The Ratings Agencies Should Downgrade the US Government
Posted by WARREN MOSLER on March 25th, 2011
If I were running any of the ratings agencies I’d immediately downgrade the US Government’s financial obligations to no more than A based entirely on ‘willingness to pay.’
There are two considerations used by all ratings agencies when determining the credit worthiness of a government. They are ‘ability to pay’ and ‘willingness to pay.’
And while the ability of the US to make timely payment of $US is never in question, willingness to pay is not only in doubt, but, in fact, not paying as obligated by law is continuously and openly being discussed as a viable option by the same legislators tasked with making the final decisions.
March 25th, 2011 at 6:20 pm
Hah! Wouldn’t have expected that argument from you, but it makes sense and is consistent with MMT!
I wonder if that would compel the government out of fear to finally shut up about the debt and just pay it. How ironic!
Reply
March 25th, 2011 at 11:18 pm
Nice to see Krugman has been reading some MMT :) I always say sufficient deficits can lead to inflation. I think Bill M. says there is little correlation, so perhaps he should respond…..
Deficits and the Printing Press (Somewhat Wonkish)
Right now, deficits don’t matter — a point borne out by all the evidence. But there’s a school of thought — the modern monetary theory people — who say that deficits never matter, as long as you have your own currency.
http://community.nytimes.com/comments/krugman.blogs.nytimes.com/2011/03/25/deficits-and-the-printing-press-somewhat-wonkish/
Reply
mdm Reply:
March 26th, 2011 at 12:41 am
Is the comment section not available to those outside the US?
Reply
Winslow R. Reply:
March 26th, 2011 at 1:13 am
Think you need a NYTimes account (its free)
Reply
March 26th, 2011 at 2:54 pm
On a totally unrelated note, I’ve been reading Silvio Gesell and am really finding his ideas unique and interesting. Have you read Gesell, Warren? What do you think of his work?
Reply
WARREN MOSLER Reply:
March 26th, 2011 at 3:39 pm
just now looked him up and read some. don’t see anything of particular interest?
Reply
Jesse Frederik Reply:
March 26th, 2011 at 5:41 pm
Gessel is a radical monetary reformer, he is anti-Marxian and anti-classical. His theory of exploitation is based on the workings of the monetary system. He’s also a chartalist, advocating for the abolition of the gold standard and introduction of fiat paper money.
I started reading him because Keynes seemed to have a very high opinion of him, in ch. 23 of the general theory he even says: “I believe that the future will learn more from the spirit of Gesell than from that of Marx.”
Reply
WARREN MOSLER Reply:
March 26th, 2011 at 9:05 pm
the only proposal i saw was the requirement to get the money stamped each month at some cost to the holder
March 26th, 2011 at 4:08 pm
How does a rating agency measure “willingness,” vs. a much more inclusive term, “likelihood”? You can’t really know what’s in a person’s mind, other than by some historical measure, which boils down to likelihood.
Rodger Malcolm Mitchell
Reply
WARREN MOSLER Reply:
March 26th, 2011 at 4:51 pm
I’m tired of asking them. I can only jest and say it’s done willy-nilly…
Reply
March 26th, 2011 at 9:22 pm
Here’s a note I just got copied on from Randy I thought might be of interest:
APOLOGIES FOR IMPATIENCE: We often get emails or comments on our posts, and do not always provide satisfactory responses. Let me try to explain why it sometimes seems we are overly impatient with queries.
We have all been working this out for a long time. I started working on Fed-Bank relations in the early 1980s, arguing against the Friedmanian monetarist view that the Fed through the deposit multiplier controls the money supply. Then I moved on to Fed-Treas relations to argue that it is more accurate to say that fiscal policy determines the “money” supply. That, of course, led on to MMT. Those of us working on the MMT project have 25+ years behind us in figuring out all the details on “how the govt really spends”. We have dealt with every critique, every challenge. As Warren says, not one single aspect of our approach has ever been successfully shown to be incorrect. We’ve published thousands of pages–again without a single serious challenge. We explain in workshops, meetings, conferences, classrooms, and on blogs, email discussion lists. Every week we get a new gopher who sticks his head up and wants to start the argument all over again, from the very beginning, without any knowledge of what came before. We spend time going over exactly the same critiques (there never is a new one–we’ve dealt with all possible permutations. I doubt we’ve come across a new one in the past 15 years). Most of the gophers actually have no interest in understanding–they usually are selling some idea, usually an Aynn Randian goldbug story. The next week, another gopher. So that is the reason for impatience. Warren calls them the multi-headed hydras. Chop one off, another appears. To be clear, I am not saying that all skeptics are hydra gophers. I am just explaining why I do not want to rehash everything we’ve done in the past 25 years.That is often why we provide short responses and sometimes a link to literature or a website .One very common response we get is that what we are arguing is just too complex for simple minds. We need to get it down to a short elevator speech. We agree. We’ve done our best to simplify without misleading. We welcome others to do a better job. And I think some actually have–which explains why MMT has taken over the blogosphere. It has indeed helped that we got people from a wide variety of backgrounds who are now pushing it. My main audience iis largely academics and so I tend to frame things for them. I think i can also hit an educated and interested audience–ie, those who read the stuff at http://www.levy.org
Reply
Peter D Reply:
March 26th, 2011 at 9:53 pm
Randall Wray, hang on there, we the blogosphere are coming to the rescue :)
Seriously, if MMT is correct (and I think it is) then in 10 years it will be considered self-evident. This things take time at first, but once they pick up -they PICK UP!
Reply
Dan Kervick Reply:
March 27th, 2011 at 12:04 am
It’s true that the people who win the big arguments often don’t get credit for winning them. Krugman’s recent column was positioned as a criticism of MTT. But it seemed to me that, on substance, he was actually agreeing with MMT, but then went on to attribute an extreme view to MMTers that they don’t actually defend – “deficits never matter” – just so he could disagree with them.
So, I think we can assume that when the MMT theorists carry the day, we won’t have a lot of mainstream folks telling them, “You win guys! Great job!”.
Reply
WARREN MOSLER Reply:
March 27th, 2011 at 11:50 am
no one sends me checks??? :(
Alex Reply:
March 27th, 2011 at 3:47 am
Randy – “My 1998 book, Understanding Modern Money, was an attempt to do that, although I realized once it was done that it missed the mark. Still too academic. Warren’s two publications–Soft Currency Economics and Seven Deadly Frauds, are closer.”
Randy, I don’t think your book Understanding Modern Money will be too complicated. I bought it a month or so back and have it ready to read, and I am looking forward to learning the deeper operations of the monetary system. MMT is one of those things that the further you go, the further you want to go. I suspect Understanding Modern Money will be perfect for me given the stage I am at.
What we need to remember is that a MMT learner evolves. I first came across MMT late last year at Cullen Roche’s site Pragmatic Capitalism. There I began the learning process and was linked to Seven Deadly Frauds, which is fantastic and explains the topic in a very simple manner. Now, after a few more months reading PragCap, Billy Blog, MoslerEconomics and so on, I am ready to step up a level with Randy’s book. Later on, I will head towards levy.org and Bill Mitchells book, which I presume are both more complex.
In short, different levels of difficulty is exactly what a MMT learner needs, and thank you for providing it.
Reply
Senexx Reply:
March 27th, 2011 at 5:42 am
My journey goes from Philosophy to Ideology and then I have a choice, Politics or Religion, I went with Politics as it has less dogma and more relevance and from Politics to Economics.
I discovered MMT via Australian Economic Journalist Peter Martin who hyperlinked to Bill Mitchell. I am not sure how I got hooked from there.
If you start from 0 currency and 0 backing, it is quite easy to see the accounting that it all must balance. Intuitive even.
Add to that the once you understand the automatic stabilisers that deficits increase with unemployment and fall with employment. All you have to do is correctly target a deficit which is a policy choice and Bob’s your uncle.
It is so intuitive (not to mention empirical), I don’t understand why it is so often called counter-intuitive.
Sure I get the minutiae of the mechanics incorrect or misinterpret jargon from time to time but the overall concept is so easy to understand. I don’t get why others don’t.
So in that light I’ve bought Warren’s book 7DIF (read the PDF though) & have Randy’s on the way. I have printed out Soft Currency (not sure what I’ve done with it atm)and read some of it as well.
Now I’m waiting for Wray & Mitchell to finish their textbook (as I suspect Mitchell & Muysken’s book is too academic) and that’s my MMT starter pack.
I’m just an informal MMT student attempting to spread the word. I did so with Mitchell’s The Nation piece and he (and I by proxy) got accused of creationism that most of the piece was demonstrably false. That said, this individual confessed to not reading the whole piece. In the end I think I did the person a disservice by not linking them to something shorter. Live & Learn.
Anyhow my point is I’m not from an economics or necessarily from an academic background and nor are many of us other MMT proponents and advocates but Randy, Warren and others don’t need to fight their battle anymore, they’ve got us.
They’re the Generals and we’re the army.
Reply
Neil Wilson Reply:
March 27th, 2011 at 6:12 am
Yep. Period zero matters.
Once you get period zero, everything follows from that.
WARREN MOSLER Reply:
March 27th, 2011 at 11:58 am
Right, and we did work on that first book continuously for at least two years trying to get it as simple and easy to understand as possible.
And it was highly controversial, as there was some contrast with his first book written before we met.
Reply
Kristjan Reply:
March 28th, 2011 at 7:10 pm
I first read “Subway Tokens and Social Security” by Randy and I think for first timers It is the best pick “to get hooked” because there are so many ideas out there and people are not going to spend a whole lot of time on some new theory that is not accepted by mainstream. I stumbled across It on William Hummel site and Soft Currency Economics was there too.
Just for marketing purposes It is not probably a wise idea to start with the government job guarantee program. People will think that these guys are nuts. It just has to follow logically.
Reply
March 26th, 2011 at 10:21 pm
I have a rather crass question for MMTers. Is there some way for the individual investor to exploit monetary ignorance? For example, is there a fund available to individuals that shorts CDSs on government (non-Euro) bonds? (Yes, I know it would have mark to market risk even if no fundamental risk).
Reply
studentee Reply:
March 27th, 2011 at 1:22 am
ha, as a beginning investor, i wonder the same thing…maybe? i’m always too concerned about keynes beauty contest issues to do much aggressively…
Reply
WARREN MOSLER Reply:
March 27th, 2011 at 11:51 am
a wise conclusion!
Reply
beowulf Reply:
March 27th, 2011 at 12:17 pm
“I have a rather crass question for MMTers. Is there some way for the individual investor to exploit monetary ignorance.”
Now that is a good question. Put new thoughts in someone’s head and he’ll think you’re smart, butut new money in someone’s pocket and he’ll think you’re a genius. :o)
Maybe there is an MMT investment guide to be written but I fear its like Keynes (supposedly) said, “the market can remain irrational longer than you can remain solvent”.
Reply
WARREN MOSLER Reply:
March 27th, 2011 at 12:36 pm
just to brag a little, i did manage my fixed income fund from inception in 1982 to 1997 when i turned control over to my partners with a tad over $3 billion under management (back when that was a lot of money), and went 15 years without a losing trade, and was ranked #1 by MAR for pretty much the whole time.
Reply
Joe Reply:
March 27th, 2011 at 1:05 pm
It sounds like the Italian bond trade in your book was a quintessential application of MMT to the financial markets. I’d love to hear other examples in your time as a fund manager.
WARREN MOSLER Reply:
March 27th, 2011 at 2:43 pm
sounds like something to do at the next MMT convention?
:)
March 27th, 2011 at 9:27 am
Mankiw’s out with an anti-debt op-ed in The Times:
http://www.nytimes.com/2011/03/27/business/27view.html?_r=1&partner=rss&emc=rss
When will these people learn?
Reply
WARREN MOSLER Reply:
March 27th, 2011 at 12:24 pm
this is about as bad as it gets. I’ll be doing a write up.
Mankiw remains a disgrace to the economics profession.
Reply
Ramanan Reply:
March 27th, 2011 at 12:41 pm
Mankiw was also the signatory (amongst 10) of a recent letter to the President.
http://www.politico.com/news/stories/0311/51864.html
Reply
WARREN MOSLER Reply:
March 27th, 2011 at 2:25 pm
thanks, working on that too.
Reply
March 27th, 2011 at 10:40 am
Actually, not too long ago Warren made the call that the ECB was going to buy debt directly. This was when the popular media was saying the Euro was over. I didn’t have the cojones to buy Euros then, but would have made a nice little gain. I’l try to find the link for you.
Reply
March 28th, 2011 at 3:09 am
[...] purposes here is obviouslyly wrong—or that governments cannot impose default on themselves (see here and here). I disagree. A 6 percent deficit would, under normal conditions, be very expansionary; [...]
March 28th, 2011 at 11:50 am
[...] for functions here is obviouslyly wrong—or that governments can't levy default on themselves (see here and here). I disagree. A 6 percent necessity would, underneath normal conditions, be unequivocally [...]