Warren Mosler on MMT, CBDC, bitcoin, bonds, interest rates, inflation, taxes and unemployment.
MMT founding father, Warren Mosler, explains Modern Monetary Theory (MMT). He says it’s about sequence. Governments don’t need to borrow or tax before they spend, if they issue their own currency. The economy needs the government money, not the other way around. Most politicians don’t understand how the monetary system works, also for example the way how banks create money.
MMT provides policy tools for governments to reach their objectives. For most governments that would be full employment and low inflation. Central banks have no real tools to do that. They have the interest rate backwards. According to Warren, higher rates will lead to higher inflation.
The central bank and treasury might as well merge but there are some organisational issues with that. But it would indeed make the system simpler.
In Warren’s base case scenario we wouldn’t need government bonds anymore, but for practical purposes he would for now stick to 3 months bills only. Also interest rates should be fixed at 0 forever.
The Fed is in private hands, but that doesn’t really matter says Warren. But transferring it to the government would be easy.
Warren says higher interest rates will only lead to higher inflation in hard money systems, not in floating rate regimes. The gentlemen discuss and disagree on how asset price inflation comes about.
Central Bank Digital Currencies (CBDC) are there primarily to tax people more Warren thinks, for example to get more VAT in the eurozone. He doesn’t expect banks to suffer funding problems should CBDC be introduced.
Warren would completely overhaul the banking industry so it would be much more like narrow banking, and banks would behave more like public institutions.
The gentlemen discuss the government as employer of last resort, which is an important part of MMT. Warren explains how that derives from the money story and how government is responsible for creating and hencing solving unemployment.
They talk about whether a soft currency contributes to more wars. And how the euro was created to prevent wars.
How ‘modern’ is MMT given the proliferation of non-State cryptocurrencies? The gentlemen discuss the different options available for a government to fund itself. Warren states that the government can best be provisioned issuing its own currency.
