, right? Which has been discredited because it doesn’t work. But still, that’s one of the reasons that

1:16:06

prices go up. So, why did prices go up last year to this year? Well, it was one of those same things. Where did today’s

1:16:12

prices come from? Well, they came from last year’s prices that went up or down based on these things. But what about

1:16:18

the year before? Like where did it start? They don’t have a beginning a source of the price level.

1:16:24

So they say the price level is historic. We start with this year and then we tell you where it’s going to go because it’s

1:16:30

just an infinite regression. So they they don’t even have a source of the price level. Uh you know I picked up a

1:16:37

long time ago back in 93 soft that is the prices government pays. You need the

1:16:44

government’s money to pay the tax. They tell you what you have to do to get it. That’s where the value comes. If you don’t like it, you’re going to default

1:16:50

on the tax and wind up in jail or whatever happens to you. Okay, it’s monopoly 101. Everybody understands

1:16:56

where single supplier, you’re the electric company. You tell the community

1:17:02

it’s 15 cents a kilowatt. They can’t you don’t sell electricity at the market. There’s no competitors. There’s a single

1:17:08

supplier. You have to set a price. Might be the wrong price, have bad consequences. Well, then you have to set

1:17:14

another price. Markets mean buyers and sellers on both sides. Okay, currency is a monopoly. There’s a single supplier of

1:17:20

the thing that needed to pay taxes. Well, they don’t have that. Okay? So, they don’t have a beginning to their

1:17:26

story. I have a beginning to the story. It’s the money story. It begins when the government wants to provision itself. It

1:17:33

wants soldiers. It wants sailors. How do we do that? We put a tax requirement, a tax liability on everybody. Okay. What

1:17:40

does that do? Well, now they’re all unemployed. They need the thing to pay the tax by pound. How are they going to

1:17:45

get it? Oh, you served in the Royal Navy. I’ll give you 50,000 a year or whatever it is. Now, we’ve got a system

1:17:51

going. We’ve created the value. The rest of the markets can figure out the value. Do you want to be a sailor and you want

1:17:57

to sell bread to these guys or pizzas or do something else and you get monetized, but the story has a beginning and moves

1:18:04

from the beginning. Physics doesn’t have the beginning. So, it’s telling me there’s a missing

1:18:11

element of the story the same way there’s a missing element here or the world really doesn’t have a beginning.

1:18:17

One or the other. Okay? The beginning is always the weakest force because

1:18:27

if you’re weaker than the weakest force, you can’t ever move. You’ve got to be a stronger force to move against to be

1:18:33

able to move. The weakest force is gravity. So, so I’m saying the force of gravity

1:18:40

is a a model assumption. It’s the beginning. It’s it’s the

1:18:46

initial information. You know, in the beginning there was gravity and then everything else is derived from that.

1:18:52

All their other electromagnetic equations and everything else involve stronger forces that evolve from this

1:18:59

one just as a point of logic. So, it’s okay. What do I know about quantum physics? Right.

1:19:05

So next month in October, I get a notice, I think, from Italy. They’re

1:19:10

having a very important meeting at Lake Ko. They’ll pay my expenses. First time, another first, third this week. Uh

1:19:18

travel, put me at the hotel, all these Italian officials. And um

1:19:26

the uh this is important discussion of Europe right now and fiscal policy and

1:19:31

everything else. and we’d like you to be there keynote speaker and uh get discussion with these guys so Europe can

1:19:37

move forward and you know you know so part of what I think about Europe and one of the signers one of the members of

1:19:44

this group is it’s multi- uh what do you call ethnic

1:19:52

multiip what do you call it multi-disiplinary yeah multi-disiplinary

1:19:58

this guy’s senior physicist in CERN learn, you know, in particle

1:20:03

accelerators and physics and all this stuff. And so now I’m going to get to

1:20:09

throw this by him and see what he said. I’ve never done that. I’ve never had a

1:20:16

real physicist I could ask about this. I’ve had some students who thought it had merit, but I haven’t come across a

1:20:23

guy who’s actually leading running these top uh theoretical physics programs in

1:20:29

quantum mechanics on them. So that that’ll be interesting. Keep you posted

1:20:34

on there. So what can the European Union do now? They are in absolutely prime to

1:20:41

become world leaders to be the most prosperous province in the world.

1:20:47

They’ve learned do what it takes to prevent default is what the banking system needed. Deposit insurance at the

1:20:54

national level doesn’t work, but when you do that, it works. Okay? They got past that. They’ve learned from co that

1:21:00

the deficit limit is a policy tool and not an absolute limit. We we had CO so

1:21:05

we let it go down 11% in Italy. Nothing bad happened except the economy did better, right? So they can use that now

1:21:11

as a policy tool. So they they haven’t it hasn’t quite

1:21:16

sunk in, but they’ve got all the data points from all these countries that have levels two and three times their

1:21:24

limit and they can see what happened, right? And so they’ve got everything they need to now use that as a policy

1:21:30

tool and create a full prosperous full employment economy. They now have the

1:21:36

United States out of the way where Europe if they understand things can be

1:21:41

the importer of the world the way the US was. They can step into that position. If they recognize that it’s okay to let

1:21:48

your currency get strong, which it’s starting to do. Okay, they’re on the way to this extreme prosperity and go ahead

1:21:56

and run allow a trade deficit. Allow the rest of the world to send you reparations. They’re right there. It’s

1:22:02

getting started. The first 10% has already moved and they just have to maintain

1:22:08

the they have to have the understanding and maintain the fiscal balance to facilitate this instead of to fight it.

1:22:15

In the past, they would have fought it. If they don’t fight it, let that when you start importing more, just let your

1:22:21

deficit levels run higher to accommodate the savings of the Chinese or whoever’s the exporters. They want to save euros.

1:22:28

Fine. Let it let it go. And they have the tools to understand this. And it

1:22:33

could they could take the place as in world leadership if they just understand it. Yeah.

1:22:38

Where do you think the understanding is? What’s that? Where do you think understanding is? because I I you France has just come out

1:22:45

said they got no money. I’m just wondering where you commission bank or

1:22:50

you know they’re talking about euro bonds right to fund all these military expenditures.

1:22:56

They know that’s deficit spending. So they’re just they’re just like arguing around the edges of how they’re going to

1:23:02

do it. They can still say that for political purposes but what’s France’s deficit four or five% now or it’s way

1:23:09

over 3%. And so that they’re not saying we have to come back, but that they can

1:23:15

say things like that, but if you look at what they’re actually doing rather than what they’re saying, you know, right now

1:23:20

it’s enough to sustain demand and it’s going to have to get higher. They’re going to have the honor, the privilege

1:23:25

of letting it go higher without inflationary pressures. And yeah, go

1:23:31

ahead. Yes, they they said they’re going to go back to the 3% deficit limit, but

1:23:37

they’re going to exclude the military. Yeah, but the the 3% u

1:23:45

Yeah. And the next thing is still is still valid and they are going to make everybody go back to the

1:23:52

that’s what they said. But you know, as you know, talk is cheap. Um especially in Europe, but they might decide that

1:23:58

the primary deficit has to be 3% or something. Well, talk is cheap until you have the south of Europe uh

1:24:05

industrializing and competing against the north and then the north says not anymore. So talk is cheap until you uh

1:24:13

until you confront the north of Europe with the south. Okay, that you know that’s my quote in

1:24:20

here. What you know what if there were no hypotheticals that that’s like maybe way down the road, right? Oh no, no s

1:24:28

Italy is still competing against industrially against the north. That’s why we got the euro. So the so Italy is

1:24:35

not anymore competing against the north and in in in Spain we used to have the same uh Portugal not very much but the

1:24:43

Spain was industrializing and this was a way to stop the industrializing industrialization of the south and that

1:24:50

is exactly what is going to happen. But well, okay, you’re saying that’s going to happen, but it might happen. I agree

1:24:55

it might happen. But what I’m saying is there’s an opportunity here for everybody to grow, not just the south

1:25:00

versus the north. Everybody, who is everybody? North and South. Yeah. No, that is different countries

1:25:06

with different interests and with different goals. The goal of a German person is not the goal of a Spanish

1:25:12

person. Yeah. The goal of a Greek person is not the goal of a French person. I mean to say

1:25:18

that there is a a European demos is not understanding the European Union. There

1:25:23

is not a European demos. There is not a European um way of thinking and the

1:25:30

interests are totally contradictory. Oh look, they told me that when Draghi came in and said we’ll do what it takes

1:25:36

and guaranteed all this stuff. They said yeah same thing about it but it happened because it had to. Okay. And then the

1:25:42

same thing was said before co you know these people can’t do it. all of a sudden the limits are three times higher. So the political forces that

1:25:49

drive people to want to make profits and to do well,

1:25:54

you know, those forces are there too to uh why is France not still at four or 5%

1:26:02

not back at three. Well, I’ve heard that for seven or eight years.

1:26:09

Okay. I’m not Let’s just I don’t I’m not I’m not saying you’re wrong. I just see the opportunity. I’m not saying it’s

1:26:16

going to happen because I don’t want to get in that discussion because I don’t know. But this opportunity for extreme

1:26:22

prosperity for for everyone to grow the whole thing is there like it’s never been before with uh the US pulling out

1:26:30

of the role of absorbing a trillion half dollars worth of stuff that’s available now for everybody else. It’s a huge

1:26:37

bonus, you know. Uh it’s like a positive supply shock for everybody. and Europe

1:26:43

can be is poised to be the recipient, but it’s going to, you know, I’m not saying there aren’t

1:26:49

um barriers. You know, there are not psychological, there are political

1:26:56

barriers. I understand that. We better I mean, we run over time a bit and I don’t want to put on Mr. Train. Uh

1:27:03

but uh as you know, Warren’s so good at this stuff that he’d keep you going all the time. Uh but anyway, let’s give

1:27:08

Warren a round of applause.

1:27:21

So, first of all, I’d like to say a big thank you to you all for actually coming to this event. It’s lovely to see so

1:27:28

many people and also to have a lovely chat with people uh during the break. Um

1:27:33

special thanks to our speakers uh as Phil has already said. Um, and I’m sure

1:27:38

you agree. Well, I know I’ve enjoyed this afternoon greatly. So, thank you. Yes.

1:27:44

Um, this is where I say something about how we run our organization. We’re only

1:27:51

small. We’re a nonprofit and we rely on public donations to actually fund what

1:27:57

we do. basically it’s keeping the website functioning and any of the uh

1:28:02

other legal requirements that have to be fulfilled um as a company. Uh so I’ I’d

1:28:10

like to thank all those people who do already fund us. We’re very grateful to people who do. Um but if any any of you

1:28:17

could um could help out with a small donation um it would be really

1:28:23

appreciated. Um, and you can find our donation page on our website. Um, so all

1:28:30

that said, all that remains for me to do is say thank you again for being here.

1:28:36

It’s been great and wish you all a very safe journey home wherever you go.

1:28:43

[Applause]

oooooo