MTM eta Warren Mosler (2025-2026)

Warren B. Mosler@wbmosler

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Warren B. Mosler@wbmosler

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Warren B. Mosler@wbmosler

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Warren B. Mosler@wbmosler

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Warren B. Mosler@wbmosler

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Remembrances

Clint Ballinger@clintballinger

(https://www.youtube.com/watch?v=W97s3zbFKvc)

Modern Monetary Theory has become a hot topic of discussion. But is it well understood? In this interview with Real Vision’s Ed Harrison, Warren Mosler, the founder of MMT, describes exactly what Modern Monetary Theory is, and how the framework can be utilized. Particularly interesting is Mosler’s ambivalence about the political furor enveloping MMT. He sees the economic framework as more descriptive of monetary operations than prescriptive of policy. Mosler also outlines why MMT’s operational bent made it attractive to finance professionals long before it became a politically-charged debate among academic economists and politicians. Filmed on May 29, 2019 in New York.

Transkripzioa:

Intro

0:01

warned Mosler it’s very good to have you here at our studios in real vision been

0:07

trying to talk to you about mmt for a very long time I think we’re gonna end up calling you that Godfather of mmt for

0:13

this particular video and I wanted to start with because mmt is a really hot topic now and and

0:20

you were the progenitor of mmt are you very excited about the fact that it’s

0:28

been getting a lot of press or do you think that it’s been misrepresented in the press and that’s giving you a

0:33

difficult time yeah well I you know I’m very pleased that it’s gotten there at all and yes it gets misrepresented

0:40

around the edges and that’s always gonna happen I can imagine marks and Cannes feel much the same way about what’s

0:46

happened to it what they’ve said and that’s that’s the way things are Nesta way the world works and and but we’ve

0:53

got a lot of good mmt proponents they’re called people like stephanie kelton randy ray and Wayne to churn about Bill

1:01

Mitchell of course and probably somebody else I should be naming but they’ve been with me for over twenty five years

1:07

trying to get the word out doing the research writing the papers and they’re out there doing the best they can to

1:14

keep the message on message and just very pleased with the way it’s been going I was telling you before that I

1:20

wanted to go full circle to where you were before mmt got about because my

1:25

understanding is is that you were money manager who was looking at making money

1:31

doing trades investing and MMT who grew out of your desire to actually

1:39

understand the mechanics of how the Treasury market working you take us back to your trading days right so probably

1:47

best to start at Bankers Trust in 1976 primary dealer I was they brought me in

1:53

from nowhere to be vice president of Ginnie Mae’s sales and trading or

1:59

something like that that was so I was 27 years old and being there on the money

2:05

desk there I was in the middle of all the discussions the calm we’re near our learner Alan Rogers was a

2:12

training manager J Pomerance was my mentor he had brought me in the Jenny made trader and it was the beginning of

2:19

derivatives it was the beginning you know we were the first to start making markets forward markets and we’re fed

2:26

Watchers everybody was a fed watcher and you watch what they did I remember coming in every morning and looking to

2:31

see how many bonds the Bank of England bought and once the Bank of England doesn’t buy the devil it’s ever gonna

2:36

happen to the United States and then it moved on down and on Japan and the Saudis and now it’s China whatever and

2:43

of course it’s never made any difference and I noticed that pretty quickly and so you start thinking about why it would or

2:49

would not matter whether the the Bank of England bought the debt or whether the Fed came in to do repos what’s that what

2:56

are they doing they’re buying securities well why does that matter what accounts are they debiting what are they crediting how does that amount of the

3:03

what what’s going on inside of monetary operations so I’ve described myself as a

3:08

longtime insider of monetary operations themselves and it’s very revealing those

3:15

types of things so I remember when they raised the reserve requirements back it

3:21

must have been 1977 or something and a training manager said I hope the Fed

3:26

doesn’t just give the banks of the money because the money supply is too high they need to bring it down and I said

3:32

well they have to because if they don’t you know in the first instance is gonna be an overdraft if your reserve

3:37

requirements raised I don’t know how I knew that and then my cliff finder who

3:43

became our partner later I called he was at Phoenix Mutual and there was an

3:49

article by our economy at Morgan Stanley saying the same thing you know the Fed shouldn’t give them banks the money this

3:55

time we should let the money supply go down Mike explained it to cliff and he called them back and they gave him some double-talk and we discussed that and he

4:02

called them back and he calls me he says they withdrew their statement they agreed that the Fed will add two

4:07

reserves okay and so there was no name for that back then except just understanding monetary operations and it

4:14

was I was isolated at the time with that opinion it was the entire trading desk I’d been there year

4:21

anybody else kind of dismissed it and so it’s just a basic understanding of the

4:26

logic behind the currency was something I was interested in very early so you

4:32

know how did the whole MMT the the theory come about like what how did it

4:39

start out was it something that came from you or is it economist debt

4:46

economists or what happened you know I have a BA in economics from the University in Connecticut but I started

4:51

in engineering I was here for two years had a one-eighth average I realized I needed to change course now Harthouse

4:58

saw I wasn’t gonna make it so I switched economics which was a whole lot easier for me and I got out of there with a

5:05

two-five average so I’d never been a student of economics I’d never read

5:11

Keynes I read his quote side I’d had to know anything about the history of thought so I knew monetary operations as

5:17

I got started and nice and it grew over time so the came together in the early

5:26

90s when Italian bonds were yielding I’ll say twelve percent forgive her

5:32

maturity maybe a two-year and you could borrow and they were denominated in lira and maybe it was 93 92 93 and you could

5:40

borrow we ought to pay for them from the banking system over there at 10% so there was a you know 200 basis point

5:46

spread just for doing nothing and the profit would be in where us or whether the currency we’re not put down didn’t matter much it would just affect the

5:51

size of your profit you don’t have to put up any capital but no one would do it because they were all concerned that

5:57

Italy was going to default and so if he could come up with a reason they weren’t going to default there was a lot of

6:03

money in that trading that’s how we first started looking at that market and I remember talking to Tom shulkie my

6:10

research guy there and it just dawned on me Tom if the Fed sells US securities or the

6:16

Treasury sells of securities it doesn’t matter to us we own the same thing that money all goes to the same place yeah

6:23

they say one is for financing expenditures the other supporting rates it’s just a reserve drain it’s got to be

6:28

the same thing the different tests can only be accounting on their side it can’t be any actual differences which

6:34

means and then from that it’s obvious the whole thing is just a big reserve train the whole point of rates of

6:39

Treasury securities is to support interest rates and not to finance expenditures to help the the central

6:45

bank hit its interest rates all right right right because if it doesn’t sell securities when the government spends it

6:52

adds reserve balances and back then they didn’t pay interest on reserves and so

6:57

the the policy rate would be zero if they didn’t somehow give the holders of

7:02

those balances an alternative place to put them an alternative interest bearing account well that was Treasury securities so the

7:08

Treasury would sell securities and some of those funds would shift from reserve counts of securities accounts and earn

7:14

the interest rate and then if there are any left over the Fed would have to come in and quote mop them up it was called offsetting operating factors where they

7:20

would sell securities in one form or another either overnight or term and then that was support rates and so the

7:28

whole point of these securities was to support interest rates and not to fund expenditures funding came simply from

7:34

the Treasury instructing the Fed to credit an account they just changed the number up and you know more recently

7:40

Bernanke’s when he was asked where the money comes from he said we just used a computer to mark up the numbers and he accounts for that but you know everybody

7:47

in monetary operations in the Fed knows that that’s what they’ve always done so you know that understanding is there

7:53

comes up that they’re spending first okay and then taxes get paid they spend

7:58

first and then the funds are there for bonds to be purchased and again inside the Fed they say you know you can’t do a

8:04

reserve drain without doing a reserve ad otherwise you get an overdraft which is a reserve ad and so just as a point of

8:11

logic when you’re the source of something you spend first and then so yeah tell me about that in terms of

8:17

being the source I mean how is it that I think this is one of the big questions that people have about the operations

8:24

and about MMT one of the basic things is how is it possible that the US

8:29

government could spend first before it gets the money right so that’s like if

8:36

you go to the movie theater or the football stadium nobody thinks they collect a ticket first before they sell

8:42

it okay so it’s the same thing when you’re the source of the thing all the dollars to pay taxes can only come from the federal

8:49

government or its agents or else they’re called counterfeit you can’t do that and so they as a point of logic necessarily

8:55

have to spend first before they can collect you know or spend first before payments can be made back to them and so

9:02

I inside the Federal Reserve it means you credit the account first and then you debit the account well it’s it’s

9:08

it’s that simple in the recognition at that time was also that the currency itself is a simple public monopoly that

9:15

flows from that understanding the Fed is the monopoly supplier of reserves you

9:21

know everybody in Wall Street well if they know that that’s why they have to vote on the interest rate that’s why there’s no market for interest rate

9:26

because when you have a monopoly you don’t have a market they supply the reserves they’re not going to earn interest unless they take some kind of

9:33

action to see that those reserves can earn interest and today’s interest on reserves and securities back then it was

9:39

just securities so basically modern monetary theory from your view of the

9:45

way it started was you couldn’t call it monetary operation that’s right right it’s not like a political economic

9:52

theory it’s really a description of you know how the system works so once we understand this part I had a

10:00

reason to think about it because of the Italian trade now and I say okay you

10:05

know government bonds are more public that’s gonna drive up interest rates it’s like no it’s not because you’re

10:11

spending first it’s sitting there it’s gonna earn whatever the feds policy rate decides it’s gonna hurt nothing more

10:17

than that it has nothing to do with the process of setting rates the Fed votes on rates did some market forces well

10:23

they’re gonna crowd out the borrowing is taking money from somebody else that when you’re adding it first and then you

10:28

first you added to its reserve account and then you shift it to a securities account that’s not taking anything from anybody it’s adding it first what you’re

10:35

spending first once you get the sequence right all these other things that you hear are obviously wrong and so back

10:42

then it was the Ross Perot phenomena and they want this huge deficit you know mania about obviously us going to do or

10:48

gonna go broke and the whole thing we’re looking at like this is like nonsense they’ve got the sequencing backwards

10:54

well what if we can’t borrow well why is that like any kind of imperative you’re spending first if that person doesn’t

11:01

want to buy the securities fine they’re just sitting with reserves it’s not the government’s well that’s their problem so once you understand monetary

11:07

operations what was going on in the political debate was just an absurdity and so I wound up writing this paper

11:13

called self currency economics I’m still stance I mean I don’t think there’s been a word refuted it’s a fairly short paper

11:18

human since 1993 or whatever I first printed it publishing I self-published

11:24

it and everything our monetary theory is they are in this short paper and that’s

11:32

kind of the source of it and that’s how it became political because was pointing out the absurdity of the political

11:38

debate which was both sides it wasn’t just Republicans were just Democrats it was both sides one of the questions I

11:44

have is how did this help you in terms of your money management in terms of trading and how can it help other people

11:51

in terms of understanding I mean as an example in terms of QE we talked about you know you know what did it do for you

11:58

back in the 90s and what could it have done for people over time in Japan in the United States

12:04

well it certainly prevented it eliminated the potential of a lot of losses okay a lot of people were getting

12:10

short Japan they used to call it the Widowmaker trade based on the idea that they’re going to default the debts

12:15

unsustainable and it’s going to cause interest rates to go up anyway you know we knew that was nonsense so we just

12:21

stayed away from now and watch people lose a lot of money over the years on that trade so in terms of the other way around well you know we wound up being

12:27

the largest holder of Italian bonds outside of Italy ourselves in our clients and that worked out well over the next couple of years this spreads

12:33

went away in their own and we even went to Italy right up before we put the trade on met with the people at the

12:39

finance ministry who eg some event and made sure they understood it which they did after we discussed it and so that

12:46

gave us the further the confidence to know they weren’t going to push the wrong buttons or said well you know what say we were sure they understood their

12:53

own monetary operations and in fact after we left within a week I think an announcement came out they said all

12:58

payments would be met no extraordinary measures would be so after that despread gradually went

13:04

away so it was helpful in understanding the European situation where the European state nations turned themselves

13:11

into what were US states and so we understood the immediately the difference in the dynamics between what

13:16

they were and what they become and the ramifications for the banking system Deposit Insurance explain that a little bit like what is

13:23

the difference like you know huh you know I have a pretty good understanding myself but viewers might not how is

13:30

Europe our the European what do you call it the Euro Nations member nations

13:35

different from say Australia or the US for example right so they they were not

13:41

different before when they had their own currencies but when they got together and they created the new central bank

13:46

the european central bank and their own central banks became branches of the european central bank they were now in a

13:54

position of u.s. states or canadian territories or somebody other than the issuer the currency they became users

14:00

like you and i were they each member nation by law was required to have funds

14:05

in their account before they could spend like you and i there you have to get the money first before they can spend it there was no backstop from the monetary

14:12

authority because that’s right originally they were supposed to be on their own and independent and then we looked at the debt ratios and people who

14:19

are in that position whether it’s corporations individuals foreign countries borrowing in foreign

14:25

currencies you know or the US states once you get up to 15% debt to GDP you

14:30

know that’s when California starts having to travel and can’t fund themselves okay so now you got these European member nations turning

14:37

themselves into US states so to speak then they are waltzing in with debt ratios of anywhere from sixty to one

14:42

hundred and thirty to forty percent fifty percent of GDP it’s like this isn’t saying this cannot work it’ll work

14:48

fine on the way up but as soon as you hit your first crisis and then on top of that deposit insurance was the each

14:55

country insured its own banks so can you imagine California insuring back America and New York insuring Citibank and then

15:01

you have a banking crisis to take the states down with it they can’t they can’t do that okay they don’t have the capacity to do that it’s always going to

15:08

be the federal government that does deposit insurance so they didn’t have that either and so what we did was

15:15

by understanding that we again avoided a lot of the problems and and also saw

15:21

opportunities to do things on the way in credit default swaps things like that that that understanding gave us you know

15:28

promoted you know allowed us to do that when I ran my fund from 1982 in 1997

15:37

before I turned it over to what control over the cliff and the other partners for 15 years we didn’t have a single

15:42

losing trade the whole time it was a zero duration fixed income market

15:47

neutral fund so the returns were extraordinarily high we had about a six and a half percent alpha or something

15:53

right there so it was better what they were steady and so our risk adjusted returns were were you know better than

15:58

anyone for that entire period of time and it was it was a lot of it was avoiding mistakes that others made by

16:04

understanding these types of things let’s go back to that like you were at Bankers Trust you were at William Blair

16:11

yeah it was so what made you leave the banking community and go out on your own

16:17

to your next venture so when I went to William Blair it was pretty much going

16:22

out on my own I was at Bankers Trust they were a client I was talking to Bud’s Newton heir who’s head of the corporate bond department he never did

16:29

any of this I was sales he never did any other trades but after at some point after I’d been there a year he says what

16:35

do you think about coming out to William Blair and doing what you’re doing for us not a fixed income arbitrage Department so I said well you know I have a pretty

16:41

good job I was a vice president Bankers Trust Wall Street you said well you know we don’t have a salary we’ll just give

16:46

you a retail payout of 30% of the profits nice and I might be saturating but the story I tell us you know that

16:53

was a Wednesday and I started on Monday invite of in another week so I knew and so that’s what got me out there and then

17:00

after and that went very well and then after a a year to a couple of years

17:05

there we realized there was though that the trades we were doing were made the positions we were putting on we’re

17:10

making we’re doing very well and the markets were a lot larger so we could do a lot more than William Blair only had

17:15

seven million in capital when we went there and so we started a fund called Illinois income investors and raised an

17:22

additional ten million in capital that was 19 and 82 and then because he we

17:28

were doing and then a VM was 1983 which was a broker-dealer and William Blair was part

17:33

of that we were there I William Blair and then we left and moved the company to Florida and a few years later William

17:40

Blair took their investment back and so then we were on our own after that right

17:46

so during that time that’s exactly the same time that you were moving into the

17:52

what you could call academic economics so tell me about you you were saying

17:58

that you know you had no academic economics except for your undergrad experience but then you put up this

18:04

paper soft currency that was ten years later right yeah in 1993 yeah so how did

18:10

how did this all of these guys you were talking about how to appear on to the scene who were both mostly in the

18:17

academic economy so I was trying to talk it up with people I knew and somebody sent me to this organization in the city

18:25

called social policy thing mmm and there and I was in life how old I had saved

18:31

nineteen fifties this is 93 sighs in my 40s and and these people were older like

18:38

as old as I am now all right and they were discussing it and I wasn’t getting

18:45

very far but one of them said you know I hear ya you know I like what you’re saying I you know I agree with what

18:50

you’re saying and he was an economist I didn’t remember his name and there’s a active group on the interest internet

18:56

discussion group that are called post-keynesian and so you should look them up so I went and looked them up and

19:03

started interacting online and this discussion group and that’s where I ran

19:09

into Bill Mitchell rentier a mad force debtor and that group well it turns out later the person who had I admit I met a

19:17

guy at a conference I’m telling the story and he says that was me oh yeah and it was Bill Vickery who later won a

19:23

Nobel Prize you know yeah and he is so he turned out to have been the one who sent me to that discussion group so then

19:28

I started working on those that discussion group and there are quite a few of them and I I made progress with

19:36

Bill Mitchell I went down to Australia to see him to charleon make some progress and he’s a Australian coast

19:42

rallyin yeah and then Randy Ray who was at Denver University they are about forced out it was at Gettysburg janna

19:49

I undergrad Pavlina chana Bois who needed a summer job so she came down and

19:54

wrote two papers in Maya you know I worked for there to write two papers for that summer in my office and those are on my website they’re still key mmt

20:02

papers one of them on monopoly pricing and how the price system works and where the price level comes about in our

20:09

economy nobody else had any idea where the price level was but once you understand the currencies of Monopoly the monopolist set prices then now it’s

20:16

perfectly clear where the price level comes from continuously and the other one was our history of thought paper and

20:21

then um so it was still a small group four or five half a dozen and this was 96 or 97 but it grew and the financial

20:29

sector was growing faster than our clients all understood it and so our business was good because we had clients

20:35

who listened to us and you know they did very well for their investors and so so

20:42

I’m up to about 2000 how I guess right yeah and so in 2000 that’s when the euro

20:48

was formed yeah yeah actually earlier so in 1996 the euro was pretty much formed

20:54

so we had a put together a conference at Bretton Woods New Hampshire night in 1996 and we had a lot of people from the

21:00

street some central bankers here at Charles Goodhart was there and that’s where we outlined everything we thought

21:06

would unfold with the euro if it went through as it was on paper at the time which it did and in nineteen maybe 98

21:14

they irrevocably locked the currency which is the actual which I call the start date and the actual Euro scam and

21:20

if you think about the concept of spending first nobody can pay taxes until after the funds are out there if

21:26

you think about how the Euro started on one you know on on the last day of the old currencies you got aware of marks

21:32

and pesetas and then the next day everybody has euro so how did that happen well the European Central Bank

21:38

bought the money supply right if you had a bank account with the Saito’s the next day you got a bank account with euro

21:43

they bought it took it took yours there you know the reason the currency has value is because it’s the tax credit

21:48

thing needed to pay taxes and so the euro was now the new tax credit they were all taxing in Euro and the old

21:53

currencies were worth nothing except for what the European Central Bank bought them for Hyundai wine but after that

21:59

they’re not worth anything because they’re no longer needed to pay taxes and so there’s a giant case of spending

22:05

first before anybody could pay taxes or buy bonds right and so uh you know it was you know it was interesting to be

22:12

there at the time watching it all happened was certainly interesting times

22:17

to live in that’s when you start to get into the the political realm of things I

22:22

think that you know if you fast-forward to today where I think a lot of the ideas that you’re talking about with

22:28

regard to Europe about the monetary monopoly of the central bank are

22:34

accepted then comes the ideas on top of the monetary operations ideas and I

22:40

think this is where we get into the MMT of today and where a lot of the debate comes in is is okay so you’re describing

22:48

the operations what about policy issues yeah so with the European situation so you know we

22:55

foresaw back at the end of the 90s that at some point the european central bank

23:02

would have to guarantee the member nations mmm and yeah and that happened in 2012 and Mario Draghi said we’ll do

23:08

it it takes to prevent default and that also helped with the banking crisis

23:13

because now the deposit insurance was more credible because at least it came from governments that were guaranteed by the central bank one of the things that

23:20

happened that we did see happening is that the central bank at the same time to control for fiscal policy yeah

23:28

because now they had this guarantee that they could use as a threat if you don’t behave we’re gonna remove the guarantee

23:34

and so when the Greece was threatening not to behave they could remove the guarantee and the Greek spreads will go

23:40

out Greek rates would go up and they couldn’t fund themselves Italy earlier this year there was just some rumblings

23:47

of not obeying the rules for deficit rules and all of a sudden spreads go out

23:52

because now there were people that markets are worried the central bank is gonna pull the guarantee so they’ve used

23:58

that as you know lever to enforce it it was never meant to do that they had other rule ways to do it but no one else

24:03

that the finance ministers or probably nobody’s complained so I guess they’re happy to have the ECB being a

24:09

disciplinarian but and the next thing we saw happening after that is there was

24:15

going that monetary policy would not work which we’ve been saying for a long time lowering rates

24:20

I remember in 2012 speaking of Rimini and they asked what would happen with

24:26

the do what it takes I said well Italian rates are going to come down but the economy is going to get worse because it always going to be paying

24:31

less interest to the economy removing income it’s not going it’s not going to improve talk to me about that yeah

24:37

that’s an interesting concept so we know that the government pays interest on their debt and you know most of it goes

24:45

to the private sector and so the private sector is that net receiver of interest right so most people think when you

24:52

lower interest rates that it spurs the economy but you’re actually robbing

24:57

people of interest income yes yeah I call it basic income for people who

25:02

already have money so I’ve heard basic income proposal so I’ve never anyone

25:07

proposed it right rof think we should do that for people who already have money but that’s what you’re doing you raise rates you paying out more net payments

25:15

from government to people who already have money and has always been presumed while you do it to prevent inflation or

25:20

to slow the economy down but my experience with the way I’ve read the data is I’ve never seen it that way I’ve

25:25

always seen it the opposite way raising rates has supported inflation it’s caused it to be prolonged it’s caused

25:31

growth to be stronger and prolonged it’s always something else that’s caused the end to the cycle even though it’s

25:37

coincident with rates going up because the Fed is doing it in response to other things but I don’t see that as a

25:44

causation so so what about the negative cells rates then yeah so positive interest rates are payment negative

25:49

interest rates are attacks hmm so we’ve seen was it Elizabeth Warren who proposed a wealth tax the the more

25:56

subtle way to do that would have been to propose negative interest rates right because if rates or minus 1% you’ve got

26:03

$100 in the bank a year later you’ve got 99 if you’ve got $100 in the bank and there’s a 1 percent wealth actually

26:09

you’re later you have 99 it’s the same thing all right but when you say negative rates it’s not like oh you’re taking money from people and taxing them you’re

26:16

actually trying to help the economy you know so well you know the reason you get into this bond is because basically what

26:23

the the the political ideology is that you can’t have fiscal pact activists

26:30

fixed of policy you can’t have an active fiscal policy you need you know the monetary authority to raise rates up and

26:36

down with the cycle because that’s how you’re gonna get things to happen right so that’s where you get into policy

26:43

issues yeah and I agree but the problem is the monetary authority is not the

26:49

knowledge I’m using excites a child in the car seat with a steering wheel it’s not driving the car youth everybody

26:54

thinks he’s driving the car and the cars moving and he’s turning and two or three years later the economy turns and they

27:00

say oh there’s a lack or something but it it’s always moving cuz of the automatic state fiscal stabilizers or some other event that I’ve seen it’s

27:06

never been the the driving by the central bank so say that they’ve never been in control it’s always been the

27:13

automatic fiscal stabilizers are the Obama stimulus or the Trump tax cut or something like that that’s that’s been

27:19

the mover behind these things are changes in the private sector lending you might have changes in down payments

27:26

out homes or the ability of some new kind of derivative to fund oil exploration or something like that so

27:31

it’s always been deficit spending either public or private and I probably a lot

27:37

of its private sector which unfortunately turns out to be procyclical right because I’ll pay up

27:42

didn’t crash that’s why we get to boom bust because of the procyclical private sector but it’s it’s a fact it’s a major

27:48

factors what I’m saying and not so much the Fed so you know I can remember maybe

27:53

in the 80s or something I was on the phone to somebody from Australia I said a House of hustle mortgage market and he

28:02

said well it’s it’s pretty good right now I said but you know mortgage rates are seventeen and a half percent but I

28:07

think if they put them up to eighteen it’s gonna kill it I go okay thank you then I talked to somebody in Japan how’s them how’s the

28:13

mortgage market how’s housing doing us well it’s pretty weak right now rates are three and a half but I think if they put them down to three it’s gonna get it

28:19

going up so I’m thinking like how important are the rates and if you look now we’ve got oh you

28:25

know rates just went up so more you just went from four to four and a half so the housing market slowed down on her look at the last cycle where we’re mortgages

28:32

when we had over two million housing starts we’re narrow we have half that right yeah okay so they were what seven

28:38

percent okay and where were they in the late 70s they were fifteen percent and

28:43

we had more housing starts than we have today and we had half like half as many people okay so I’m for a capita basis

28:49

we’ve had our strongest housing starts with the high because it’s always something else so looking at that I’m

28:55

not saying it won’t matter for the next week or two weeks you’ll have people accelerating their borrowing you know

29:01

they got a rush it and try and get a mortgage now instead of next month those rates are down or something like that so you gotta get some noise short term and

29:07

you’ll have traders moving portfolios back and forth short term but over time we’re gonna look back you know 30 rate

29:13

years of zero rates in Japan and it’s and they say we just need a little more time okay Mario Draghi would you know six or eight

29:21

years of zero rates and now negative rates and we just need a little more time it’s they can’t be working or it

29:28

wouldn’t be negative now tell me about what’s the what’s the outcome then for let’s solve so I say monetary policy

29:35

doesn’t work right so now Europe’s going into recession if the charts keep going the way they’re going I just saw one of

29:41

the charts today going straight down and right at the bottom is this little leg sideways and they say oh it’s improving it’s like okay we’ve had a global

29:48

collapse because of tariffs man you know I call Agent Orange when it comes to trade just throwing a monkey wrench into

29:57

the whole global supply line thing and so and it’s an attacks right seventy billion dollars it’s not huge but it’s

30:02

substantial tax and it’s all very high multiple taxes on people who write there

30:08

to get super well and all the charts are going down okay so now what’s you’re gonna do if they had an unemployment

30:15

today went up in Germany for the first time and it went up a lot like 60,000 never could just be a blip it’s only one

30:21

you can’t go by one number but but what are they gonna do they know interest rates they know monetary policy doesn’t

30:26

work they can’t use fiscal policy they have laws against it they were badgering Italy yesterday about you don’t dare to

30:34

exceed you you’ve got to pay down your debt I mean reduce your debt during a recession and so on what’s the open

30:40

channel or the only open channel is new bonds at the Euro level deficit spending at the European level which will be the

30:48

European Investment Bank or some other agency or something and get the deficit spending from there and they’re gonna

30:53

need five hundred million billion euro maybe six hundred billion euro maybe 5%

30:59

of GDP annually to fill the hole in the but that’s only because yeah we started

31:05

on this with Italy because I can’t see that that would happen per se yeah unless Italy or a country like that’s on

31:13

the brink I mean right now Germany on autopilot Germany has the laws against you know deficit spending right but but

31:20

not at the European Union level they can do investment bonds and distribute them on a per capita basis or something like that to all the member nations so and

31:27

you think that could happen before we have another crisis in you know it’ll happen sometime after mmm but I think

31:34

that’ll be the response to the crisis because I don’t see any other response you don’t think that perhaps Europe

31:41

would break up that the euro would actually collapse entirely because you have this nationalism that’s taking over

31:48

in Europe right now yeah I think that will happen if they don’t come up with this and so you’ve C heard the noise is

31:54

getting louder for Euro bonds first was Yoker bonds a few years ago and then everyone anywhere and then more recently

32:00

you know bear Farkas with Greece said we need national investment policies and then a couple of the Italian the league

32:07

I think is proposing you know it’s national investment policies and so they’re all looking towards investment

32:12

and everybody’s infrastructure is crumbling over there and so the noises are getting louder and they take that’s

32:18

how it works over there and then eventually comes out it because then it’s an old idea and they’ve been

32:23

looking at it and and look nobody ever thought European Central Bank would guarantee all the motion death but they

32:30

did because that was there was no other choice okay and that’s what’s happening here they’re going to have no other choice than these the massive investment

32:37

bonds that’s that’s my forecast okay I could be wrong but it’s either that or the like you said it all falls apart

32:43

going to the US then in terms of the political debate and

32:48

especially where mmt is involved in the political debate yeah let’s look at Alexandria Ocasio cortez and the green

32:57

new deal now a lot of people are saying that is the epitome of mmt but you were

33:03

just telling me that mmm t is about operations monetary operations how do

33:08

you make the jump from this is the monetary operations that mmt says and

33:13

this is a policy that we would recommend given the constraints imposed by yeah so

33:22

when somebody says to me how do we pay for the green new deal I say well Congress appropriates the

33:27

money and then the Treasury instructs the Fed to credit the appropriate accounts and that’s how it’s paid for

33:34

and then the green New Deal people go yeah that okay and so then there’s no

33:41

disputing that you can ask anybody in the Fed yeah that’s how it works that’s how we pay for things we change the number in the

33:47

account who you know who else said well Bernanke said that we have the quote Greenspan said that you have these quotes from Fed Chairman that’s how it

33:53

works come on in the sentence fed and look at it okay so now if you so now you’ve asked somebody how you

33:58

gonna pay for it they give you that answer now what do you say I mean you’re the interviewer okay you say well is

34:03

that going to isn’t that like Zimbabwe or something like that yeah and if so that’s how everything’s been

34:09

paid for it the Treasury has been instructing the Fed to credit accounts you know for the last 200 years has or

34:15

since 1913 or whatever since we’ve had a Federal Reserve and it hasn’t created Sumbawa yet and if you I don’t know why

34:22

we can explain that to you but just doing that is not what creates Venezuela or is it more you know it’s it’s

34:28

something else okay and so what is so that’s anyway so that’s why mmt has the

34:35

answer to their question of how are you gonna pay for it right nobody’s had that answer before so you know I have two

34:41

questions in that okay obviously I was already saying what is that something else but I understand I mean I you know

34:47

when I was doing a little research about some of the things that you’ve said we can talk about this thing called the

34:53

public purpose yeah my understanding is is you say there’s no reason that we

35:00

should have unemployed people crumbling infrastructure when we’re the richest country in the world right right that’s

35:06

just ridiculous and and we can we can pay for that right with you know keystrokes essentially so now you have

35:13

to go back to the money story mm-hmm we start the money story differently than other schools of thought they all start

35:20

with people doing bartering you’re using seashells or something and we’re not saying that’s wrong but this is the

35:25

money story for the modern state begins with a state that wants to provision itself mm-hmm you’ve got a country that

35:31

wants infrastructure they want military to defend themselves in our legal system they want public education or public

35:38

health whatever they feel is you know appropriate collective action should be taken and there’s some political

35:44

consensus that agrees that that’s what they’d like to have happen well how do you do that you just ask for volunteers

35:50

out of the private sector it doesn’t work okay so you need some coercive Nesser weights as provision the state

35:56

and so the way we do it is we begin with a tax liability we don’t begin with the

36:01

state collecting money and spending it because there isn’t any we start with the tax liability that describes the

36:06

currency you’ve got and let’s say a real estate tax just for simplicity on everybody’s house you’ve got to pay $100

36:13

a month what’s a dollar no the dollars the thing you need to pay your tax although it is

36:19

oh well if you come to you know if you serve in the army we’ll pay you $30,000 a month or whatever so the tax creates

36:25

people looking for paid work in the government’s currency which it couldn’t otherwise and okay and now because there

36:31

are people looking for to earn that currency the government can now spend its otherwise worthless currency is how I say it to provision itself so you put

36:39

a tax liability on people show up looking for work because they don’t want to lose their house at the macro-level

36:44

and you hire them to be in the army now you’ve got your military you hire your

36:50

judges you hire public health workers and so you create the tax liability and now you can hire people so the tax

36:56

liability functions to create unemployment as we define it we define unemployment as people looking for paid

37:03

work it’s not about like people unemployment it’s not people looking to volunteer for the American Heart Association it’s people

37:09

looking for paid work in that currency all right so tax a what we say which nobody else

37:14

has pointed out no marks or anybody else but Ted the cause of unemployment by design is taxation or the further

37:21

purpose of the government provisioning itself well so a tax creates a certain number of unemployed the economy needs

37:28

the government’s money for two reasons both to pay the tax and if it wants to save anything if it wants any equity if

37:35

it wants any net financial assets if it hasn’t it used to have money in your pocket or money in the cash register or

37:41

reserves you know against the future or anything else if there’s any savings desire that’s a reason to work for the

37:48

money so when the government spends a dollar only one of two things can happen to be used to pay taxes or it cannot be

37:54

used to pay taxes and it remains as savings okay so you create a tax

37:59

liability people show up for work the American tax liability creates ten

38:04

million unemployed looking for work now the government only wants to hire three million of them well it’s made a mistake

38:11

okay he created the tax liability was too strong he created more unemployed in

38:17

you don’t want to hire so what do you do about it so either you hired them if you’ve got

38:22

some use for additional people maybe actually wanted more but you were afraid to cuz you just thought he needed a balanced budget or something or you

38:28

lower the tax and they’ll go away and so it demands like a fiscal adjustment just to correct your mistake

38:35

if you lower the tax the private sector will be able to have the demand and sales to hire those people away well

38:41

it’s not quite that simple because once you’ve created unemployment you those

38:46

people from a private sector employment point of view are damaged goods the private sector doesn’t like to hire

38:52

people who’ve been unemployed okay well we made a mistake we hired seven million extra we cost seven million people our

38:59

tax was too large we have seven million more unemployed than we wanted to hire how do we get these people back into the

39:05

private sector so that’s when I came this was 1993 what you do is you offer a job to anybody willing and able to work

39:11

to promote the transition from unemployment which is public sector the

39:17

tax has pulled them out of the private sector and cause them to unemployed okay and to promote the

39:22

transition back into the private sector and so people come to this job they work and now the private sector will hire

39:29

them back because they know they take a bath every day and they don’t get in fights and they have a supervisor or in

39:35

there you have a good attitude I think that’s it the private sector doesn’t need a lot they’ll train them if it’s a good economy but they want at least know

39:41

that you’ve got somebody serious about going to work every day and it works and there’s lots of data of experiments that

39:47

are showing this works and so that’s where the today’s job guarantee comes in and how critical is that to modern

39:54

monetary theory well when we go from the operations to well it’s it important it’s important because today we use

40:01

unemployment has a buffer stock against inflation nehru that’s non-accelerating an interest rate of unemployment it gets

40:08

too low you get unemployment because there’s nobody for the private sector no higher you know so do you drive up wages

40:13

if it gets too high it’s deflationary so policy is actually aimed at maintaining

40:19

a certain level of unemployment right in order to not be inflationary a buffer

40:25

stock of unemployed people right well the problem is if they’re not liquid if they can’t be hired by the private

40:30

sector because they’re damaged goods I don’t employed it doesn’t work as a break against inflation when the economy

40:37

picks up you just get more and more unemployed or participation goes down or something with that with every cycle and

40:42

particularly in Europe and you see that happening but if they’re employed now they’re much more liquid now they have

40:48

hired them right away because they’re already working and so they be it’s a much more effective buffer stock than

40:54

unemployment okay so what what I say which is no modern monetary theory is

41:00

that you always have a base case of analysis how do you start your model okay so we’re using a buffer stock for

41:06

price stability start with the buffer stock that makes the most sense from a liquidity point of view and negative

41:13

externalities you know and an employed buffer stock makes a whole lot more sense than unemployment got to have one

41:19

or the other right so we can start high say the job guarantee is one of the

41:25

assumptions in the base case for analysis you start by saying tax liability provisioning the government

41:32

we have a job guarantee so if we’ve taxes created more unemployment that we want they can transition most

41:38

efficiently back into the into the private sector now you can change the

41:44

base case you can say you know I don’t like the job guarantee be for whatever reason so let’s change to unemployment

41:49

okay fine you know but the base case is this because if you use unemployment you’re going to have you should expect a

41:55

lower degree of price stability more negative externalities but maybe that’s what you want maybe you’re trying to

42:01

create a mob of angry people so they something I don’t know it’s you know who knows what politics is trying to create

42:06

holidays maybe you want people throwing rocks at each other so we start with the base case the base case is also a zero

42:13

percent interest rate like Japan’s had and again for all the reasons we spoke it’s not inflationary the car C doesn’t

42:19

go down we would have seen that after 30 years of photos sky is falling fears were actually real and we don’t and

42:28

you’re not like providing basic income for people who already have money in your base case mmm now you can start

42:34

with the base case and you say okay now I want to write I’ve got a model now with zero rate policy no government securities just leave reserves you don’t

42:40

have to offer interest rate support if your interest rates at zero and someone says well you know I’d like to have a

42:45

higher interest rate for whatever reason I’m trying to create more inflation I want to pay people with money more money

42:50

with no supply-side so I’d like to see inflation and say fine you can take this model and we increase rates and now we

42:56

have to how do you do that well you can see you have to either pay interest on reserves are offering securities and now

43:02

we’re paying more income to people so you can do that and or I don’t want the job guarantee I want to change the wage

43:08

of the job guarantees so what’s how does that numerator that’s the numerator for the economy right as a monopolist you

43:14

sell one price and let everything else reflect market value along with the

43:19

institutional structure and so rather than using unemployment as a whatever compensation you’re paying out employed

43:25

as a numeraire you use the wage from the job guarantees as a numeraire makes infinite more sense and so that’s just a

43:33

base case then you can show how changing that can you can be your inflation targets whatever they are or you could

43:38

make sure productivity the labor real compensation increases with productivity or whatever else whatever

43:44

other political decisions you’ve made so let me see if I can get this straight basically mmm tea

43:51

is about the monetary operation yeah but basic economics and understanding how

43:56

the system works says that certain actions are going to lead to certain outcomes yeah and you

44:02

can have a base case of this is the base of let me quickly afternoon if you if

44:09

you don’t understand that the government spends first and then collects it it’s a public monopoly you can’t have a job

44:15

guarantee because the debt could go up and you might turn into grease or something like right okay but if you’ve

44:21

gotta understand monetary operations first and then these policy options become obvious or they become viable

44:27

right which they’re not under the current paradigm of the government has

44:32

to get money through taxes to be able to spend any congressmen will tell you we’ve got a tax to spend and when we don’t tax we have to borrow from China

44:38

and leave the debt to our children under that paradigm these options I’m talking about are not viable yeah when you

44:44

understand monetary operations they’re entirely viable and in fact they become the base case for analysis I was reading

44:50

something from Martin wolf who was talking about inflation and things like

44:55

the green New Deal what if everyone and his brother comes in and says you know we want the Green Deal we want the New

45:04

Deal for pipelines of liquefied natural gas excetera et cetera doesn’t there

45:10

come a point where all of that is inflationary and it spirals out of control yeah well not spiral out of

45:17

control because in once you understand the currency is a monopoly inflation what we call inflation is just a series

45:23

of one-time events any time you stop doing it it stops it’s not like if you make one false step you turn into Zimbabwe or something like that it’s its

45:30

one-time events but yes if you have a tax in place tax liability and it

45:36

creates us ten million unemployed and you try and hire 11 million you’re just going to drive you’re not going to get

45:42

11 you’re only going to get 10 you’re just going to keep driving up prices as you pay more and more and the price

45:47

level is a function of the prices paid by the government when it spends as a monopolist and so if you’re paying

45:53

$50,000 a year and you get your 10 million people and it won’t be this clean-cut and now you try to hire more

46:00

now you’re paying 60,000 70,000 years not gonna get any more okay you’re just creating inflation you’re just

46:06

redefining your currency downward without changing the tax liability yeah the model I like to use some people can

46:13

understand the pricing and how it works is you know my wife and I were to Pompeii a few years ago mm-hmm and the

46:19

guide showed us the coin set they use and he said what happened in Pompeii was a nice place to live because they would collect these coins for tax and then it

46:26

would pay people to do public service police and public safety in the aqueducts and all this because sanitation and I said well you know what

46:33

actually happened was you pay the people first and then you collect the coins you also no no you court tax and then you

46:39

pay the people they say well where’d the coins come from they says well the government made them so how did anybody

46:44

get the coins to pay the taxes he goes so they spent him first and that collected I said well how else can I

46:50

work any grab his head he goes no no they walked away well talk to me anymore okay so but everybody in Pompeii knew

46:56

how it worked they put a tax on everybody’s house people would show up for work they’d pay them these coins out of the coin but they weren’t valuable

47:02

coins and they’d get things done well they found like 20,000 coins in the

47:08

street Oh how’d they get there okay so the government must have spent more than it collected okay that’s what we call

47:15

deficit spending and because people were coming to earn the coins for two reasons number one to pay the taxes number two

47:20

they needed some to be out in the street that’s the net money supply in the economy okay the coins in the street are the

47:25

public debt to the net money supply in the economy they’re the equity that supports the entire credit structure

47:30

that’s what it’s that’s what they’re doing here that’s why people are coming to earn the equity they need to support their whole credit structure you know

47:37

what was the coin worth so let’s say they decided to pay one coin a day for a police officer but somebody else didn’t

47:43

want to be a police officer cuz it’s too dangerous and he’d rather just grow tomatoes cuz that’s what he always did and even though I know there were no

47:49

tomatoes in Rome back then if he came from South America it’s this

47:55

story so um so he wanted to gross tomatoes and to make pizzas and so the

48:01

in the police officer didn’t wanna get his hands dirty so he’d go work extra make enough coins so he could pay his

48:06

taxes and buy his tomatoes and maybe one coin was worth a day’s work and those two you know the double coincidence of

48:13

wants whatever the economist car and so it was like one coin would buy ten Tomatoes there’s kind of the market that day and spent a coin is one day’s labor

48:20

as defined by the state will pay one per day and one day’s labor translates into ten to ten Tomatoes through market

48:26

forces if they cook if the state says look you know we’re gonna pay two coins a deck now well now the coin well we buy

48:34

five Tomatoes right okay it’s the monopolist setting price and if the tax was a hundred coins and they were paying

48:40

one a day they know they’re going to get a hundred days labor they paid two coins so really gotta get fifty days later so

48:46

just by paying more for the same tax liability you get fewer people you’re just creating inflation and so that’s

48:51

that’s the dynamic and the nice thing is monopoly is the easy one when you take

48:56

microeconomics the first day they teach you monopoly it takes about twenty minutes and everybody gets it and then

49:02

because it’s one guy you know there’s no competition or anything he said surprise people need what he has then the next

49:08

day they go on to oligopoly where there’s three or four and then that’s a little harder it takes a couple days then after that they go on to

49:15

competition that takes the rest of your life the asymptotes and maths and all this stuff and so the good news about

49:21

the currency is it’s the easy one it’s just a simple monopoly and so once you understand that then then the rest

49:27

follows so Warren you know we we have a good five or ten minutes I wanted to go

49:33

into some of the things that you’re doing in your private life I heard you know that you have a whole race car

49:40

thing tell me a little bit about that like you built by discus I built cars there were road cars sports cars I did

49:48

sell the company for scrap value in 2013 sorry I know how hard it is to make profit and car company but yeah it’s a

49:56

top performance car in the world and I think it still is a couple of people had some that they raced last year in the

50:02

Spanish GT and they cars eighteen years old and I won the series and they’re still

50:08

adding weight and putting a restrictor on the engine so it was called the Mosler mt 900 so I got I had a car

50:13

disease okay I think I’ve think I’ve thrown it but I’m not sure and if you

50:20

want to talk about suspension design or anything else then you know I mean how did you get into that how did you I mean

50:26

like you know as a kid I would take apart lawn mowers and build motorbikes and things like that it’s just always

50:31

interested in mechanical things like that and then you got into I understand

50:36

that you created a ferry because the waters were really choppy going from st.

50:42

Croix to another island st. Thomas since it’s just st. Thomas tell me tell me about that because that’s a similar kind

50:48

of thing yes and they had a ferry going it made everybody sick and then they crashed it so we didn’t have one for

50:54

four or five years and I had gotten too I had never had a boat till I moved down there so we got about at cavalry which I

51:00

thought would be you know do the trick and it was a lot better than any of the monohull boats in terms of ride and what

51:05

happened it still wasn’t still boat it would still get people seasick I just started thinking about the ride motions and recognize the parallels with

51:13

a car where a long wheelbase rides better than a short wheelbase car and a boat to zero wheelbase the whole thing

51:19

gets lifted up and over kind of white good toboggan or skis as opposed to a bicycle which you’ll say Oh longer

51:25

wheelbase which you’ll step over bumps and things so dawned on me what you needed on a boat is the equivalent of a

51:30

long wheelbase which is halls way out front and hulls way in the back and a big space in between so when you and

51:36

over a wave the front would go up and down and then the whole boat would go over the way if you’d wait and then the back would go over and I built them they

51:44

wouldn’t build it they didn’t think it would work so I sounds familiar and they felt yeah I had to build a prototype for 23 foot

51:50

why don’t we went out and still have to work and work beautifully and then the boat builders took it out and they

51:56

suddenly understood what that did work and so they went and built it and it’s about 100 feet long and holds 56 people

52:03

and it was built similar to how the cars were built with carbon fiber and foam

52:09

core so weighs only 30,000 pounds 400 foot boat so it’s great fuel efficiency yeah so we going back and forth for two

52:15

years now people like it it’s got a reasonable return on equity I had charge $60 where the flights which is

52:21

less than the other boats and the flights were cathode burn any fuel it flights are $150 or something like that

52:27

so it’s so it’s been good and spinning during the Hurricanes Hermann Maria was

52:33

the only communications between the three islands all the other boats got knocked out and this thing is going back

52:39

and forth no other boats has been able to make that route for more than a year that was the record and this one’s been going two years now and there’s not a

52:46

crack or a stress any stress on the frame that anybody’s been able to detect because like a car if you have tires at

52:53

either end you’re lifting them up at either end you’re not stressing the Frank nobody ever breaks a frame on their car or their bicycle cuz you’re

53:00

lifting it either in but you can break skis or toboggan where you’re lifting the whole thing over the middle and boats break in half all the time because

53:06

they go over a wave at one point the waves in the middle and the boats trying to break itself in here flow this one only gets handled at the ends the middle

53:14

never gets wet doesn’t get touched so occupying my time doing that type of thing

53:20

it’s great you know I mean the first thing that comes to mind for me is that you are an engineer at like you’re going

53:27

full circle to what we were talking about when you started I mean clearly you have the engineering mind and you’re

53:32

taking it to boats to cars to economic potential engineer right so we you know

53:38

our firm we did a lot of it though so so-called derivatives in the 80s okay

53:44

that was we right in the middle of that so you know that’s just something that

53:49

comes easy to me to understand how these types of things work well really appreciate your taking the time to talk

53:55

to us and I hope that we can talk again about these kinds of things maybe where

54:01

you see the economy going going forward but I think that viewers really like hearing from the Godfather of mmm today

54:08

okay at your convenience I’m available Thanks thank you

oooooo

Bideoa: https://x.com/i/status/1025112490055815168

oooooo

Warren B. Mosler@wbmosler

urt. 2

Thanks Mat, brought back lots of fond memories!

Aipamena

Mathew Forstater@mattybram

Warren B. Mosler@wbmosler

Enjoy x.com/mattybram/stat…

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Warren B. Mosler@wbmosler

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Stephanie Kelton@StephanieKelton

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The Lens

Warren Mosler to Robin Brooks on Japan’s Fiscal Situation

Stephanie Kelton

Jan 19, 2026

Early this morning, I took a break from working on my book to trade text messages with Warren Mosler, the canonical “father” of MMT. I had been asking for Warren’s thoughts on Japan. In particular, I wanted to know what he would say to Robin Brooks, a macro analyst who has been arguing that Japan’s rapidly depreciating currency along with sharply higher interest rates on Japanese government bonds (JGBs) tells us that Japan is getting close to a “full-blown debt crisis.”

Since we were corresponding by text, Warren’s thoughts were brief and incomplete. So, just for fun, I decided to prompt ChatGPT. I asked it to draft a respond to Brooks from the perspective of Warren Mosler.

I could tell right away that it included various statements that Warren would never make. In a few places, ChatGPT got things exactly backwards. I sent it over to Warren, and he responded, “Lots of errors on my position. Should I edit/correct?”

With his permission, I’m sharing the edited text. I removed the passages that Warren cut and indicated in bold the new content he added. I guess you could say ChatGPT got it about half right (or half wrong). Anyway, thanks to Warren and I hope this is useful to those of you following the ever-intensifying commentary about a global debt crisis.

---

From Warren Mosler’s perspective, Robin Brooks’s diagnosis of Japan rests on a fundamental misunderstanding of how interest rates, currency values, and government debt interact in a monetary system where the state is the issuer of its own currency.

Start with the core error: Brooks treats higher interest rates as a necessary defense of the currency and as a signal of fiscal stress. Mosler has long argued that this logic has the causality exactly backwards. For a currency issuer like Japan, raising policy rates does not ‘tighten’ in the conventional sense. It increases government interest payments to the private sector. Those payments are an addition to deficit spending, new yen income, credited to bank accounts, which expands net financial assets. Through this interest-income channel, rate hikes are more plausibly inflationary than disinflationary, especially in an economy already operating at or near full capacity.

In Japan’s case, higher rates raise the yen income of JGB holders, boosting domestic spending power. That additional yen spending can weaken the exchange rate, not strengthen it. Brooks interprets yen depreciation alongside rising long-term yields as evidence of a debt crisis. Mosler would respond that Japan cannot be forced into insolvency in yen. The Bank of Japan can always settle any yen-denominated obligation by crediting reserve accounts. Rising term yields simply reflect market anticipation of a future policy choice to pay more interest, along with possible investor preference for duration issues, and not a market verdict that Japan is “running out of money.” Furthermore, Japan always has the option to issue only 3-month bills, and not to issue any longer term securities.

Brooks also frames the situation as a trap: raise rates to defend the yen and worsen debt dynamics or keep rates low and suffer currency collapse. From Mosler’s view, this trap is imaginary. Brooks has it backwards. The yen, with its floating exchange rate policy, is not defended via higher rates, as it would be with a fixed exchange rate policy. Instead, it is depreciated by higher rates.

Additionally, Japan’s imports are overwhelmingly real goods priced in global markets, and its export competitiveness improves with a weaker currency. Without BOJ intervention, foreign exchange reserves remain constant while the level of the yen expresses indifference levels associated with optimal real terms of trade. Those reserves are the by-product of BOJ intervention not evidence of financial fragility.

Crucially, higher long-term JGB yields do not “burden” Japan in any operational sense. They represent higher interest income paid to the non-government sector—mostly domestic institutions. What Brooks calls a debt crisis is, in Mosler’s framework, a distributional issue at most, not a funding problem. There is no numerical constraint that can be imposed by bond vigilantes or currency traders. If inflation becomes excessive, rate hikes only make it worse. The appropriate tools vary with the underlying reasons for the increase in the price level. In the case of excess demand, for example, which is very rare, fiscal adjustments may be appropriate, which can include interest rate reductions. Prices can also be the result of regulatory measures and instances of imperfect competition, domestic or foreign, often in the context of public and private indexation, none of which are related to interest rate policy.

In short, Brooks mistakes symptoms for causes. Japan is not trapped by its debt; it is choosing an interest-rate policy that weakens the yen and adds income. The problem is not that Japan cannot afford higher rates, but that raising them does exactly the opposite of what orthodox theory predicts.

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SHolland@sarahollando552

“European policy decisions are a crime against humanity”

@wbmosler

was talking about Italy, but the same applies to #Bulgaria Poor souls:(

Bideoa: https://youtu.be/OPbgbr2Mk6I?t=8

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Warren Mosler Mosler Barnard Tour 2013 ME-MMT at Cagliari (edited)

(https://www.youtube.com/watch?v=OPbgbr2Mk6I&t=55s)

Warren Mosler describing through the MMT framework why deficits are presently too small and how Italy could get out of the Euro crisis. Government spending should always be enough to cover the need to pay taxes and the desire to save.

This is an edited version where the Italian translations have been cut out. Hence, the jumps between shots.

0:03

okay we all

0:05

know what the problem is the the

0:08

European Union policy initiatives are

0:11

crime against humanity whether it’s

0:13

deliberate or not it is their policies

0:16

that are causing the problems and the

0:19

conditions will not improve unless they

0:20

reverse these policies and I I don’t see

0:23

these policies reversing okay so what I

0:26

say here is a blind man can see the

0:28

problem it’s unemployment wealth

0:30

destruction business destruction social

0:33

destruction it’s the destruction of

0:35

civilization

0:37

itself this is the key right here and

0:39

what I’m going to do is stop here

0:42

to to so that you when you come here

0:46

you’re going to leave completely

0:48

understanding and feeling what the real

0:50

problem is the entire world believes the

0:52

deficits are too large and they’re doing

0:54

everything they can to bring the

0:56

deficits down me mmt knows the problem

1:00

is the deficit is too small unemployment

1:03

is always and only the evidence that

1:06

deficits are too small now in Greece

1:09

they went to an extreme for deficit

1:11

reduction They confiscated 80% of the

1:14

bond holders money they reduced the

1:17

Greek debt by 100 billion Euro they

1:20

allowed them to default on their bonds

1:22

the deficit collapsed the debt collapsed

1:25

by 100 billion Euro and what happened to

1:27

the Greek economy did it get better no

1:30

the economy got worse and unemployment

1:32

went up they’ve got it wrong deficit

1:35

reduction makes it worse austerity makes

1:37

it worse and it’s not just me if you

1:40

were to T talk to any 100 economists who

1:44

are paid to be right there are

1:46

economists who spread propaganda I’m not

1:49

talking about those but the economists

1:51

who make their living by making

1:53

forecasts that have to be right those

1:55

Economist and you ask them what happens

1:57

when you make the deficit smaller ask

1:59

them what happens when you have

2:01

austerity and every one of them will

2:02

tell you it makes the economy worse they

2:05

revise their numbers down except the

2:07

unemployment number they Revis that up

2:10

they all agree you ask the same

2:13

economists who are paid to be right what

2:15

would happen if you did any

2:17

combination of raising spending and

2:21

cutting taxes that’s the opposite of

2:23

austerity more public spending lower

2:26

taxes ask these economists what happens

2:28

and they all agree the economy gets

2:31

better output goes up employment goes up

2:35

and unemployment goes down they all

2:37

agree what is so hard about this how can

2:40

anyone say they don’t understand this

2:42

How can any how can these people have it

2:44

backwards but clearly they do you’ve

2:47

been living it for 5 years now I’ve come

2:49

over here to get the word out on this as

2:51

to what’s going on what the problem is

2:53

and what the answer is okay now I’m

2:55

going to give you a little model here so

2:57

you can ex you can understand this and

2:59

explain it to other people and so you

3:00

can feel what’s going on here now

3:03

unemployment is people looking for work

3:05

because they need the money they want to

3:07

get paid I would hire thousands of

3:09

people if I didn’t have to pay them and

3:11

so would everybody else there’s plenty

3:13

of work to be done it’s just payment

3:15

that’s the problem now this is my

3:17

business card I’m the only one who

3:19

issues these but would any of you here

3:22

go to work for me if all I did was pay

3:24

you with these cards of course not what

3:26

are you going to do with it right try to

3:28

sell it on eBay good luck I tried

3:32

doesn’t work okay so none of you are

3:34

unemployed where you want a job that

3:36

pays in my business cards no one feels

3:38

any pressure where you have to have one

3:40

of these right no one’s worried about

3:42

not being able to get one but now I’m

3:43

going to tell you one more thing and

3:45

this is just pretend there’s only one

3:47

door to get out of this room and there’s

3:49

a man there with a gun and he works for

3:51

me and you can’t get out of here without

3:53

one of these do you feel the pressure

3:56

now you are now all unemployed for my

3:59

business cards you’re now wondering how

4:01

you’re going to get out of this room

4:02

what you have to do to get these things

4:04

now if I tell you there’s a job where

4:06

you have to help clean the floor and

4:08

take care of the room and I’m going to

4:09

pay you a business card you’re

4:12

interested now you know this system

4:14

works and this is exactly what the

4:16

British did when they monetized Africa

4:18

they went into Ghana and they wanted to

4:20

grow coffee and there were people living

4:22

in Ghana at the time this is 200 years

4:25

ago 250 years ago but none of them

4:27

wanted to work on the coffee plantation

4:29

they were taking care of their families

4:31

and hunting and farming and there was no

4:33

unemployment they were not looking for

4:35

paid work everybody had a job the

4:38

grandmother helped take care of the

4:39

children while the mother was out

4:41

collecting berries or whatever they were

4:42

doing there was always work to be done

4:44

so what did the British do they came up

4:47

with a very clever thing they they came

4:50

up with new money I I’m going to use the

4:53

word the crown they called it the crown

4:55

and they told everyone there that there

4:58

was something called a hut tax they

5:00

imposed a Hut

5:02

tax if you don’t pay 10 Crown a month in

5:05

tax we’re going to burn down your Hut

5:07

and you know how those people felt when

5:09

that happened the same way you felt when

5:11

you knew you needed these to get out the

5:12

door right only that only that was for

5:14

real now they could offer jobs now

5:19

everyone was unemployed they all were

5:21

looking for jobs to earn Crown now

5:24

everybody follow this so far okay I’ve

5:26

learned to keep it very simple because

5:28

I’ve had to explain it to C

5:31

bankers and you

5:32

[Music]

5:40

have it’s true I had a conference for

5:42

Central Bank and I’ve done this many

5:44

times at Breton Woods New Hampshire in

5:47

1996 and this is how I just explained to

5:50

them how the Euro the new euro is going

5:52

to work and and explained exactly what’s

5:54

now happening explain why that was going

5:57

to happen it was inevitable okay back to

5:59

the

6:00

story okay so now the British could hire

6:04

people to come work at the coffee

6:06

plantations because they needed the

6:07

crown to pay the tax just like if my man

6:10

is really at the door I can hire you to

6:12

work for my business cards because you

6:15

need these cards to pay the tax now

6:17

there’s a very important thing here that

6:19

PA already mentioned before why am I

6:22

collecting taxes at the door is it to

6:25

get the cards to be able to pay you no

6:28

in fact I have to spend these cards

6:30

first before I can collect them and and

6:34

I’m going to get to something in a

6:35

minute but if I wanted to borrow the

6:37

cards from you I can’t borrow my own

6:39

money from you until after I spend it

6:42

okay now if there are 300 people in this

6:46

room and how many cards am I going to

6:49

spend if I offer you all a job okay I’m

6:51

probably going to spend at I’m going to

6:53

spend at least 300 cards there somebody

6:56

in here is not going to be able to get

6:57

out of the room but what if one of you

6:59

wants to work and earn two or three

7:01

cards you know maybe you want to take

7:02

them home or whatever so then I would

7:05

have to spend more than I tax but could

7:07

I ever possibly run a surplus where I

7:11

collect more than I spend could I

7:15

spend 100 and collect 200

7:19

no and in fact what would happen if you

7:22

know there 300 people and I decided I’m

7:24

only going to spend 250 cards I’m only

7:26

going to have jobs for 250

7:29

okay there going to be at least 50 of

7:31

you looking for jobs who can’t get jobs

7:33

you’re going to be unemployed and

7:35

there’s no way around it okay Phil

7:37

Harvey describes unemployment with a

7:39

dogs and Bones story he he says you put

7:42

95 bones in a room and then you send in

7:45

a 100 dogs to get bones five dogs don’t

7:48

get any

7:50

bones got that again even s this is

7:53

simple for Central Bankers now and I I

7:55

really tell them the dogs and Bon story

7:57

okay so five dogs don’t get bones and so

8:00

what happens is the The Economist and

8:02

the sociologist take those five dogs off

8:05

to the side and they have a special

8:06

training course for those dogs and they

8:08

train them how to get bones and they

8:10

practice with them to get make sure they

8:12

really good at getting bones then they

8:13

run the experiment all over again they

8:16

send the dogs 100 dogs in to get 95

8:19

bones and those five dogs come back with

8:21

bones this time and they say

8:23

see anyone can get a bone if you work

8:27

hard and train hard and compete hard of

8:29

course five other dogs don’t get bones

8:31

right the unemployment is 5% of those

8:34

dogs they’re not going to get bones

8:35

that’s called a macro

8:37

problem the what the solutions of

8:39

training and everything else those are

8:41

micro they call those micro and when you

8:43

have a macro problem there’s no way you

8:46

can solve it at the micro level the only

8:48

way they’re going to get rid of that

8:50

problem is five more bones and if your

8:52

tax is 300 cards and I only spend 250

8:56

there are going to be 50 people

8:58

unemployed and the only way we’re going

8:59

to get rid of unemployment is if I spend

9:01

enough for you to pay the tax now

9:04

there’s there are two things you can do

9:07

with the cards and this is true with

9:09

money as well you either use it to pay

9:11

the tax or you just hold on to it and if

9:13

you just hold on to it we call that

9:15

savings okay and in our economy there

9:18

are a lot of reasons people hold on to

9:20

it and save for one thing you keep some

9:22

in your pocket when you walk around

9:24

those are Euros that were spent and they

9:25

haven’t been taxed yet or you wouldn’t

9:28

have them so let’s say you all wanted to

9:30

walk around with one of these in your

9:31

pocket okay and you were willing to work

9:34

to get that extra one so you could walk

9:35

around with it in your pocket now I’d

9:37

have to spend 600 cards before no one

9:40

was willing to work for them I spend 600

9:43

I only my tax man only collects 300

9:46

where did the other 300 go into your

9:48

pockets savings okay if I don’t spend

9:51

enough cards to cover your need to pay

9:55

taxes and your desire to save how do I

9:59

know haven’t spent enough I know because

10:01

somebody’s looking for a job to earn

10:03

more unemployment is always the evidence

10:08

that the government is not spending

10:09

enough to cover the tax bill and the

10:12

need to save let me say it another

10:16

way if the government spending isn’t

10:19

enough to cover the tax bill and the

10:22

desire to save the evidence is

10:24

unemployment it’s a simple point of

10:26

logic it’s beyond dispute there’s 12.2%

10:30

unemployment in Italy why only one

10:34

reason the government is not spending

10:36

enough Euro to cover the tax bill and

10:39

the need to save the desire to save in

10:42

which case it has only two choices if it

10:45

wants to makes things right it can

10:46

either lower the taxes or increase the

10:49

spending in other words make the deficit

10:52

higher some combination of taxing less

10:55

and spending more so that an important

10:57

balance can be achieved this is the

10:59

important balance the real balance the

11:01

economic balance spending has to be

11:04

balanced against the need to pay taxes

11:06

and the desire to save that is the real

11:09

economy is in Balance when the

11:11

government’s spending the right amount

11:14

so that taxes can be paid and savings

11:18

desires can be realized how hard is this

11:21

they’re doing it backwards I’m not

11:23

spending enough cards for you to pay the

11:25

tax and to save and you’re up looking

11:27

for a job that pays more cards

11:29

and if I’m the European Union what do I

11:32

do I say oh I’m going to raise the tax

11:33

and spend less so what do I do I raise

11:37

the tax and cut spending and

11:39

unemployment goes up some more it’s like

11:41

the carpenter with a piece of wood and

11:43

he says you know no matter how much I

11:45

cut off it’s still too short or or the

11:48

hairdresser the barber no matter how

11:51

much I cut it’s still too short okay it

11:53

would be funny if it wasn’t so tragic

11:56

the whole civilization is being

11:57

destroyed you know so so so let’s say I

12:00

I’m running this rationally I’m allowing

12:02

you to earn whatever you need to pay the

12:03

tax and let’s let’s look at why I’m

12:05

doing this why would I do this why would

12:08

I tax you and then give you jobs to pay

12:11

in my cards why would I do that because

12:13

I want to get work done I want the floor

12:16

cleaned I want the the walls repainted I

12:20

do it because I want you to work for me

12:22

okay the government does it because it

12:25

wants to be provisioned the British

12:28

wanted people to work on the coffee

12:30

plantation they didn’t put a Hut tax on

12:32

just to go through some you know mean

12:35

exercise they put a tax on so people

12:37

would be unemployed and then work for

12:39

the crown so they could grow the coffee

12:42

the European Union collectively wants to

12:45

provision its governments it wants

12:47

soldiers and school teachers and all

12:50

kinds of public service so how does it

12:52

get people to work for the government to

12:54

perform Public Service it imposes a tax

12:57

on the economy and something nobody has

13:00

with severe penalties if you don’t pay

13:01

that tax that tax creates unemployment

13:05

it creates people looking to work for

13:07

Euro and then the government hired

13:10

people with their otherwise worthless

13:13

Euro otherwise the Euro that would

13:15

otherwise without the tax would be

13:17

worthless but they but they unemploy a

13:20

lot more people than they hire what

13:22

sense does that make why would I tax 300

13:26

and get everybody unemployed if I only

13:27

want a hundred of you to work the tax

13:29

creates a certain amount of unemployment

13:31

a certain amount of people looking for a

13:33

certain amount of work to get the money

13:35

to pay the tax and save and then the

13:37

spending hires those people to get the

13:39

government’s work done if you don’t want

13:41

that many people to work for the

13:43

government the tax is too high it needs

13:44

to be smaller or conversely if you need

13:47

all those people in government with the

13:49

public services go hire them what

13:51

they’re doing defies all logic once you

13:54

understand the system so what are the

13:57

mmt proposals for the European Union

14:00

number one they should explicitly

14:02

guarantee the Italian debt they’ve done

14:04

it indirectly that’s not good enough

14:06

they’ve already proved the guarantee

14:08

doesn’t cause inflation or any other

14:09

problem not that that shouldn’t have

14:11

been obvious from the beginning but by

14:12

making it explicit the interest rates

14:14

come right down to their policy rate and

14:16

more important they need to immediately

14:18

relax the deficit limits of 3% that will

14:21

make sure that government spending is

14:23

enough to cover the taxes the the the

14:26

need to pay taxes and the desire to save

14:28

and every Economist who’s paid to be

14:30

right will tell you that will bring the

14:32

unemployment way down now the last thing

14:35

is very important it’s a powerful

14:37

anti-inflation measure it will make

14:39

Italy less prone to inflation than

14:41

anyone in the world the ECB does it

14:43

they’ll do it for the whole European

14:45

Union hopefully but this this proposal

14:47

is just for Italy so by offering a

14:49

transition job for anyone willing and

14:51

able to work the private sector doesn’t

14:54

like to hire people who are unemployed

14:56

they like to hire people already working

14:58

when you the economy grows because of

15:00

the deficit limits going up sales are

15:03

going to go up output’s going to go up

15:05

the private sector is going to be

15:06

looking for millions and millions of new

15:08

people to hire we want to make it as

15:10

easy as possible for them to do that

15:12

they don’t like to hire unemployed so

15:13

what do we do we offer anyone willing

15:16

and able to work a job that pays a fixed

15:19

wage and there they are ready for the

15:22

private sector to hire them away which

15:23

has been documented over and over again

15:26

and we have all the documentation that

15:28

this absolutely absolutely works and it

15:30

ensures the availability of a job for

15:32

anyone and so we’re proposing you do

15:34

this like an ultimatum give the EU 30

15:37

days to relax the deficit limits and

15:39

guarantee the debt if they refuse there

15:42

are only two options to fix the economy

15:45

and avoid the destruction of the

15:46

civilization one is tax credit spending

15:48

which goes beyond the scope of this

15:50

meeting and the other is to begin taxing

15:52

and spending in L and we have a

15:55

comprehensive plan for that which

15:57

guarantees full employment and

16:00

unimaginable prosperity and it’s not

16:03

about getting something for nothing it’s

16:04

about working and producing output and

16:07

we are blessed today with no real

16:09

shortages of resources there’s no

16:11

shortage of food clothing and shelter

16:14

all of these real resources are in

16:15

abundance Italy is like an Olympic

16:18

runner and then the European Union puts

16:20

a plastic bag over his head suffocates

16:23

it we’re saying remove the plastic bag

16:26

remove these artificial restrictions

16:29

stop artificially restricting your money

16:31

so there isn’t enough to pay taxes and

16:33

save so it’s not about adding stimulus

16:36

like they all talk about it’s about

16:38

removing drag so I’m going to skip over

16:42

the tax credit part because it would

16:43

take another half hour 45 minutes

16:46

but this is the proposal for returning

16:48

to the Lera to save time I’ll let you

16:51

read it quickly also um you know that we

16:53

can go over that later for people who

16:55

are interested in the details but we’re

16:57

not talking about repu debt or

16:59

confiscating deposits or anything like

17:01

that and notice at the bottom we have

17:03

the same transition job to anyone

17:05

willing and able to work you might hear

17:07

that called a buffer stock policy and

17:09

the point is an employed buffer stock is

17:12

far superior than a buffer stock of

17:15

unemployed people we talk about

17:17

government is for public infrastructure

17:19

for public purpose much of it’s been cut

17:22

I’m sure most people would like to see a

17:23

lot of it restored and when government’s

17:26

at the size where people want want it to

17:29

be then taxes are

17:31

adjusted so that the spending is enough

17:34

to cover the tax and the net savings the

17:36

deficit the right size but no higher

17:39

than that once you’re at full employment

17:41

if you try and increase a deficit from

17:42

there all you do is push up prices and I

17:45

would think no more than 3% of the labor

17:47

force would ever be in the transition

17:49

job because the private sector is strong

17:52

enough to hire PE will be more than

17:54

strong enough to hire people away okay

17:56

we have a little warning here if you

17:58

leave the Euro and go back to the Lera

18:00

and you have leadership that believes in

18:02

a balanced budget and running a surplus

18:04

you’re going to be right back to where

18:05

you started like the UK and the United

18:08

States we have our own currency we have

18:11

no restrictions on what we can do and

18:14

yet the high unemployment is the

18:16

evidence that the US and the UK don’t

18:19

spend enough to cover the tax bill and

18:21

the savings desire uh I’ve already given

18:24

you the conclusion I’ll give it once

18:26

more okay the the tragedy of Europe is

18:30

caused by leadership that believes the

18:32

deficit is too large and must be brought

18:34

down and the solution is leadership that

18:39

understands that unemployment is the

18:41

evidence that the deficit is too small

18:44

it needs to be made larger thank you

18:46

very much go

18:51

[Music]

18:51

[Applause]

oooooo