YouSaid · the spoken record

Warren Mosler

lines on the record: 129
first: 2023-06-01
most recent: 2023-06-01
sittings or episodes: 1
sources: podcast

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“I think that perfectly describes American labor life 1982, February 2020. Are we not in a new era now where the Atlanta wage tracker, it's going up? I don't have the exact numbers in front of me, but for the lowest quartile of wage earners, it's going up a ton. You know, service workers, they are seeing wage gains that they have not seen perhaps for their entire lives. I'm not saying that's a bad thing by any means.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Disinflationary psychology. I'm pretty sure J. Powell believes that. Yeah. Yeah. I think he does, but I don't think that the way the institutional structure is that wage earners are in a position to demand anything. At the end of the day, they need to work or they're not going to eat and they can't just walk off their job. They can't do that. And so it's a huge disparity of power. And business only hires if it likes to return on equity. If it got to pay too much, they just won't hire anybody. They're not forced to do that. People, even if you're the last guy being hired, you're the last guy unemployed and you get offered a job. If you don't take it, you can't eat. And so you don't have a whole lot of power in there. So I think that it's simple game theory that people have to work to eat business-only hires because it likes the numbers. There's a huge disparity of power here, which will keep wages at some kind of minimum.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Right, it's a reality. Yeah, but a motivating force for central bankers, at least in the developed world, to keep inflation low, that 2% is if people get used to 6% inflation, they're going to demand a wage increase of 10% 8%. So it will feed on itself. So you have to sort of crush this inflationary psychology. I'm pretty sure J. Pal believes that.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“And then the people, the rest of the people who aren't the lowest wage earners have to scramble to somehow save theirs, but the government advantages the lower end. And that kind of indexation can create more inflation. And they just keep giving those people enough to stay ahead. And politically, it keeps them winning elections. And so it's sort of a progressive way to do it, although I'm not, again, making any claim that it's a progressive society overall. But that narrow particular financial aspect is progressive. And that's been done in South America and other places where the political leadership looks to index wages, government wages, to keep up. So their constituency keeps their real incomes up. And they just keep doing it. We denominate them money, whatever. And they stay in power for long periods of time.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, if you get wages leading prices because of, I don't know, you have countries like Turkey where for political purposes they'll get a lot of inflation, but they want to make sure their constituency is okay so they can keep winning elections. So they'll give workers 50% increases so they keep up in real terms and don't get hurt. And that's their political constituency. It works from the bottom up. actually progressive in that sense financially. I'm not saying they're society's progressive, but it's a financially progressive way to do it.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“So inflation eats away at savings and it eats away at a government surplus in real terms. So as you say, inflation itself contractionary disinflationary, like the inflation, inflation reaps disinflation, that there's a narrative that challenges that inflation itself is inflationary because you build this inflationary. Yeah, the wage price, people's price of cereals going up 15% year over year. So people need a 20% raise year over year. Serial company paying 25%. They have to raise prices by 25%. What do you think about that?”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Shortage money defined as net financial assets has defined as savings in the economy. Inflation causes a shortage of savings. It destroys it. And then you've got a deflationary or let's say a contractionary, not so much deflationary, but a contractionary event that causes a recession.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Good question because that last move in oil went from like, I don't know, 30 to 40 or something. We have 25% move. And it would have been hard to stop CPI from adjusting. And it wouldn't have even been good policy to do that. You know, when you have a foreign monopolist setting price like that, either your real terms of trade go down where you just got to export that much more to get the same amount of oil or you adjust your prices and you've got what I call dueling monopolies, right? But I can say that the high rates contributed to the income that was able to pay the higher prices. And they supported the inflation that then brought down the real public debt because the inflation tax on everybody's savings cost everybody to be relatively broke because you had the same money, but it didn't buy anything. So now there's a money shortage. It causes a money shortage. Inflation causes a money shortage.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“It's a little bit technical, but it's, you know, I don't think there's any dispute when you look at it that that's what's happened. Now, somebody else could say, oh, I still think it was the interest rates. Well, that's fine. Counterfactual is the counterfactual. But my narrative is entirely consistent with what happened then. And it was what I was saying back then in real time when it was happening. I was on the trading desk. I saw Fed funds 28 bid no offered on a Wednesday with absurd. Monetary policy we had to borrow reserves. It's like, what's that all about? It's just like, I don't know, I won't go into it, but it was embarrassment as an American to see a Federal Reserve chairman doing that. And then they built a statute to him for having saved the world. But that's the way it is.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“It was a massive inflationary thing going through the economy. And that caused a real public debt to collapse. And we had one of the worst recessions we had. And they credited the interest rates on that. I credited the fiscal collapse because when I looked back at every recession, every economic cycle, there's always been that kind of fiscal contraction associated with every single time. The interest rates were adding income. They were adding to the deficit, but not enough. With the inflation, you had what we used to call bracket creep. I don't know if we call it that today. But when your income doubles, your tax payments double. And you go into a higher tax bracket. So we had this ripping inflation of tax receipts were going up even faster than the government could spend money, even faster than the interest rates were causing the government to spend money. And the budget went into a real surplus where the inflation was higher than the deficit. And we had that collapse.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“So we had a massive fiscal contraction going on. It was a first decline in a real public debt in a long time. An economist pointed it out at the time. And that is what caused the economy to crash, along with what OPEC was doing with the price of oil, which caused a glut in Jimmy Carter's deregulation of Nat Gas, a lot of people to switch out of oil into gas. But that took a while. That didn't happen in one day. But there were all kinds of factors substituting out of $40 oil. Oil had gone from $3 to $40. It was up like 11 times, which is going from $70 to 800, right?”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Deficit, but it goes down because of inflation. People call it the inflation tax, right? And so when Voker was around back then, The public debt The annual deficit was about 6 or 7 percent of GDP in the late 70s, but inflation was 12 or more. And so we had the real public debt going down by 6%.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Right. Also, budget surpluses cause a credit crunch. And you have to look at the budget deficit or surplus in real terms because people's savings are in real terms. You know, I used to walk around with $20 in my pocket and I thought I had a lot of money when I was a kid. I didn't have $20. I had a dollar was a lot. And now it's $200. If you go shopping and you need $200 and prices double, you need $400. If you're Apple computer with $200 billion and prices double, you need $400 billion. The savings needs, the cash needs, the net financial assets of pension funds. When prices double, it all doubles. So they look at it in real terms. How many dollars do we have based on prices? We've got to give an employee enough money to live off of when he retires. You have to look at the public debt and then you look at how it changes from year to year. It goes up by the budget.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, how do you doubt that narrative? Because you're absolutely right. Zimbabwe, inflation, yeah. Interest rates way above 100%, and inflation is close to 1,000. But in developed market countries, Typically, you'll have higher interest rates associated with causing recessions, causing deflation, causing a credit crunch.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“You know, it might be telling you something else, but that's what it's telling me that these rates are direct increase in deficit spending, one for one, because they're 100% of GDP, so you raise rates 1%. Over time, you're raising the deficit by 1% of GDP for every 1% rates. Yes, there's a delay and there's reinvestment. I understand duration, but that's roughly what you're doing. And you keep doing this. We raise rates from 5% to 15%. We're going to see the deficits go up to. From seven to six or eight, you know, to another 6%, it'll be up to 12 or 13% of GDP, which I think is going to be highly inflationary if we raise rates that high, if we go full vocal. Now, what did Paul Voker do? Who happens to be Jerome Powell's hero?”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“And that's exactly right. That's exactly what I've been saying. And now he's going to go back to him again to see if he believes we're at that point where it's been supporting the economy. To me, you don't know until you look at the data. So when I was saying it a year ago, it was pure speculation about what's going to happen. Maybe the propensity to spend interest really is zero. And look, none of the MMT academics jumped on this bandwagon because maybe the propensity to spend is zero and we're going to go into recession. But it didn't happen. Instead, the economy has been growing, which tells us the propensity to spend has been above zero. And that as we raise rates further, it's only going to support growth and employment. We're at a 50-year low for unemployment after raising rates for a year, record number of basis points or whatever. And we're going to overheat if we keep raising rates like this. That's what the data is telling me. I'm one person.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Let the deficit get to where it is today, or you take away your ability to raise rates, it's going to cause inflation. And here we are. And they're silent on it. They're quiet. They're not talking about it. Peter Coy did an article when I explained it. The New York Times about a year ago, and now he's seen it all happen. So I think he's going to come back with a follow-up. He talked to Michael Woodford, who's the number one monetarist. He's excellent, mainstream economist, the Fed's economist. you know he's not He doesn't have this bias and he said, well, you know, you don't know because we don't know about the multiples. But if it does, then we'd have to raise taxes or cut spending to offset the increase in interest payments.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“What Paul said was absolutely correct. And this was straight mainstream argument about why we should not allow the debt-to-GDP to get high. This is other arguments. You can't let the debt-to-GDP get too high because if it does, you better not raise interest rates, or you're going to create inflation. So Japan, the debt to GDP, is like 200%, maybe 160 held by the public. If they were to raise rates, that would be the interested interest payments they would be making would be inflationary. They'd be paying out all this interest to people huge amounts because of debt so high. You pay interest based on the debt. And so that was the mainstream argument against deficit spending to sustain full employment. Of course, my answer was, well, if you have a permanent zero rate policy, it doesn't matter. You're never going to raise rates. You're going to leave it at zero where they belong. But that's a different argument. I'm not going to make that. Well, what I'm saying is the mainstream argument was don't.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Because when they raise race, it increases deficit spending, it causes inflation. And so you've got countries like Argentina with very high rates, and their deficit spending can be 20 or 30 percent of GDP, okay? Not 4% because the rates are so high. Well, that causes inflation. You can't just spew out that much money and not expect to have inflation, right? And so they've got 100% interest rates now and debt to GDP is low. It's only 30%. But that means The interest is 30% of GDP, right? Big numbers.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“About four or five years ago now, when I talked to mainstream economists, like I had a conversation with Paul Krugman, and he was in a debate with Stephanie Kelton on Bloomberg over deficit spending to sustain full employment, his argument to me was, look, I said, well, why can't we just sustain full employment? He said, well, if the deficit gets too high as a percentage GDP, then the Fed can't raise rates to fight inflation because the interest payments at that point would be inflationary because they'd be so high. So the Fed would lose its tool to fight inflation if we let the deficit get too high. So I'm thinking.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, well, I don't go to a social security account, stuff like that, you know, back then. And then after COVID, it went, all the new deficit spending disproportionately went to the economy rather than to Social Security Trust accounts, which is kind of a fixed number.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Right. Now, look at the percentage held by the public. That'll be there. And it was like in the 30s back then. And now that's up around 100.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“I just looked that up from the Fred. That federal debt, total public debt as a percentage of gross domestic product. That change said it was already pretty close to 100% in 2015. So you're saying you're canceling out the fact that a lot of government agencies”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“And the other thing that's happened is the debt to GDP, the amount of debt we have based on the size of our economy, is triple what it was before COVID. So before COVID, we were like 30, 35 percent of debt to GDP. So if GDP was 20 trillion back then, we had maybe 6 trillion in debt. Today, we've got over 100% debt to GDP. GDP of 25 or 6 trillion, we have 30 trillion of public debt, which is over 100%, and the public debt held by the economy, not by intergovernment agencies, is 25 trillion. That's about 100%. So the amount of debt held by people in the economy, not intergovernmental, has effectively tripled. So an interest rate increase has three times the fiscal impact now that it did in the last cycle.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“I agree with you that this money, these dollars are paying out don't have as high a multiple maybe as the stimulus checks. You never know that until after the fact when you look at what people did. And it turned out a lot of that money was saved and not spent, right? Personal savings went way up. If you look at what happened instead of going into recession, we've been growing at, I don't know, 2% and 3% real growth, which is pretty good. So it means pretty good portion of this interest money is somehow getting spent and supporting the economy. And it's supporting prices. It's not a deflationary factor. It's an inflationary factor. There are other deflationary factors like supply chains sorting themselves out and the oil spike from the war, reversing and bringing prices down and whatnot. So, you know, there's all kinds of factors going on. So I'm just talking about one factor. This is not like the end-all for this CPI next month or anything. But what we've got underneath this is”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, but when they pay out interest, it's going only to people who already have money in proportion to how much they already have. So it's kind of like a stimulus check for people who already have money in proportion to how much they have. And it's, you know, multiples, many times larger than the stimulus checks they handed out on the other side. So if you just look at it, I've never seen this debated from a social equity point of view. Oh, we gave out 500 billion stimulus checks, but we're giving out a trillion in a quarter in interest payments, which is kind of the same thing, basic income, but for people who already have money. And it was done by a few people at the Fed. It wasn't like debated in Congress. Do we want to do this? And they're doing it to fight inflation. So they're fighting inflation by flooding the economy with dollars, with money. It's a massive flooding the economy with money. It's a massive increase in the deficit. And so a year ago, I'm saying like, this is not going to cause a recession. This is going to cause a strong economy.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Something like that. Maybe 4% is interest expense. It's a pretty high number. And so We are raising rates has increased the federal deficit, which is a stimulus effect. It adds to income and it adds to savings. And it's like kind of like a stock split or something like that for stock traders out there, right? Or a stock dividend. They're just giving out more of the same thing. And when they give out a stimulus check, it sort of goes to lower income people, right? At least theory.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Right, right. So when the Fed spends more than it takes in, the economists have to debit some account and they debit their capital account. It's a way to keep track of it. It doesn't affect operations or anything else. Now, accounting is just keeping track of what already happens. So the Fed credited an account. They keep track of it by debiting another account. It's called the capital account. You can see that going down. And that tells you how much they credited the other accounts. And it's $6 trillion at 5%. 300 billion a year or something and annual rate. It's up there over 1% of GDP. So it's substantial. Now, if you look at government interest payments without just those two together, we're annualizing it somewhere around 1.2 or 3 trillion dollars, which is substantially larger than the military budget. And if you look at the deficit spending for the country, it's 7% of GDP now or something.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“The former, the interest expense of the treasury going up, if I were to look up the St. Louis Fed, Fred.com, that would certainly appear the interest expense is going up. But the second part, the fact that the Federal Reserve is now losing money because they basically are a bank and they're paying five. That would probably not appear on Fred's website because officially”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“And their income didn't go up, and they were on a They just lost their job, even though there's unemployment at a record. There's three or four million people losing jobs every month or 5 million and 5 million people getting new jobs. So there's millions of winners and losers. So that's fine. I certainly respect that. But let's look at the total first to see what's going on at the, what we call the macro level. At the macro level, government interest expense is going straight up. The amount they're actually paying, particularly when you include the interest, the net interest the Fed is paying. It gets interest from the treasuries, but then it's paying out more, a lot more on these deposits. Because like you said, the treasury rates are fixed. So the Fed's been from an accounting point of view, the loser. It's not losing anything. I mean, they're not.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“That's right. Right. So that might slow down somebody's decision to borrow. But if his income went up, more than that, then he might say, all right, I'm going to buy this house. So if you looked at the number of housing starts in the late 1970s, when people in my generation were paying 15 and 18% for mortgages, we had more housing starts then than we do now when mortgages are 7% because the incomes were going up fast enough to cover it. You know, you can go through the statistics. Most of US history had mortgage rates higher than this, and most of U.S. history had housed that were much higher than this. And our lowest housing starts came when we had the lowest rates because it's a policy move, right? So anyway, but the thing is, at the macro level, if you look at the economy as a whole, there's always winners and losers. You picked out a person who won and there are people who lost who had to get a mortgage the next day.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Yes, and no, if you have a mortgage, 3%, you didn't get any money. Your income didn't go up. Okay, you're glad that your income is not lower than it was, but it didn't go up when they raised rates. It just stayed the same.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“And so they have an immediate effect. Now, it's not identical to. The zero duration that just overnight accounts where the interest goes up immediately because it is delayed, but it still has a substantial effect on markets.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Right, but a lot of those are six trillion of them, are owned by the Fed. They bought them. So the Fed pays interest on the deposits it created when it bought them. And so it shifted people's money from treasury securities to savings accounts to checking accounts to Federal Reserve accounts. And they paid the full rate on that, full five and a quarter instantly goes up straight. So that shortened the duration is the way market participants would say of the portfolio. Now, the other thing is reinvestment rates matter. If you've got a bond coming in in a month or a treasury bill that's going to mature in a month and your reinvestment rate went from zero to five percent, that affects your planning, your behavior, especially if you're an institution. It affects it dramatically. So the effect of rates acts on these securities that haven't matured yet. They're in all the calculations that all these institutions make for their asset liability management.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Only on bills that have to be rolled over, right? If you issue a 20 year note at 1% and then interest rates go to 5%, you're still paying that 1%. The treasury is still paying the 1%. So it's gradual, right?”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Now, if they increase interest rates, on the other hand, which is what I've been on for the last year since they started, you don't even call that MMT. This is just monetary operations Know what does happen? Well, the deficit spending goes up to pay the interest because the government's got $31 trillion of outstanding dollars in checking accounts or savings accounts. They both pay interest now. The Fed pays interest on all the checking accounts. The Treasury Securities pay interest. Those interest payments go up.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“That's right Well, it doesn't change the public debt. It just shifts those dollars that they've spent but haven't been yet been used to pay taxes between savings accounts and checking accounts at the Fed. That's all that QE and QT does. It's to shift them back and forth. So what does make a difference is spending when you buy something that makes a difference? Or taxing. When you take debit people's accounts, that makes a difference. But not shifting dollars between checking and savings accounts of the Fed, not QE and QT. It was an enormous experiment and it showed all the statisticians it doesn't do anything. It has a placebo effect. People who think it'll do something might change their behavior. So it has a placebo effect. No question about it. But it doesn't have an actual effect on monetary on the economy.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“So, when the Federal Reserve expands its balance sheet via quantitative easing QE or reduces QT quantitative tightening, that does not change the government's deficit or surplus, correct? That's right. That is the government spending money such as it did in 2020. And that can be inflationary. Yes?”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Under the belief, at least it used to be, that that would somehow affect inflation. Now, all this QE and QT has demonstrated, I think, beyond a shadow of a doubt that it has no effect on inflation. But those are the tools they use to move. Dollar balances between checking and savings accounts. So nobody even looks to see if Bank America's checking accounts went down and savings accounts went up. I mean, nobody thinks that affects anything or JP Mortgage. But they still think that when the Fed Reserve Bank does it, it affects things. But fewer and fewer people recognize that. And the market hardly recognizes it at all when they do it. You might get a small movement of market prices. But most market participants realize that it makes absolutely of no consequence to the macroeconomy where these dollars are checking your savings at the Fed.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Room when that happens. And that happens the 15th of every month. I don't know how many 40, 50 billion dollars or something. When Treasury Security is mature, they debit the securities accounts and credit the reserve accounts. So all they're doing is shifting those dollars back and forth. So look, all the public debt is or all the dollars spent by the government that haven't yet been used to pay taxes. The government spends, some gets used to pay taxes, the rest sits there either in checking accounts or savings accounts, and they perform these operations to move it back and forth between checking and savings.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Called securities accounts at the Fed, okay, which are accounts that own Treasury Securities, so like savings accounts. So if the reserve accounts are the checking accounts, the Treasury Securities, the Treasury builds notes and bonds are the savings accounts at the Fed. So the Fed, when JP Morgan buys Treasury securities, the Fed shifts those funds, a debts their reserve account and credits their securities account. So the trillion dollars goes from one account to another account at the Fed. JP Morgan has the same trillion dollars at the Fed. It's in a checking account in the first instance and in the second instance it goes to a savings account. And that's all that happens. And what happens when that savings account matures? The Fed transfers some money back to the checking account. It debits to savings account. So the number goes down and credits the checking account. So the number goes back to where it was. There are no taxpayers or grandchildren.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“So let's say that the spending for the year is $5 trillion. So they spend first one way or another, either the Treasury or Fed. There's now $5 trillion in those accounts. Okay, maybe $4 trillion is used to pay taxes. And so the Fed subtracts $4 trillion from those accounts. Debits those accounts for $4 trillion. Now there's $1 trillion left that could be used to pay taxes, but they've already paid all their taxes. And so what happens to that last trillion? The Treasury comes in and sells a trillion dollars of securities and the banking system, or it's mostly the clients of the banks. I mean, the banks do the buying, but it's on behalf of clients. They don't own most of these, but they buy those securities. What happens when they buy them? The Fed debits their reserve account. They had a trillion dollars in these accounts that the Fed to zero, so now there's no more money in the reserve accounts. And then it credits what are...”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“You got to watch the word money depending how you define it, right? So their reserves have gone up as the Fed, okay? So let's look at the sequence because MMT was about the sequence. That's how I used to call it. So the sequence is the government spends first, which adds to balances to commercial bank reserve accounts at the Fed.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“70, 73. So it's been true for a long time. But the important thing is, yes, there is a restriction that not that the government can't spend first, but the government's agent and treasury is not permitted by Congress to spend first. But between a Fed and Congress, they have to spend first. So the Fed does this walk around where they fund the purchases of these securities, give the economy the dollars first, and then those dollars can be used to pay taxes or to buy government securities. Now, when they did what's called quantitative easing, they just don't do this in advance. They came in and bought trillions of dollars worth of securities, added these reserves, spent first, and then those funds can be used to buy new government securities. Sometimes they'll do it years in advance, right?”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Deal with right now, so And so, again, if If the private sector, if the banks need to, the treasury won't have an auction. They might sell 20 billion securities. They'll settle on the 15th of the month. The banks don't have $20 billion to pay for these securities. So the Fed will come in and buy securities on a one-day basis. It's called a repo, it's a loving, and add the $20 billion so that the dealers can then use that money to buy the treasuries or they can buy the treasuries and borrow the money from the Fed to do it.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“The Fed is not permitted to buy treasuries from the Treasury. They have to have bought them in a private sector. They'll go into the private sector and they'll say, look, we're buyers of tenure notes or two-year notes. And then the dealers have to offer to them. They have to maintain their market share. They have to be competitive. If their prices haven't been good and other dealers have been getting them, the dealers left out have to give the Fed better prices or they're going to lose their status. So it's a very competitive market. They don't make any money on it. But they do it as an entree into the market for the largest institutional clients. So it's a very clever thing for the Fed to do this. They get very good prices. It's not a boondoggle for the primary dealers per se. It does allow them access to the large accounts where they believe they can make some serious money dealing with those people, but that's a different matter. They're going to deal with them anyway if they can. And so, and those people need somebody.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“The Fed will lend the dealers if they need it, and usually they do. It's called repurchase agreements. We will lend you the funds to do this. Okay? And so they say, all right, we're selling 20 billion. Treasuries today were buying, we're selling 20 billion treasuries. The primary dealers will come in with an offer. And the Fed will sell it to them. And it will loan them the money to do it. And they'll do that at a price that makes them happy. And it's kind of a lost leader for these dealers.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“But Congress came in and said, No, you can't do that. So the Fed has set up a walk around. All right. Well, what they do is they have a system of primary dealers. There used to be 42 when I was there. I don't know how many they're here now. Probably 20 or something. But they have a system of primary dealers where the primary dealers are required to buy government securities when the Fed sells them to maintain their status as primary dealers, which they have to maintain. Otherwise, the large institutional accounts won't deal with them. Your large pension funds and other insurance companies' accounts will only deal with primary dealers. So the Fed kind of has that on the primary dealers. It's got a little leverage on it. So it says you have to buy these Treasury securities. You can buy them. You're buying them at an auction. They'll go to the person offering us the lowest yield. And you have to maintain your market share. And we will lend you the money to do it.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“Technically, when you look at it very closely, that is adding money first, adding dollars first to the economy before the economy can pay taxes or buy bonds. That was the initial MMT understanding that everyone had this backwards. Congress had it backwards. It's the taxpayer who needs the government's money to be able to pay his tax. It comes from the government. It doesn't come from himself. You can't generate it. If he does, it's called counterfeit and there's rules against that. And so, and that's free online book, Seven Deadly Innocent Frauds of Economic Policy. It's really a pamphlet. It's about 65 pages. And so people can get that online at my website, most of economics.com. Now they'll say, oh, but the Treasury is not allowed to run an overdraft at the Fed. Well, that's a congressional restriction. Operationally, the Fed doesn't care if the Treasury has a balance or not. They can credit the account of JP Morton.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT
“The other way around. And the whole process of making sure that the funds are there so that payments can be made is called offsetting operating factors. And I'm only telling you this because that's the job of every senior staff member in the central bank at the Fed is to, quote, offset operating factors because these accounts are going up and down all over the place for a lot of different things, checks and float and payments and process and bounces when the treasury account runs its balances up the commercial bank balances get run down. And these are all called operating factors. And it makes sure to offset those operating factors to keep positive balances in the accounts of the commercial banks when it's time for them to make payments.”
2023-06-01 · Forward Guidance · Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT) · IDENTIFIED FROM THE TRANSCRIPT