If you are interested in having Warren speak, please contact:
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Hi there Warren,
We haven’t chatted in years but your name and Bill Mcauley’s came up in a conversation with someone I had just met. Was curious about you.
The last time I had contact with AVM I was at a hedge fund conference and was catching up with Bill Mcauley.
I have settled in Highland Beach and so far is great.
The Bank of England just released its Quarterly Bulletin 2014 Q1, and has three videos accompanying the bulletin. They explain that loans create bank deposits
and banks monetize bankable assets. Here is the link http://www.bankofengland.co.uk/publications/Pages/quarterlybulletin/2014/qb14q1.aspx , I believe that it validates everything that MMT has said or almost.
Bill Mitchell, The role of bank deposits in Modern Monetary Theory
There are additional links within this post, too.
Finland’s obsession with maintaining a budget deficit of less than 3% of GDP is gonna cost them their AAA rating anyway due to persistent negative economic growth.
Modern Money Theory (MMT) is a logical interpretation of how taxation and finance works in an economy with its own fiat currency. Although the movement has been around for some time now, it has not gained much traction with the economic community, let alone the electorate. The main reason is that it has been an academic and intellectual movement, when in reality, it is more than that. Faced with competition from the outdated economics of the gold standard and the austerity movement which accompanies it, it must expand into a political movement. It’s competition is highly political with organizations like the Peter Peterson foundation and neoliberal think tanks funding propaganda and the Tea Party movement to hang on to old thinking, while MMT embraces a more realistic approach appropriate to our fiat money centered economy.
MMT is more than finance and taxation. It embraces a jobs buffer to keep people employed to maintain their skills and esteem, making a transition to private employment and upward mobility more possible. It emphasizes productive activity rather than speculative activity to promote real growth. It recognizes demand as the main driving force in the economy, not accumulation of capital that sits on the sidelines. To implement these principles requires political action. This requires funding for grassroots education and recruitment of political candidates who understand and will promote it at the precinct level and for advertising to counter the political actions of the neoliberal austerity advocates.
It’s time to find substantial donors who will fund a political action committee to this end and to start a program of individual contributions from the rank and file if MMT and its economic and political aspirations are to become mainstream. Warren Mosler’s political campaigns have demonstrated that a wider political approach is necessary.
Kenya listened to the IMF / World Bank for 4 decades with devastating results. In Jan 2003, our new president decided to ignore them with spectacular results. Please see the charts below for current account deficits and GDP per capita since 1980.
Only worn notes for the most part.
I took a ‘short cut’ in the book when I said the IRS agent would shred the old twenty dollar bills when in fact he would pass them on to another agent who would pass the on to the actual shredder, but the point remains that the issuer of a currency is the only entity that shreds what it receives in payment, as it doesn’t ‘need’ the bills the same way all others ‘need’ them. Sorry for that shortcut!!!
I want to write about upcoming Warren’s Zurich presentation on March 25th.
I think that the most potent of the presentation is about fiscal transfers.
EU is under the spell of Mundell’s “optimal currency area” and believe that persistent deficit and surpluses can and must be dealt with. Not understanding that such permanent deficit and surplus areas exist within every state, currency union, dollar or euro standard pegged currencies, regions within states, between cities, between areas within cities and in household. Fiscal transfers are essential mechanism that can keep currency union alive long term. Redistributive mechanism that counters distribution upward of capitalist economy, between rich and poor, between surplus and deficit areas is esential to long term functioning of any system and size.
Fiscal transfers by unified tax, retirement and health system, military production investment in poorer areas, state investment into deficit areas infrastructure to reduce regional finacial constraints or ECB guaranting deposit insurance of all EU banks independent of individual country budget are all ways of keeping Nominal Surplus Circulation (as i like to call it) going uninterupted.
On another note, i would like to write about MMT wider acceptance and confusion that initialy creates.
Reading Kaldor i got idea that largest confusion comes from basic assumption under MMT operates. It is not given nowhere i could find. The basic assumption that separates MMT from neoclasical economic theory.
Neoclassical economics is based on movement of goods and services while analizing economy and implying that such movement is also moving currencies, not other way arround as MMT is all about.
Neoclassicals imply that value of goods and services is precisely reflected in prices of those goods and proceed as nominal value is same as real value. But along the way there are contradicting problems that are insolvable since prices change. That is the reason they all preffer that prices be fixed by gold standard to reflect true values of goods and services in order to get away with anoying discrepancies.
I believe that this assumption by MMT that flow of currency dictates the flow of goods and services should be the starting point of any description of MMT to contradict neoclassical basic assumption. Flow of money or Nominal Surplus Circulation is what dictates flow of goods and fiscal transfers are countering destributive effects of surplus areas accumulating more and more liquidity from deficit areas preventing sufficient distribution of real values within deficit areas.
Dear Mr Mosler:
I have just recently discovered MMT and have seen your policy interview with the, I’m assuming, editorial staff of the Norwich Bulletin on youtube. I am wondering if you plan on running for office again? If you were, I would love to be able to sign up and volunteer. I have seen very few political candidates with the awareness and honesty to actually propose governing according to reality instead of by doctrine and dogma. Look forward to your response which I sincerely hope is in the affirmative.
Auburn Parks III
I came across your name, and website & writings, via Columbia Law School’s excellent talk series http://www.modernmoneyandpublicpurpose.com.
I am based in Switzerland, and I have 15 years experience in derivatives market-making, plus 10 years experience in large bank Basel 2 and economic capital modelling.
I have questions regarding derivatives markets and central banks:
“Why is the Federal Reserve not more engaged in derivatives markets, and I mean engaged as participant trader, i.e. as provider of liquidity, so as to put an end to the fear-mongering (= high implied volatilities) that leads to panics, and to the fear-forgetting (= low implied volatilities) that leads to bubbles?”
“Why doesn’t the Federal Reserve target various implied volatilities much as it targets inflation?”
“Why doesn’t the Federal Reserve publicly set maximum and minimum implied volatility targets in those derivatives markets (e.g. S&P500 stock index derivatives) for which the underlying and derivative premium are denominated in USD, and then intervene, as required, if and when traders take it upon themselves to ignore the Federal Reserve’s targets. Since no coalition of market-makers is a match for the Federal Reserve, the Federal Reserve would always be able to dictate its maximum and minimum implied volatility targets on the market. After a few fights, traders would soon understand that the Federal Reserve is a different kind of market-maker, and the Federal Reserve would not even have to intervene in the markets themselves, but only communicate its new targets for maximum and minimum implied volatilities for a set of derivatives markets.”
Thank you and best wishes
I read your books and enjoyed a lot. Want to know your opinion on Russian default and its reasons. cant get my head around the fact a country defaulted on its own currency denominated obligation?
WARREN MOSLER Reply:December 16th, 2012 at 10:16 am
not to put you off, but do read ‘exchange rate policy and full employment’ on this website, thanks, under ‘mandatory readings’, and let me know if it doesn’t fully answer your questions, thanks!
Ok been reading more and more, so I need some perspective on this.
If the govt wants to spend, say, $1B. The trsy gives the fed 1b in 30yr bonds, the fed credits the trsy 1b in dollars. It’s a net 1b to trsy acct and the fed carries the 1b liability (debit) by holding the bonds. Seems like it evens out, right?
Assuming the bonds are held to maturity, the trsy has to pay something like 1.8b to the fed. That’s $1b in principal + 800m in interest.
Where did the govt get the other 800m? well, I’m guessing they had to issue 800m new debt to pay it.
So, it would appear it costs the govt 1.8b in payments for the benefit of 1b in spending.
What is the problem with doing this?:
Govt wants to spend $1b. The trsy gives the fed 1b in 30 yr bonds. The fed credits the trsry $1.8b in dollars (face amount plus interest).
The trsy acct is plus $1.8b, then the fed creates 2 liabilities (debits) into the fed accounts, one for $1B in face amount of bond, and a second debit in a special account for the interest. When the trsy makes an interest payment, it’s a minus to trsy account, credit to the interest account where the fed was holding the interest debt.
This way when the govt has paid the full amount of the bond + interest, it would still zero out.
Now, if a private party wants to buy the $1b in treasury bonds, that’s fine, the buyer gives the treasury the $1b cash, the buyer gets the bond, but then the fed issues the interest to the trsy and creates a debit into the feds trsy interest account…..just makes it sort of a two step process.
My thought is this, since the govt is the sovereign responsible for the origin/creation of money it could do this, no?
Under the current way it works, the money to pay interest in never seems to be created by the govt, interest is paid for purely by new debt. (By not creating the money to pay the interest too, in my mind, the source of all of our budget quams). Using the current scenario, requires the govt debt to continuously grow and snowball in order to provide funds to expand the economy.
It seems because the interest is treated as an expense rather than a debt, it doesn’t get accounted for at the point of money creation. And because of this, the govt is always in catch up mode. If we accounted for (by creating the funds for) the interest as additional debt at the point of money creation, wouldn’t this allow for a much better budget/spending/taxing system?
Please help me understand this one….thks
WARREN MOSLER Reply:December 10th, 2012 at 8:51 am
the fed isn’t allowed by Congress to buy bonds directly from the treasury
Ed Reply:December 10th, 2012 at 10:44 am
@WARREN MOSLER, ok, thats a technical. i’m looking at it from fundamental.
at the time the govt creates its debt, it never funds the full amount of the debt to be paid, just the face amount of a bond.
So why wouldn’t we want the govt, on a fundamental basis, to fully fund (create the full amount of money to be owed princepal + interest) at the time it issues a bond. (assuming on the technical side we could make a process for it).
WARREN MOSLER Reply:December 10th, 2012 at 1:42 pm
why does this matter?
Ed Reply:December 10th, 2012 at 3:11 pm
@Ed, because i’m trying to add up the numbers. all the in’s and outs at the fed are supposed to add up, right? but the interest is never accounted for as a liability that is there.
so by accounting for it up front with the bond creation, the “true cost” of the govt issued tax credits (pricipal + interest) becomes what the govt can spend.
and as long as the funds to pay the interest on the bonds face amount aren’t created at the same time the face amount of the bond debt is created, it puts us in the negative into infinity.
using my example above:
$1b in govt spend currently = $1.8b in tax credits..eventually. ultimately a very unbalanced accounting, no?
WARREN MOSLER Reply:December 10th, 2012 at 3:15 pm
1 billion is the present value discounted at the going rate at the time
Ed Reply:December 10th, 2012 at 4:04 pm
@Ed, if the govt is the origniator/creator, why should it have to discount it in order to spend it?
assume we started from scratch and the govt only borrowed $1b over 30 yrs, then spends that $1b. Well there is only $1b in circulation to take back as taxes to pay off the pricipal, there is no more money in circulation to further tax to pay the interest. But it still has that liability.
Where as if they borrowed $1b, created 800m, spent the 1.8b, they can now tax back 1.8b to pay back bond + interest.
With out creating the money to pay the interest and spending it, we can never reconcile the accounting, in my mind anyway…:-)
WARREN MOSLER Reply:December 10th, 2012 at 11:03 pm
remember, it’s all best thought of as the govt spending first, which creates credit balances, and then ‘borrowing’ which means agreeing to pay interest on those balances, for purpose other than ‘attracting funds to borrow’.
The presumption is the payment of interest somehow ‘fights inflation’
Nihat Reply:December 10th, 2012 at 6:13 pm
Why on earth do you worry about having to pay interest over or at the end of a thirty-year period, but not even blink about paying all that interest now?
Ed Reply:December 10th, 2012 at 8:45 pm
@Ed, hi nihat, i not saying pay the interest now. I’m saying the should spend it now so it can tax it back over time.
the govt must spend first in order to put money into the system, then govt can then tax back and pay its expenses, right?
If the govts total debt on $1b trsy bond is $1.8b. I’m saying the govt should spend $1.8b into the private sector first, so it can then tax back from the private sector an amount = to the $1.8b “full” debt obligation.
but since the govt only gets the face value of the bond, the govt should do this by telling the fed to just “mark up the trsy acct” to add the 800m cash. call it sovereign perogative or what ever.
The fed could keep a seperate account to just track the interest debt and payments so it has an accounting.
WARREN MOSLER Reply:December 10th, 2012 at 11:08 pm
yes, govt ‘spends first’
it doesn’t ‘tax it back to pay expenses.’
it pays first, as above.
Nihat Reply:December 10th, 2012 at 10:23 pm
Ed, this is very similar to our earlier exchange above. You seem to be after having a fixed way of govt spending beyond taxes and borrowing, and trying different rationales for it. I just don’t see the need for a fixed way (or ratio; see above). I’d defer to the teacher, but my understanding is that all manner of deficit funding is already possible (from practically 0% to 100% borrowing).
Ed Reply:December 10th, 2012 at 11:16 pm
@Ed, nihat, in my previous post i was just thinking print more money than borrow, but didn’t know why.
my point here is that a $1b govt bond costs the govt $1.8b. but the maximum recoverable tax by the govt is still only $1b….leaving a 800m shortfall in govt spending, is this not correct?
Or another way to look at it is, it winds up costing the govt $1.8b in debt payment to spend $1b, the way we’re currently doing it. Isn’t govt spending supposed to at least equal govt debt? This is what’s throwing me off.
WARREN MOSLER Reply:December 11th, 2012 at 9:33 am
again, the fed sets rates, presumably for public purpose…
also, future interest payments are part of future budget forecasts
Nihat Reply:December 11th, 2012 at 11:15 am
I feel you are thinking from the viewpoint of a private sector entity like me or you. Certainly, we won’t take a loan and put it under the pillow; we’ll use it, spend it on a consumer product, buy a home, operate a business, etc. But when the government borrows, it is very much like putting the borrowed amount under the pillow. There are pool or bathtub analogies out there. They go like this: govt spending is water pouring into the tub from the spigot, taxes are draining water from the tub, and govt borrowing is filling a bucket from the tub and putting it aside. When time comes to pay that govt debt back, you dump the bucket’s content (principal) back into the tub. The interest owed on that debt becomes part of govt spending at that time (or over the term of debt). The catch is, unlike me or you, the govt isn’t burdened by the principal at all, as it’s been waiting under the pillow, or in the bucket. Unlike you and me, the govt can do this because the interest isn’t a burden to it, either.
Does that make you jealous?
Ed Reply:December 12th, 2012 at 11:20 pm
@Ed, ok nihat, i had to chew on this a bit. i like your tub analogy, i would add this to your example for my point…:-)
every gallon of water the govt is sending out the spigot (trsy) into the tub (the economy) was borrowed from the waterbank(fed) “before” it went into the tub. The waterbank got the water to lend the govt from the well in the govts backyard at no charge. And as a bonus, for every gallon of water the govt sends out the spigot, it will owe the waterbank 1.8 gallons back (principal + interest) over time. Now the govt can drain (tax) the tub to payback the loan to the waterbank, but it can’t drain it fast enough to keep up with the what it owes the waterbank.
When the govt pays back the .8gallons in interest, its paid with more water borrowed from the waterbank too.
Since every dollar the govt spends is backed by debt, how can it be the govt spends first? it may create the money at the fed, but it’s done so the govt can borrow and then spend, no?
WARREN MOSLER Reply:December 13th, 2012 at 12:03 am
try just looking at the actual monetary operations as described in the 7dif
to spend, the tsy instructs the fed to credit a member bank’s account at the fed.
debits and credits don’t ‘come from’ anywhere
and the rates paid by tsy are, whether it knows it or not, set by a vote at the fed,
with congress authorizing the fed to be able do that as it’s agent.
the fed can decide not to ever pay interest after which the govt won’t pay any interest on new spending.
it’s a political decision.
the govt pays interest because it wants to, whether it knows it or not
Ed Reply:December 12th, 2012 at 11:46 pm
“again, the fed sets rates, presumably for public purpose…”
I like the qualifier of “presumably”…:-)
“also, future interest payments are part of future budget forecasts.”
agreed here, but is it conceivable that at some point interest payments can = all taxes collected, then what happens?
WARREN MOSLER Reply:December 13th, 2012 at 12:04 am
a bell rings and someone at the fed gets an electric shock when he tries to credit an account?
Nothing happens. spending is still via the fed crediting accounts and taxing by debiting accounts
get over it, mate!
Ed Reply:December 13th, 2012 at 2:00 am
@Ed, that’s why i’m hanging out hear, trying to get over it!….but it’s hard…..lol.
I will say, i was doing pretty good at letting go until i read this one a couple of times:
With that, i accept what is, but do see, improvement opportunities on “what is” as well.
If the debt means, basically, nothing, then what could be done to get ourselves out from under that which holds us back.
what i liked about that italian blog post i reference above, in addition to your picture along with JFK, was there were some pretty interesting, thought provoking, structural reform ideas discussed.
with that i have to ask this one: just as, so many people freak over govt debt, i guess there are as many people who would freak if the govt said no more debt, we’re just “printing the money” (much like lincoln and congress did in 1862)and it worked fine then. (why is this not discussed more today in economics?)
So since we can’t seem to live with govt debt, we probably couldn’t live without it. so as a compromise, what would the problem be with this:
the interest paid on govt debt is done with “printed money without corresponding debt issued” and all face value debt is paid from taxes collected. This would produce a happy medium, no? enable the govt to keep spending ahead of debt accumulation, while preserving a govt backed debt security that pays interest, maybe even a “healthy” balanced budget. run some numbers through this, scenerio, is it good or bad?
Again, if it’s all just fiat money anyway, why burden ourselves fretting over ginormous debts, if they don’t really mean anything? Now if the debt does mean something, then that’s a whole other story.
In my mind this is how you could actually get to Moslers Fica tax holiday, increase ss to 2k/mo min., etc. i’m guessing your great ideas will never have a real shot as long as snowballing debt stands in the way.
WARREN MOSLER Reply:December 13th, 2012 at 6:42 am
keep reading the ‘mandatory readings’ beginning with soft currency economics a few times over to help it all ‘sink in’ thanks
you’re still completely missing the point
Nihat Reply:December 13th, 2012 at 3:28 pm
I believe the waterbank (the Fed) is really a superfluous entity if we want to get to the bottom, to the principal, of it all. I am not qualified to second anything technical Warren says, but the accounting settlement you seem to be after probably doesn’t exist as the government is meant not to end. It’s a rolling thing.
In your example, the interest on govt debt was close to 2% annually (/w annual compounding). Hardly an impressive rate if you are seeking to save for retirement. At the end of 30 years, when the govt is to pay 80% interest, your economy (the water in the tub) has probably grown by more than that. How? By virtue of govt debt that has matured in the meantime. I think…
Corrections are welcome, but to me, the bigger difference between the govt’s deficit spending with borrowing and without borrowing is that the first kind joins the economy after a delay (stirring effect is immediate nonetheless). The interest that it may bear is a transfer which may be legit or not.
thanks for your reply ed.I totally agree with you.
Seems we have the same brain here.:).
If the good wolf mmt want to catch more sheeps (as we live in the marketing,consumers world) it has to use the same tactics that ie. Football clubs,Music shows and Fizzy drinks companies do.Sad but true.er, Who is gonna fund that anyway?
PS I meant to write more but i forgot to re-add my name and when i clicked the back button all my comment was erased.:(
Thanks for your reply.
It’s a pity nobody here in UK know, talk and debate about your work.
I hope that soon it will happen at least by some academic or top politicians.I am none of these but I welcome any suggestion to”spread your words”.
My best regards
Ed Reply:December 6th, 2012 at 10:46 pm
@Enrico M Puddu, just to add to your point enrico, it’s a pity people everywhere don’t have more discussion about mmt and warrens idea’s. it seems with mmt we have the means to address a lot of what ails us, if people understood this stuff more. all i hear on the mainstream media is debt/deficit is evil, run govt like business, blah blah.
and the funny part is thats what people “like” to hear, so the media seem to slant more programming towards that. like mike norman said in his video post, when he went on talk shows, he got low ratings talking about mmt.
i think mmt needs to embracing some marketing spin for it to catch on more.
Ed Reply:December 6th, 2012 at 10:51 pm
@Ed, and warren, in 7difs, you scared me with the larry summers/rob rubin stories.
do you think bernake/geitner at least get the points summers/rubin didn’t?
WARREN MOSLER Reply:December 7th, 2012 at 8:11 am
if they do they aren’t saying…
Warren B. Mosler