Warren Mosler is an economist, hedge fund manager, and proponent of modern monetary theory, an economic model that posits fiscal crises are caused by governments not spending enough money. From Mosler’s perspective, the reversal of any recession starts with getting very comfortable with deficit spending. Opponents argue that unchecked spending eventually leads to inflation of the currency and economic collapse, which Mosler argues is impossible as long as you know how money actually works. We dive deep into chartalism, the theory about the creation of money that sits at the heart of MMT, lay out why deficit spending doesn’t have to lead to inflation, and why the Federal Government’s checks will never bounce. To read more about Modern Monetary Theory and Mosler’s take on it, check out https://moslereconomics.com/
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00:00 Go!
00:03:05 Do interest rates actually influence inflation?
00:11:36 Purpose of taxes is not what you think
00:19:26 Economy as faith based activity
00:27:22 Feds have no idea where money comes from?
00:37:33 Fed lacks tools to control inflation
00:53:37 Interest at the Treasury is unnecessary
01:07:00 Informed democracy & decision making
01:20:15 Michael Hudson
01:25:11 Why are we poorer despite the GDP?
01:41:53 Weimar repeat possible?
02:06:44 Threats from external economies?
02:28:58 Oil demand can’t be ignored
#sciencepodcast #ModernMonetaryTheory #MMT #Macroeconomics #FiscalPolicy #GovernmentSpending #Chartalism #MonetaryTheory #DeficitSpending #Inflation #EconomicTheory
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welcome back to demystify S today we have a conversation about economics specifically we are exploring the basics of modern monetary Theory with one of its Originators Warren Mosler Mosler has been both an inventor and an investor and has a pretty unique perspective on the way that the economy works at the heart of modern monetary theory is the question of where does money come from and how is it that the government can spend into a deficit and not have that be absolutely catastrophic for the economy and we get into it all the way through so basically the argument is that the government in order to collect tax revenue which allows it to do stuff must first create money and so the creation of money is the inherent aspect of the economy that allows it to keep functioning but moser’s argument and the argument of most modern monetary theorists is that the people who are in charge of the economy don’t seem to know very well where money comes from or how it should be distributed through the economy in order to get to what we really want which is full employment and the public services that we need that include everything from infrastructure to health care to education and so we unpack moser’s ideas we unpack the theory we unpack the ways in which it plays out in the world and in the ways in which it fails to play out in the world over the course of the next few hours and what we’d like to do is pit these ideas against some folks who completely disagree so if you guys are listening to this and you have some ideas about who we could talk to on the other side of matters please put those suggestions in the comments or come over to Discord come over to Facebook we are everywhere we’re on X and of course the show is entirely supported by listeners that means that everything that we are able to put towards this program comes from our patrons and we love our patrons and we love to hang out with them every single week we do a zoom call with our patrons figure out what’s going on in the world of science economics Society ideas philosophy and that’s absolutely everything to us here so if you can carve off the tiniest piece of your paycheck give us a couple dollars a month you can join that crew and you can make sure that we continue to put more and more time and effort towards this project indeed come over to patreon.com dystify you can find us there donate a a couple dollars a month and in the meantime enjoy our conversation with Warren Mosler and we will see you next time the Scientific Revolution Starts Now podcast us see the [Applause] [Music] dark there’s this thing that people want to fix which is inflation after covid prices started going crazy people were pointing to all kinds of different things that that were causing it from corporate greed with uh they were what was the what was the media term greed flation or something like that where corporations were just setting prices higher because they were taking advantage of a crisis and the idea historically has been that the FED can regulate the interest rate and by regulating the interest rate can directly affect inflation right and that’s that’s the narrative that’s the narrative and the idea is that as you raise the interest rate you lower inflation because there’s less money circulating in the economy for people to just be able to do stuff yeah that’s the narrative now if we look at the debits and credits the dollars and cents the only thing that happens when the FED raises rates from the government’s point of view is that the deficit goes up government deficit spending goes up because the treasury has to pay more money on the new Securities IT issues and the ones that are maturing being rolled over and uh at the time about 25% of those were uh in the form of just excess reserves at the FED because the FED had bought about Six Trillion government securities and paid for them with balances at the Fed so people who sold their government securities got paid and had money they had dollars at you know in accounts either at the fed or in a bank that was holding them at the FED on their behalf and and that the interest that gets paid on that is called interest on reserves and there’s another account you don’t need to know about it’s called the RP account but it’s the same thing the interest on those funds um is daytoday so when the FED rais rat from zero ultimately to five and a half percent those funds earned zero initially and now they’re earning five and a half perent 5 3 a actually be exact so the only thing that happens when fed raises rates other than they make an announcement is is that they start paying more interest on reserves and the treasury starts paying more interest on treasury bills notes and bonds that it issues so this increases government deficit spending it doesn’t decrease it it’s and when you increase government deficit spending you’re throwing money at the economy for all practical purposes you know because the money doesn’t you make this case the money doesn’t come from taxes the money just comes from created by the government to then pay that interest yeah so when they way to think about is that when they raise interest rates they’re increasing spending but they’re not increasing a tax to pay for it it’s just like increasing spending for the military without increasing the tax just start paying the soldiers and uh we’ll get into technically how it’s done but the effect is they’re just adding that much that many dollars to the economy in one form or another initially it’s just uh credits to your account you had $5,000 in your account now you have 10,000 it changed a five into a 10 so initially that’s what happens deficit spending adds that much uh income and financial assets to the economy and when they raise rates all they’re doing is increasing the deficit now the the deficit spending has gotten over six and a half maybe it’s as high as 7% of GDP right now which is extremely high that’s maybe higher than it’s apart from the covid thing it cut a little bit higher after the 2008 crisis but counter cyclically in other words it went higher because the government had to pay a lot of unemployment because unemployment shut up and tax revenues fell off because eight million people lost their jobs and so that’s called um under cyclical deficit spending where in a collapse the deficit spending automatically goes up those are called automatic fiscal stabilizers okay that’s happened before and that deficit spending during a crash let’s say Works to reverse the economy and as the economy covers tax revenues are restored and unemployment compensation goes down and the deficit goes back down and so during the expansion uh you know in 2006 the deficit got down to 1% 2007 about 1% one and a quarter percent of GDP even with the tax cut and uh this time we’re running a deficit of six and a half s% of GDP during an expansion with unemployment at a record low okay and grow growth at real growth at 3% type numbers sometimes 4% this has never happened before I I found no incident in history where we’ve had a proactive deficit spending policy of deficit spending anywhere near this much and it’s um you know it’s what anti-deficit people would call Drunken sale or levels of deficit spending right and it’s it happened for well the the interest component is you know it’s like 60% of the of the deficit you know of the 6% of GDP maybe 4 per or a little more is is interest expense wasn’t there also a huge expense that was during covid all of the stimulus payments that got paid yeah that happened and that was a you know one-time event and those have all wound down they’re not being paid anymore transfers does that still like sit in the deficit accounting though of you know like five years ago we spent all this money and haven’t really made up for it yeah that adds to people’s savings adds to accounts right now the public debt is 34 trillion which include 34 and a. half trillion goes up very quickly which includes um inter agency so that includes dollars in the Social Security trust fund for example that are in treasury Securities so but if you just look at the public debt held by the public and not inter into you know within the government uh it’s maybe 25 trillion that represents all the dollars that the government has spent some of which were used to pay taxes but 24 a. half trillion have not yet been used to pay taxes now what modern monetary Theory offered to the world first back in 1993 was the idea that they the the the models the economic models have the sequence backwards they they all believe everybody in Congress believes they have to get tax dollars to be able to spend and what you don’t get through tax taxing you have to get them through borrowing to be able to spend okay not to balance of books or anything but you actually need that for the purpose of spending what I showed back then was that and something everybody inside the FED already knew since time in Memorial that the dollars to pay taxes and the dollars to buy government securities come from the FED they come from the government the FED is an agent of the government right it’s an agent of Congress Federal Reserve Act they come from the FED they don’t come from the private sector which is interesting in that President Obama once made a statement saying that the money comes from the government and he was shouted down by the investment Community saying no the government doesn’t produce real wealth the economy produces real wealth the government gets its money from the economy and he agreed and backed off now they mixed their metaphors maybe the real wealth comes from the economy but we can argue that but certainly the actual dollars come from the government in fact the paper money signed by the treasury secretary and if you try making it on your own in the economy it’s counterfeit and all the credits to Accounts at the Federal Reserve Bank come from the Federal Reserve nobody reaches in and like at night when they’re asleep and puts credit balances in there they have to credit the accounts themselves like any other bank nothing comes from the outside so before we because I you you have a really powerful set of metaphors and analogies that you use to to make this case but before we get too far away from this question of yeah deficit and GDP you’re say you were saying that there inflation an inflation I I want to see if we can put a bow on that before because the interesting thing here is that you you seem to think that deficit spending isn’t the the boogeyman that it’s cracked up to be well it is what it is okay it’s okay so if we start with the sequence where government has to spend first or the economy doesn’t have the funds the credit balances to pay its taxes you’re in a very different place and if you start with the idea that the government has to get dollars to be able to spend okay I like I like how in your book you set up this analogy if you were going to build a new government from the ground up yeah you you wouldn’t have an ability for people to pay taxes because they wouldn’t have any money to do so with so you have to put some money out there in the first place and it really brings up this question of what is the purpose of taxes if it’s not actually to pay the government and and it has and so there’s baked in there a very interesting purpose for taxes that goes unsorbed so back to our point about what the public debt is it’s the dollars spent by knowing the government spends first you know so let’s say the public debt is going to be two trillion this year well what’s the breakdown well the government first spends 7 trillion just for a number on what it is and then five trillion of that is used to pay taxes and you two trillion is not used to pay taxes so it sits in accounts you know on behalf of whoever got the two trillion which is corporations individuals non-residents could be anybody but you know they’re in the non-government sectors it’s not the government the government paid that out that was the government spending of 7 trillion five trillion comes back that’s why it’s called Revenue it returns it’s a French word for return and two trillion sits there in government securities cash or what they call reserves those are just credit balances at the FED until when and if they get used to pay taxes there’s nowhere else for them to go they will just sit there now does 7 trillion cause problems it might yeah is 7 trillion the right number I mean it maybe it may not be we can look into that question but to understand what the public debt is in isolation it is the dollars spent by the government that haven’t yet been used to pay taxes think of the as tax credits they’re the things you need to satisfy tax liabilities that’s all everything else is a derivative of that right and so the government can spend these things because ultimately people need them to pay taxes people earn more than they need they go to work for the government you know they sell things to the government and they receive 7 trillion of these they don’t need all those to pay taxes they only need five but they want to receive 7 trillion you know they wouldn’t be working for the government and selling at things you know at the macro level but they do because they want to save two trillion we can get into why they want to save two trillion and there are very powerful reasons why they want to save at least two trillion and maybe more of a year but that’s those are just the number those are the numbers those are the real numbers there’s no dispute about this the government spend seven five gets used to pay taxes two are left as Savings in the economy and they equal to the p Cash Plus reserves plus treasury Securities you called them public debt earlier though yeah yeah those are the outstanding tax credits that can be used to pay taxes therefore it’s for accounting terms it’s a liability outstanding tax credits are liability so technically if the if you want to circularize the economy fully you would raise taxes in order to erase the public debt so there was absolutely no SP what is what is circul just in the sense that like if you wanted to have a perfect balance of like the government puts seven out and then get seven not because you’d want to not because you’d want I’m not saying that yeah but you’re using the word perfect so I’m I’m going to push back a little bit just like mathematically symmetrical yeah you want equal you want but this is important because these other things become value judgments said guide policy sure yeah you know like we’re suffering a deficit well okay what do you mean suffering okay we want it to be in perfect balance that we’re imperfect now what what do you mean by perfect you’re just talking about in math IAL equality you’re not talking about a value and that’s that’s important for the discussion and I’m not like trying to pick on you personally for this but I’m showing you what I’ve been up against for 30 years yeah well it really it circles around the central value structure here which is what is the cost or the danger of running that deficit year after year yes yes so what what is you know so number one we have to understand why the government can even do it why do people sell things for that much more than they need to pay taxes the government has to create or work to create that kind of a need in the economy to even be able to do that it’s driven if nobody wanted the extra two trillion and when the Government tried to spend it prices would go up and it wouldn’t be able to do it okay it has it’s it can only happen now let’s give you an analogy here and let’s look at the uh the movie theater so everybody knows that they sell the ticket first and then they collect it okay they don’t collect the tickets first to be able to get them to sell because it’s their tickets technically they do buy them from someone like they like someone from the movie tip but what does buy mean they exchange something of value to get it right sure so you buy dollars from the government by going to work for the post office in that sense okay the government is is selling its tickets to you in exchange for your labor it’s selling five billion of them to get an aircraft carrier it’s selling its tickets and it has to get the tickets sold or out there or give them away or something before they can be used to go to the movie you know to to to uh satisfy the tax liability which is a negative uh reward right as opposed to a positive reward you buy a ticket to go to the movies because you want to watch the movie you pay taxes to avoid penalty it’s the same thing just a different sign and so you know it’s mathematically the same thing so now when the government sell when the movie theater sells its tickets or the football stadium sells tickets before the game those tickets are outstanding if if an accountant was to classify those and you looked at the books for that Stadium those outstanding tickets are liabilities of the stadium they’re a debt and for accounting terms because Stadium owes you the right to come in and sit in that seat the government owes you the right to pay your taxes and ex and U you know eliminate your tax liability with those dollars and so that’s why it’s called the debt for accounting purposes public debt now that becomes associated with all kinds of other things that are debt the broad category and it’s misleading but it’s not wrong okay so you can’t say it’s not real Deb it is but what you could say is you know debts are you know I’d say it’s a their liabilities are all liabilities debts yeah for accounting purposes they are if you promised your son a college education then that’s a debt okay it’s a liability now uh if you promise to take him out for a walk tomorrow that’s a debt it’s a liability now you can doesn’t cost you anything you just go out for a walk but it’s still a liability that’s very different than if you promised him you know gold or something you didn’t have and then you had to go get it and he could Su or whatever so there you know I understand all that and people who try to make something of that have just you know they just hear these narratives on in the media and they pick up on them and it’s not really their fault because uh you know you can’t expect them to get beyond that on their own I don’t think so at least I’ve never seen it happen well I think that people worry PE people worry after currency moved away from the gold standard yeah that this feels really faith-based like the economy feels like a faith-based activity in a way that it didn’t they imagin didn’t feel that way when there was a gold standard yeah because they don’t understand the the nature of tax liabilities it’s it’s if the government stopped enforcing tax liabilities it’d be no currency the the the faith is only in the fact that the government’s going to enforce tax liabilities if if you want to use the word faith now because that’s never even discussed I’ve gone through whole macro textbooks and they never discuss the role of tax liabilities as a default condition okay if it’s not that I mean what is it I mean they don’t even say it’s not that they just it’s just omitted and so without that knowledge you got to come up with some reason and they they just default to Faith okay but it’s it’s if it was faith it would have been gone a long time ago nobody has any faith in this stuff at all they do know that if you don’t pay your tax you’re going to lose your house and your car and you could wind up in jail you know like Al capoen right that’s what got him didn’t pay his taxes and so um you know that people know but it’s not used as the thing behind the currency and so they don’t make that Association and when they ask someone about it that’s not what they get for an answer and they and the top economists never give that for an answer because they don’t understand it or the the significance has not dawned on them and so that’s where this whole Faith thing the whole fear of the sky falling comes in you know it’s just fear Ming but it’s you know not necessarily deliberate fear Monger so in a condition where the debt is such a high ratio of the GDP and inflation is really high the fear seems realer than ever right because everybody has visions of Zimbabwe with their $10,000 bills and wart Germany carting around wheelbarrows of cash bread like we know two are the ones that come up that’s the only two they know by the way exactly you know one one that had a food famine that wiped out the whole country so the money there was nothing to buy and but I I did a whole piece on that and there’s a lot more to it the other the viar Republic you know got hit with massive reparations under the Treaty of Versailles that they couldn’t pay so they had to um pay but with deficit spending of 50% of GDP a year something like five % a month to the Allies so there’s a sense of that acts of God it’s not explained you know right right and there acts of God and acts of geopolitics seem like they could really ruin things let’s go back to the numbers so you said inflation’s really high it’s at three and a half percent it was at like 10% for a spell last year I like I personally will tell you we look we eat a lot of peanut butter peanut doubl yeah yes and so there’s lots of things in there that I like I look at and I’m like it’s really weird because the the inflation the CPI or whatever says that it’s 10% but I’m looking at things that are jumping 100% in price yes yes and that always happens as those are shifts in relative value you have that you know I remember a few years ago soybeans jumped and they doubled you know then they happen to come back down but they might not have I’m not saying they would but we have three and a half perent as the Consumer Price they can argue that that’s wrong and it’s really high you can we did have a one-time jump after covid to about 10% that’s now the now the rate of increase has slowed back to more of a normal thing and uh but when I look back you know I’m 75 this year uh you know I can remember under vulker we were running I don’t know 12 15% types of inflation sustained okay and I remember fed funds rate one day I was at my trading desk looking at the screen there were 28% bid no offered okay okay and does mean you know oh that means the interest rates people were trying to borrow a 28% Banks were from each other and couldn’t find anybody to lend at that rate they they you know all the borrowers were at higher rates or not at all yeah so those those were what I lived through for a long time and I can go through tech details uh 79 to yeah 80 1978 79 80 881 yeah okay and uh so maybe I’m a little jaded from now but this is not extreme okay but it is certainly undesirable and it’s not what anybody wanted and you said something else in there when you talked about um you know it’s been a few minutes but if you can I don’t know if you can remember how you asked that last part where you well I said that so people have this fear about inflation because it’s uh seems to be that currency is partially faith-based you addressed that but then I said that it seems like acts of God and acts of geopolitics undermine the system because there are external things that can happen and I think that everybody’s really afraid of the position that the United States is occupying in the world right now not being the same powerful one that it was in the post war yeah yeah and I think all that matters okay you know Switzerland’s had extreme stability for a very long time without inflation or anything else it’s a tiny country and there’ve been power big powerful countries have evaporated you know their economies have evaporated it’s not it’s not necessarily like how large you are or not isn’t of consequence but the fear mongering in the media is behind I I’d say all these fears that you’ve listed maybe there’s some fears that aren’t behind it but yeah the world is unsecure okay if suddenly all the food is gone it doesn’t matter how much money you have you’re not going to have any food prices will go up sure but giving you more money isn’t going to get you more food at a you know the macro level at the collective level I really appreciated how you use that in context of Social Security and you had this really illustrative example where it’s like if you have one guy who’s doing everything for a population of 30 million seniors it doesn’t matter 300 mil like it doesn’t it doesn’t matter what what how much money they have if he’s not producing enough for them to actually be able to buy Goods with the money that they have right and this seems like the same thing yeah the Social Security narrative is that the trust the problem is not this um dependency ratio but that seniors the trust fund’s going to run out of money the seniors won’t have the funds to afford to pay this guy to do everything that’s the narrative the N you never heard anything in the narrative about you know how we going to get our productivity high enough so that a limited number of people able to work or able to take care of all the rest of us you don’t even hear that discussed well I think that’s what the robots are for right and then they say the robotss are bad because we’re all going to lose our jobs okay so that back a full like concrete narrative here it seems like this is the economics in general because it’s so nebulous like the the time scales on which a decision plays out are long the factors that go into the outcome of that decision are complex and so economics is scientific but it also seems like the place where everybody’s fears about everything right collap but but but you’re starting from a base understanding that’s 180 degrees out of phase and that leads to all these other narratives that are just pure fear mongering and there’s nothing else out there except the fear monitoring that stems from you know outof phase understanding of the actual monetary system is the present monetary system driven by public demand essentially like why are all these brilliant people making these categorical mistakes misconceptions did you did you see the Jared Bernstein there uh video out about a week or two ago where it’s from the documentary finding the money it’s about a oh yeah where he where he basically can’t explain where money from yeah they asked yeah they asked him the question like if the United States United States government prints money and it also borrows money it’s like why is it doing that he just he just starts fumbling around yeah because he doesn’t understand it but he’s no different than any of the others I’ve met in government in finance anywhere they’ve got the narrative wrong now if you ask me that question I say sure the government prints the money which means credits accounts when it pays people for things and then after it spends the money is when some of the money is used to buy treasury Securities we sell the treasury Securities after the money is spent to provide uh an interest bearing uh place for people to keep their money now why we do that is because of a an anacronismo standard but you know we don’t need to do that anymore but we’re still doing it we’re kind of an automatic pilot since 1934 so the answer what the government’s doing is it’s spending first and then it’s borrowing the money after it spends now why is that so hard for Jared Bernstein because he’s fixed on the idea that I circling back that the government borrows money to be able to spend it okay and that’s wrong and it can’t explain that simple uh question about why are we printing money and borrowing money and now if he understood the sequence properly he said well yeah that’s because we spend the money first and then we borrow it after next question okay but he can’t say that a because he doesn’t know it and if he did happen to know it he might not say it anyway because he might not want that to be you know you might not want to create the Panic that that would start because that undermines every economic model you know you know in every economics Journal that’s been written for the last 100 years they’ve all got G minus t government minus taxes which presumes that the taxes are what’s funding the government and it’s not the tax liabilities are causing people to sell things which then allows the government to spend its otherwise worthless currency which then provides the funds to pay the taxes that’s the proper sequence the movie theaters know it the football stadiums know it you know every you know Jesus said Render unto Caesar that which is Caesar they all knew the coins came from Caesar and that you needed to let you know sell things to Caesar to get the coins to pay your taxes they all knew that this was common knowledge up to maybe I don’t know 250 years ago and so I think the the worry is that those dollars will become worthless to other countries like I think the AC geopolitics is the okay there is that worry but you’ve got everyone is a Jared Bernstein out there who’s in policy who’s in finance Jamie Diamond’s no different who’s got this backwards causation or you know sequence in their mind and coming and can’t even explain what the government’s doing okay and that the once you have it backwards then you’ve got the you create a narrative to explain it that drives all the fearmongering that you’re talking about if they if he understood it the way I just said sure of course we print the money and then when people get after they get paid they buy Securities next question if they all understood that what you’re saying would not be in the Public’s mind it would not be the narrative and we wouldn’t be discussing it how hard is it to turn this ship around I mean can you can you get a audience with these kind of people as there it’s hard for me to believe that they’re completely in the dark and they haven’t heard these ideas before and your book is littered with examples where you explain this to powerful people and then you hear them the next day revert back to the same narrative that they always use yeah you know Larry Summers was a good example when I was at Tom Dash’s office and he um it was basically the same fundamentally the same question that Jared Bernstein was asked where I said what’s wrong with the deficit and he said well it takes away savings that can be used for investment not understanding that the spending first and then those funds that were just spent are used to buy the Securities there’s nothing taking away okay and when I said to him no they just offset operating factors at the FED which is technically what how an Insider would say it now why would I use technical language to Larry Summers I never met him before and it was kind of out of respect Harvard Professor two uncles with won Nobel prizes I don’t want to start talking in you know non-technical language and insult the guy you know as if he couldn’t understand it but he comes right back and says look I don’t understand monetary operations so I can’t discuss it at that level just no understanding at all he was assistant treasury secretary at the time and I had another conversation with Robert Rubin who was treasury secretary it’s the same thing it’s just not what they do or care about they don’t even care about now I’ve visited uh people at the fed and over the years just as a investor you know part of the investment finci Community they wanted to talk to people to see how their policies were being accepted and I was a guest and there were small meetings myself and the uh contact who invited me so I wasn’t there to teach them anything but I was certainly observing what they were saying so when I was at a meeting with chairman banki in uh maybe 2006 he was between stin as Vice chair of the FED he’d been there four years and then after that he became chairman of the FED he was head of the Council of advis I think he had Jared Bernstein’s job okay time and he made statements like we’re talking about interest rates he said well when the investment picks up and uses up the available funds it’ll drive up interest rates I’m going like what you know where does this come from he just been at the FED for four years he’d been at the end of every meeting they vote on whether interest rates should go up down should you know they should raise them lower them or leave them up unchanged after the discussion if they vote up they go up if they vote down they go down if they vote unchanged they’re unchanged and he says if investment picks up it’ll use up the available funds and drive up rates what if some investment Force going to grab his hand and vote higher rates or something there there is is this a if you’re a hammer everything looks like a nail kind of thing I mean it seems like their only lever is this interest rate business he came yeah remind me to tell you that other this anecdote from the Fed so he came he just came from Princeton he had no idea how monetary operations worked which was painfully obvious during ‘ 08 where he just bumbled his way through it much like voker did and he probably build a statute to him for saving the economy when actually it’s the opposite he prolong the agony but um you know so and during he his disseration was done in like 1930 gold standard that was the context and how that affected the recession and the depression okay so he’s talking from a gold standard context which has been gone since 1934 and uh under a gold standard yes if investment picks up everybody’s bidding for the available funds which are gold certificates which are limited by the amount of gold and they drive up the interest rate okay but that’s that’s an anacronym that’s been gone for a long time and this is a Fed chairman and that’s the model he has in his mind so you’re correct that he has this wrong model in his mind now a few years later I was with a guy named David Wilcox at the FED who was their uh number two guy had a re he wasn’t head of he became head of research he was number two at the time he was talking about quantitative easing they were just that was at the time after the crisis where they were buying government securities and he was talking about how it probably wasn’t going to cause inflation and I said yeah well I wasn’t I said look I’m not concerned about that uh you know my what I find interesting is that when you you bought these Securities and the Securities paid interest to whoever held them 3 4% whatever it was at the time and you pay for them by giving people Reserve balances at the FED which at the time the interest rate was zero so the economy went from earning all the interest on the treasury Securities that the FED bought to earning no interest on reserves that the FED used to pay for those Securities it’s like you sold your saving account put your money in a checking account you moved your money from savings to checking so you no longer earn the interest on your savings account and your checking account you don’t get anything me you did it voluntarily and I understand the economy did that voluntarily because of you know the situation in the economy people were scared but I said what you’ve done is removed 90 billion of interest income from the economy I said I don’t see how that’s going to support any kind of growth the lower interest rates you know when you’re removing that much interest and you know I asked him matter of factly just like that that’s all I ever do and he would we were having a conversation just like no the three of us are having and all of a sudden something snapped and he went into another gear and he goes look we only have one lever in its interest rates and we believe lower rates are expansionary you know end a discussion it’s like sorry mean to like hit this Live Wire so I don’t know where that came from maybe they’ve been having some internal discussion about this but it’s exactly to your point about U well it sounds like frustration that the tools to solve that problem are out of their hands perhaps it it sounds like it’s a it’s a bigger rework of this entire structure that goes beyond the FED that needs to occur and I I feel like they’re expressing some so something yeah so it used to be backwards back then and so my forecast back then was the cut to zero rates was going to have a long sluggish recovery wasn’t going to be you know uh they were talking about should this be u-shaped or v-shaped and I was saying it’s L-shaped we went down and now we’re just going to go sideways that’s exactly what happened and it nearly cost Obama’s job right because the economy was really iffy the whole time so um but something interesting happened with covid that is the public debt as a percent of GDP I’ll just say tripled it’s not quite that but pretty close okay that meant that if the FED were to raise rates again with the public debt Three Times Higher the same 1% increase in rates would mean three times as much of an increase in government deficit spending because they have to pay interest on the entire public debt right so if the debt is three times higher relatively speaking they’re going to add to the deficit three times more relatively speaking so back then a 1% increase might ultimately add 3/10 of a percent of GDP to the deficit today a 1% increase adds a you know ultimately a full 1% of the deficit so they’ve raised rates from you know to over 5% and they they’re now contributing something like 4% to the deficit four 4% of the six and a half or seven is interest expense and uh it’s not the full five because there’s a lot of the public debt is still longer term Securities and haven’t mature yet rolled over at the higher rates but a lot of it is if you look at the graph of the interest paid by the government it’s going straight up it’s over 1 point it’s over a trillion dollars a year annually it will probably be 1.5 by the end of the fiscal year so it might be 1.2 now and you know so that’s like about 4% of GDP and so um if the public debt had been smaller instead of 34 trillion total 20 trillion then that interest would have been paid on a smaller amount and the interest expense wouldn’t have been as large so now it has three times the expansionary impact the inflationary impact on the economy whatever it is than it did in the past so this is a dramatic shift that you didn’t hear anywhere till I said something now the irony of this is I had a conversation with Paul Krugman an an exchange we use emails mostly and not very many but at the time he was having an exchange with Stephanie Kelton on Bloomberg over government deficits and job guarantee and funding unemployment things like that and he had said that the uh funding her program to keep people employed would be unsustainable so off to the side I just asked him like like what do you mean by unsustainable I mean you know the government checks aren’t going to bounce he goes no no that’s not going to happen so he agreed with that that there’s no solvency issue he said the problem is in the new Kian model and he’s the new Kian model that when the public debt gets large enough that it takes away the infl interest rate as an inflation fighting tool from the FED that tool is removed because when the debt is large enough when the FED raises rates they’re paying out enough interest government is to make to make it expansionary and inflationary and so raising rates is no longer an applicable tool for fighting inflation and I said okay fine I agree with you this was three or four years ago and I said I think I said number one I think we’re already ready to that point this is back when the debts of GDP was 35% and the data was telling me we were already at or near that point and so I don’t I think the FED already doesn’t have that tool so it doesn’t make you might as well keep your full employment going if you’re worried about that and uh secondly that’s you know I to that to your point I’ve proposed a zero interest rate which would keep the you know which would eliminate interest expense eliminate that government expense and and be a deflationary event just like it’s been in Japan for 30 years and he disagreed with me he said no I think we can still raise rat to find whatever the conversation ended uh a couple of years ago I got back to him and said look the debt to GDP is now three times higher do you think now that the fed’s you know that tool of raising rates to fight inflation has been taken away from the FED that is going to cause strong economy and higher inflation you know they got it backwards he said no I don’t think so he said I think raising rates is still a uh contractionary Force it’ll slow things down and it’ll bring inflation down okay so you know it’s a uh honest disagreement let’s say because nobody has real numbers uh nobody as a model that can look at every interest payment in the economy and figure out whether it’s going to get spent or not or where it’s going to go to there’s certain things you have to uh they’re they’re all estimates but in the last two and a half years of course what’s happened is as the interest expenses increased the economy has firmed and and flying in the face of every forecast out there continues to firm back in November they were already talking about six rate Cuts because the economy was going to be and their forecast were for a collapsing economy maybe not all the way to recession but down to zero or something like that and unemployment going up to 4.2% you know and so they would be inflation coming down to there two and so they’d have to given that forecast the you know that would be coincident with them then lowering rates to take away some of what they call restriction that was November that’s all gone why is that gone because those forecasts for the economy for unemployment have turned out and for prices have turned out to be wrong and that’s been going on for two and a half years if you look at every forecast it’s been for you know that type of thing and the reality has been the opposite you know every quarter for two and a half years and they’re still on it and they’re still expecting one rate cut at the end of the year because they think the rate hikes will finally kick in and along the way we’ve had all it’s confirmation bias right svv bank has liquidity crisis and the confirmation bias kicks in see the banking system is going to collapse we’ll be cutting rates before you know it and all of a sudden the Market’s forecasting low rates then it doesn’t happen and everywhere along the way every little thing that happens you know the unemployment the total employment was expected at 250,000 it’s only 175 see it’s weakening the econom is collapsing and we’re going to have lower rates down the road you know it’s just confirmation bias the fact that government hiring for that month dropped by 7 $5,000 for where it’s been didn’t factor in now in previous months where government hiring was 75,000 they say oh see the econom is really weak it’s just the government so you got all this confirmation bias at every inch of the way just hammering home that things are bad out there and uh you know I’ve been talking too much I’ll let you guys asked some questions here well what the first thing that that I wonder is once you’ve taken the move of lowering rates to 0% and you have such a high percentage of debt to GDP are you basically stuck then at 0% because every time that you raise rates you aggravate the problem well hopefully you are uh you know there I’ve not seen an argument to not have zero rates that ever made any sense my base case for analysis is a model of my model is you start with a tax liability say a property tax on everybody’s house that creates let me back up one more time you have a government that wants to provision itself it wants soldiers it wants Public Health wants a legal system wants education wants whatever how do you get people out of the private sector into the government well we we do it by starting with a tax and I use my base case of property tax tax on everybody’s house payable and something the tax credit is the doll something nobody has it’s it’s a credit to an account on your own Central Bank that you can only get from the government uh that creates a population that’s suddenly unemployed as we Define unemployment they’re looking for work paid in dollars uh and they were willing to work for dollars because ultimately they need dollars to pay their tax or they need dollars to buy something from somebody who needs dollars to pay the tax okay the government can now hire people and spend its otherwise worthless dollars tax credits okay they come to work as public health workers or soldiers they get paid and now they have the funds to pay their tax which they do and that ends the cycle and how do we know it ends the cycle well some people pay their taxes with old $20 bills as I have in the book and you can buy the shredded money in Washington okay that’s the end of the cycle you’ve got your $ thousand ticket to the Super Bowl game you sell it for $5,000 to somebody else you go to the game the guy takes your ticket tears it up why is he tearing up a $5,000 ticket it’s used up it’s the end of the cycle okay it’s the same thing could be simpler anybody can understand this uh you know unless you’re bombarded with an alternative narrative from the time you’re born and everybody around you has the same alternative narrative and then you got a the odd of getting out of that obviously you’re pretty slim it’s I’ve been on this for 30 years and it’s just now getting to the level where somebody like yourself will have it in an interview takes that long well so if are you suggesting that property tax should be the only tax that people are subject to in that way so sales tax so I start with that as my so my base case has a property tax it’s got the government paying people and it’s got um uh any anyone who wants to work it’ll give them a job and it pays them and that’s it so that’s the uh what’s call the job guarantee it’s a zero rate policy it’s not paying any interest on the people earn extra money then the government’s not going to pay any interest on it and that’s my base case and you’ve got to give me a good reason why an income tax is a better idea than a property tax for me to deviate from my base case the burden of proof I would say is on you tell at the end of the day the role of the taxes is to incentivize people to work it seems like yeah yeah yeah it’s to compel them it’s coercive and if it doesn’t do that the government can’t provision itself there’s no military and you lose the war and somebody else’s system is in place not yours so uh now my wife and I were at Pompei have you heard me tell that story so it’s about six7 years ago we jumped on a public tour there walking tour and at one point the guide showed us these coins that they had found in the ashes in what you know was 2,000 years ago what used to be somebody’s pocket or what used to be in the mattress of somebody’s bed or what used to be in a cash box of some Merchant or just in the street and he said uh Pompei was a very nice place to live he said they it was uh taxes were high but Public Services were good and so people wanted to live there what they did was they collected these coins for taxes and then they used them to pay people to be sanitation workers and Public Safety workers and police and that type of thing so you know I’m basically Troublemaker at this point and I said well you know actually they would pay the people first and then they would collect the coins he goes no no no you collect taxes and then you pay the people I said well where did the coins come from and they weren’t valuable coins they were cheap metal coins they weren’t gold or anything like that I said ‘ where did the coins come from and he said ‘th government made them and I said ‘ okay well how did anybody get a coin to pay the tax and he goes so they have to pay people first and then collect them I said well yeah how else could it work he grabs his head like this and he goes no no no no no and he ran away from me okay and he went talk for the rest of the tour he’ been doing this for like 20 years right now I assure you everybody in pampe knew how it worked it was a tax probably on your house I don’t know something like that and people needed to pay the tax so they’d show up how could they do that well there were jobs for police and sanitation people would show up for that they pay was more than enough to pay their tax they’ show up for work and then they could buy their pizzas from the pizza maker who didn’t want to do sanitation work he wanted to make pizzas and the guy who made shoes and the guy who sold them insurance and whatever else entertainment at the shows and they um and they would you know buy um trade what they had ultimately to somebody who did the work and the coins would circulate that way down to till they were eventually used to pay taxes okay well they found 20,000 coins in the street like how did they get there well we know they came from the government right the government spent more than it collected it must have how else could they get there that’s the public debt they paid out 100,000 over those years and 880,000 were used to pay taxes and the other 20,000 were in cash boxes and what would have been somebody’s pocket and laying in the street somewhere in the gutter the archaeologists found them okay they didn’t pay any interest on those coins it was a zero rate policy they probably hired anybody who wanted to be a sanitation worker who is capable okay they so they didn’t have unemployment probably The Way We Know It uh and and everybody understood it so they understood that the public debt was manifestation of the Savings in the economy right that was the money supply in the economy that was the net those were the net Financial assets the net money supply in the economy and in a growing economy you’re probably going to it was growing the population had doubled it probably be 40,000 coins in the street public would be 40,000 it’s like so what were now how would the accountants have accounted for those coins in the street those are liabilities of the state that’s the public debt did they owe them anything did they owe them the money well it already is the money they owed them the right to use those to pay taxes it’s exactly the same today but back then everybody understood it it was completely transparent completely obvious and nobody was complaining that the public debt was too high or something like that what were those coin is worth they yeah so it sounds like basically what you’re saying is that maintaining a public debt is what gives people spending power in the first place the tax no well no no so the the ability to spend the money is driven by taxes because everybody has some the ability of the government to spend the money not the people but what about like so when the person’s just holding well people yeah it’s the thing people want to hold the money right so this brings up the idea of reserves and stores and people opening these savings accounts essentially with the FED through buying government bonds and so forth and when you have a savings account then the people are holding on to that money and the government then has to pay them interest on the money that they’re holding they don’t have to they decide to nobody paid anybody interest in PPE that that’s a policy choice I would never do that so that does push everybody into the the um into the stock market well let’s look at what it does so let’s say you’re running the government in pompe and you start paying interest on those coins and let’s say you pay enough interest so people can pay their taxes with the interest you pay how many sanitation workers are you going to get showing up from work nobody nobody’s going to need those coins anymore if you’ve got a tax requirement of 50,000 coins a year or whatever it is and you pay out 50,000 in interest you know that’s the money that’s it you might as well not have done anything you’ve undermine your ability to provision yourself okay but if there’s a way to make that money without being employed like let’s say that you spend 10 years employed you collect some amount of money and then you invest that money really well into the stock market and the dividend so you’re get yeah you’re getting off on attenion here a little bit yeah and I can I can do this but it’s going to take us away because it it it all comes back at the macro level to the same thing let’s say that people in Pompei invested with each other and they had those things by the way they had uh they had private Banks they had you know a you know that was all invented back you know way back then in ledgers and paying interest to each other and whatnot but from the state’s point of view at the end of the day the only thing that you could actually use for pay taxes were those credits from the state either the coins from the state or credits the state made to accounts on its own books and you could have all this other private money circulating you could have one person’s asset another person’s liability massive corporate liabilities which is what Equity is that other people will pay for that’s all fine but Underneath It All that’s not what you need to pay taxes and when the way I can explain it quickly here so we don’t use up our whole three hours which we could is that those 20,000 coins in the our 34 trillion of public debt is the equity that the credit that supports the entire credit structure including Equity prices which are just debt at the bottom of the credit stack those are all supported by the public debt and the public and the deficit every year that’s where the income comes from to support the credit structure and that’s what I touched on earlier about we can go into reasons why people save and they’re very powerful institutional reasons that drive to it and that’s chapter six in my book you know all the tax incentives to cause you to want to keep money in the in the cash box it’s tax-free things like that you get all kinds of special like incentives toh not spend your income and that’s where the analysis comes in of U you know a lot of macroanalysis starts about what happens if people don’t spend their income they call that the Paradox of thrift you go to the United States today and 34 trillion is a GDP that means 34 trillion was spent and 34 trillion was earned by whoever sold what to whatever was spent it’s the same number you say what would have happened if the people who earned that 34 trillion decided not to spend any of it well then they never would have sold anything to begin with there would have been no income and no sales and no employment and everything would be at zero okay so that’s called the Paradox of thrift if everybody decides to save and not spend anything then everything goes to zero you people if your decision to save will cause your save if you’re the one guy who was earning the whole 34 trillion your decision to save that would cause your income to go to zero because nobody could spend the money that you’re saving to begin with okay and that’s goes back to what’s called underc consump Theory and it was first written out in full in like 1598 or something so it’s nothing new I’m not didn’t to Ser but it’s what I want to say it’s been obvious to anybody who’s ever looked at a monetary economy like pompe that this is what would happen if spending went to zero just there’s no income so again I got a little bit off track I thought you might want to hear this the story of where the price level and inflation comes from yeah and the reason this is a good time to explain it is because the Pompei model is will give you a perfect understanding of that and so you say what was a coin worth in Pompei what determined how much you could buy if it value was changing which we call inflation what possibly could have been causing that so now you have a model we can understand there’s a tax on your house people go to work to earn the coins and pay the tax so what’s where’s the price where prices come into this so now we have to look at the only possible place prices can come in and is what did the government pay people to work in being a police officer or sanitation worker let’s say it paid them $10 10 coins a day I don’t know what the coin was called so let’s say they paid 10 coins a day now the economy can figure out what a coin is worth because now the pizza maker knows I really don’t want to go be a sanitation worker um but I could and I could make 10 coins a day but rather than that if I can sell my pizzas for 10 coins a day I’d rather make pizzas so if I can make 10 pizzas in a day I get my and sell them for one coin each I’d rather do that okay and the the guy who the sanitation worker says I’m getting paid 10 coins I’m going to eat one pizza a day you know if I can buy one pizza for one coin if I can get 10 days food for one day’s work all right I’ll be a sanitation worker yeah I could make pizzas sell them for a coin a piece but you know they come up with it’s called a um some kind of mutual you know understanding of it’s what Market forces that’s how markets work buyers and sellers get together what they think something’s worth and they settle on some sense of relative value what’s a pizza worth versus having to work as a policeman or a sanitation officer and that becomes the price of the pizza so let’s say it’s one coin a day becomes the market value for the pizza and then you’ve got every other product out there that’s being sold pair of shoes might take two days to make so they might take be worth 20 coins okay or pair shoes whatever it is and um and it’s not going to be exact just because the labor hours are the same because some labor is more distasteful for others some is highly skilled if somebody’s a doctor he might be able to get more you know because he’s been trained there’s fewer of them and they’re supplying demand and all these things that we don’t have to detail right now we just have to know that the market once they know guys it’s 10 coins a day to be a police officer or a sanitation worker the market can figure out the rest now let’s say the government says all right let’s give we’re going to give everybody a raise a pay increase and we’re going to pay 20 coins a day for a sanitation worker or a police officer just to be nice right now what are all these other things worth well they’re going to adjust accordingly the pizza makers there I’m not going to sell my pizza for 10 coins I’ll go work for I can get 20 coins doing that but if you give me two coins for a pizza you know I can make 10 a day I’ll keep making pizzas okay and vice versa okay and the sanitation worker is not going to pay you know $4 for a piece of pizza but at $2 or two coins I’m sorry I keep get us Centric here at two coins he’s making 20 it’s the same 10% of his pay for pizza and so prices go double price of a pizza doubled from one coin to two coins the price of a pair of shoes doubled from 20 coins to 40 coins because the government by deciding to pay twice as much for the same thing has redefined the value of its coin downwards okay he’s defining the value when he pays people to work for him why is that what what part of Economics tells you that that’s economics 101 it’s called Monopoly okay when you don’t have competition when you’re the single supplier you’re the price Setter you have to set the price there’s no Market to tell you anything markets are based on competitive Force it’s not on one guy having something the other guy needs or he going to lose his house that’s a coercive situation it’s a non-market situation that the producer of the coin who’s got the is also the tax man is dictating the terms of exchange there’s no other way to do it now if he instead said I’m gonna you know I’m only going to pay you five coins a day now you can get two slices of P two pizzas for a coin right or you can get a pair of shoes for 10 coins instead of 20 the same two days work okay so it’s the government that’s read denominating their coins so if the value is going down if you’re getting inflation which is a continuous increase in the price level it’s because the state is continuously increasing the prices it pays at the margin for what it’s buying somewhere in the economy we can’t identify it as sanitation workers necessarily but somewhere there’s this marginal thing that on a continuous basis the government through its spending through what it’s paying whether it knows it or not today’s government have no idea it is dictating terms of exchange to the economy and so and it may be getting dictated too and not know it and say okay I’ll do that but not knowing that it’s pitching and the economy’s catching it might think that it’s catching in the economy’s pitching but it’s not the United States government is the sole source of the tax credits needed to not lose your house or your car or go to jail it doesn’t understand the consequences of that it seems like death by thousand tiny Cuts in some sense if you have all these people making these decisions to spend to pay more for services than they’re worth is that is there any way to to sort of wrangle that in well specifically the government pay for services yeah that’s what I’m talking about yeah yeah yeah so when the government does contract if it just gives its cronies you know 50% markups on everything that’s one thing if it goes through this procurement thing where it’s competitive and you have to have bids and you got to make sure you’re like whatever then it gets better prices well that’s that’s another thing well it seems this seems conspiratorial and so I hope that you’ll forgive me for it but it does seem like we’ve entered an era of immense cronyism where there isn’t oh that’s not true we’ve always been in it okay it’s okay is that is that better I don’t know that might be worse it’s a human condition right you it’s it’s how it’s how it’s you know it’s something we have to deal with and put into our put in safeguards the best we can in our institutional structure but it’s going to be there I don’t think who’s in the power to do that to put those safeguards in place how how does Real Change happen well I’ll tell you one way it doesn’t happen is to have you know a backwards understanding of how the monetary system works a backwards understanding of interest rates so I’d like to feel my contribution is to at least have an formed electorate under the theory that’s maybe not so solid that you know a representative government I prefer to have an informed electorate to an uninformed electorate I be wrong and that that may have a worse outcome but that’s my confirmation bias that’s my that’s my bias aggressive bias I believe that’s that’s absolutely true the problem is in the age of information everybody has there’s millions of perspectives there’s not really these monolithic uh sort of platforms people can get behind right it seems like everybody has their own take and and there’s so much information and disinformation misinformation weaponized information and and people the the the proliferation of information doesn’t seem to have made people more if I can on the same if I can if I can give the information Beyond dispute that sustaining full employment optimizes a real standard of living and all these other all this other fearmongering about the dollar and inflation everything is complete nonsense here’s how it works and everybody understood that now let’s take a vote rather than voting on it in the context of we can’t do that because we’re going to have inflation and the dollar is going to go down and reserved currency and OPEC and Petro dollar all this nonsense okay we’re getting you know it’s like you know we’re against having like the Russians influencing people’s vote through the internet right this is times worse in terms of getting desirable outcomes right so uh so my mission so to speak is to have an informed electorate as to what’s going on what are your policy options what are the consequences of decisions only because I think it’s so simple and So clearcut based on maybe the my error that 250 years ago everybody understood it from the bottom up wasn’t any body who didn’t understand that and even today there’s nobody who doesn’t understand that the movie theater doesn’t have to collect the ticket first before it sells okay if anybody can understand that they can understand our monetary system and then every everything falls into place that’s all it takes right and they and so that’s what I’ve been trying to get across for 30 30 years now 1993 now you had a really interesting perspective on this full employment situation that sounded a little bit like the CCC or something like that yeah well um it sounds like it but it comes from a different place okay even and even then they were worried about the deficit and spending and taxing and they’re going to get the money from and this kinds of things they weren’t just looking at offsetting really operating factors you know the savings desires back then had shot way up uh because going into debt is reducing your savings so we always have well let’s get into why people save so much you know don’t spend their incomes to begin with which creates this whole need for deficit spending and which is the thing that’s categorically like that everybody’s categorically opposed to so we’re creating a need for something everybody’s categorically opposed to which is a based on a misunderstanding right but that need you know that’s chapter six in the in the book which really a pamphlet right which is um the myth is that we need savings to have money for investment so if we want to invest in something the money has to come from somewhere where the the fact is and there’s actually no dispute about this in economic solity don’t talk about it that investment creates the savings what we call savings the asset we call investment has a liability which we call the savings and so savings is only the accounting record of Investments not the cause of investment never has been never will be and that goes back hundreds of years in the understanding of accounting and economics and everywhere else but it’s been common sense you got to have the money because the government needs the money first you know because we got the money backwards this has become common sense that we need savings to have money for investment and so Congress loads us up with all these savings incentives to drive investment when all it ever all it does is keep investment down so our investments half of what it would have been less without these savings incentives but they don’t know that so what are the savings incentives well we have massive tax advantages for having part of your paycheck going into your pension fund you avoid all income taxes on it so you might save 30% right so if you’re getting paid $1,000 and you’re only going to take home 700 you know if you put $300 into your um pension fund you don’t have to pay the $100 tax on that that’s only costing you to you’d only take home 200 after that instead so you can take home you know 200 or you can put 300 into your savings what do you want to do of course everybody’s going to put it in there it’s going to compound without taxes they’ll show you that after 10 years you’ve got you know 117 zillion dollars that would have been paid in taxes and so everybody has their maximum withheld by Pension funds people put money in their IAS because they don’t have to pay taxes on it so so you get to put money that would have gone to the government into your IRA people now are putting up solar and wind because you get tax credits you get to spend money that would have gone to the government 40% on your solar system so we have these enormous tax incentives to not spend your money or to direct it in certain ways and um that last one’s a different example so I’m not saying it’s not a good example so let me just stick with the pension contributions we have uh Banks and insurance companies who can account for things as going into a reserve for the future and not pay taxes on it until they actually use it fine so we have all these uh massive government incentives to not spend our income okay and that um um causes us to have a deficiency of spending right a spending Gap as Bill Mitchell likes to call it where you know ‘s all this GDP people things are getting sold things are being bought but the people who are getting the income don’t want to spend it all well then how does it get sold well the identity is that for last year’s GDP let’s say was 34 trillion for everyone who spent less than their income someone else must have spent more than their income otherwise it wouldn’t have been 34 trillion so if people saved four trillion and didn’t spend their income it means some there would have only been 30 trillion in spending and not 34 well where the other four trillion it has to be from people entities businesses who spent more than their income and it’s more than four trillion it’s a very big number might be seven or eight or 10 trillion okay and so um and so well who spends more than their income well if you buy a house with a mortgage you just spent more than your income you’ve accelerated your spending if you buy a car on credit you’ve accelerated your income if you use a credit card you’ve accelerated your income if you’re a business and you sell bonds and and invest you’ve spent more than your income if you’re the government running a deficit you’ve spent more than your income any entity spending more than its income is said to be deficit spending spending more than their income okay and so what we have is all the unspent income is offset by all the deficit spending that deficit spending is public deficit spending plus private deficit spending and that’s just a accounting identity it’s always equal it’s not a theory there’s no dispute we know for a fact that if 34 trillion was spent last year for every dollar that somebody’s you know every dollar of income that somebody didn’t spend and then saved it was another dollar that somebody else spent that was more than his income that was deficit spent might have been a private deficit spending might have been government deficit spending so the deficit spending totals the remaining savings to the penny and and the accountants figure that out and if it’s not to the penny they made a mistake and you have to stay late you know and find your error how does it how does it balance so so equally because it seems plausible that you could have people that save more than they spend right so let’s look at Pompei the government and they found 20,000 coins in the street so that means the government spent 20, ,000 more than they collected right now could it be anything different or is it right down to the last fraction has to be exact right or else somebody didn’t made arithmetic mistake or lost a coin or something but we know it’s out there somewhere if the government spent it and nobody didn’t collect it for taxes so this is the same thing it’s just a two-sided Ledger we know that if 3 if 34 trillion was spent how much was earned how much income was there 34 trillion okay the income is called GDI gross domestic income the spending is GDP gross domestic product so one side measures the output that was sold and the other side measures the income from that okay and it has to be the same because if you sold something you know if you paid for something somebody earned the money spending has there is no income without spending that’s a definition so if you have somebody that just takes let’s say that nobody spends more than they earn and everybody just takes the cash and they put it under their mattress and that’s just where do cash come from the cash came initially from the the government okay well then the government spending is equal to the income I see and if the government and if the government didn’t tax then the government was deficit spending if it taxed it all back nobody would have it it’s just a it’s just another way to say the same thing you know it’s like if I take a bowl of jelly beans and cut it in half you say well how do you know that you have the same amount as on both sides well it’s because I told you I cut it in half you know a it’s a way to to look at things it’s we’re not actually doing anything we’re just looking at them and so a lot of people put their money into these retirement savings accounts where the a lot of the the Holdings are treasury bonds and various other very safe government Investments and so the government is paying income on those and that’s as you’re saying is deficit spending but then what happens when people dump their money into the stock market Market well they’re buying when you buy stocks you’re buying it from somebody who already owns stocks the bank will debit your account Che checking account and credit the seller’s checking account then your the seller’s Securities account the stocks will go from his account wherever he’s keeping his stocks to your account it’s just a transfer but is there any drawback to a larger and larger proportion of people putting their money into the stock market as a way of beating the let’s say that the government does go to zero interest rates and so it’s not paying out anything to these retirement funds and everybody’s dumping their money in the stock market now is there any drawback to that well if you know for again for every buyer there’s a seller so what you’re actually observing is price is changing on the stocks not necessarily money there is no money going in and not coming out there’s no money going in there’s always the exact amount coming out is going in with every initial public offerings and things like that are the generation of of yeah so novel stocks right yes and that that those funds would be going to the corporation if you sell you know selling shares and that would be going to the shareholders of the corporation goes to their account the the account at the bank account doesn’t disappear when something’s purchased it just goes to whoever sold it I mean that that all seems very very reasonable and I guess the why why do people want to drive the public debt to zero then just because they want to see a balance sheet that’s balanced sometimes yes just the deficit per se is the devil word de they’re just categorically against it other times they’ll point to Zimbabwe and byar and say that’s what happens if we don’t and never connecting the dots because those dots don’t connect so and they’ve just got all these fear-mongering narratives in their head about why we should do that okay so pinned down they can’t support their argument they never have nobody’s ever prevailed on that argument with me not even close I this stuff is so interesting to me because it’s so Central to everything like everything yeah are you hearing this from anybody else I mean I think that the closest that we’ve gotten to it is actually you’re not going to like this is Michael Hudson yeah because I think that Hudson makes the point where he’s like people don’t actually understand economics and they think that they do and he he diverges from it to say that you know the the roner economy has has run away with GDP and that GDP is not a good measure for prosperity and that I think that he actually thinks that debt is really bad for people to maintain personal debt personal debt and so he’s really big on the idea of like a debt Jubilee yeah which I told I me I haven’t talked to him in a long time but that’s that’s called bankruptcy we already have bankruptcy laws if we don’t like the bankruptcy laws we can just adjust them but he won’t do that he’s intellectually dishonest in that sense he likes he’s the whole debt jubil sells and he gets a lot of attention he goes around talking about it and to just say you know uh we need to modify our bankruptcy laws so that students can go bankrupt if they can’t pay their student loans as opposed to saying we need a Deb Jude for to you know it’s it it would he just wouldn’t U sell as much soap you know what I mean what do you make of his idea that GDP is the incorrect metric for for the prosperity of a people well everybody agrees with that I mean that’s there’s nothing new there he’s somehow got people paying him to go around and say it I guess but uh look if we go out and pass you know really strict marijuana laws and put two million people in jail and build jails and guard them there’s a of GDP there and so what you know and like I used to say you know you could deficit same with deficit spending you know we can deficit spend to build a Panama Canal and our whole you know our real standard of living goes up because of all the shipping that gets saved by not having to go around the horn and uh or you can spend the same amount of deficit spending blowing up to pan canal and knock everybody down a couple of notches so yeah the numbers are what they are and the fact that people try to make more out of them is is more of the problem than the numbers themselves GDP was set up I think originally so the government could figure out what its potential uh tax uh take could be you know because was a government on a gold standard worried about wish they had to how much revenue they could collect and so you had to have some idea what the size of your economy was financially to know what kind of a Financial uh receipts you might be able to get out of it what do you what do you make of the blossoming of personal debt and this idea that the average American household is something like $100,000 in debt to to various creditors and so forth are you talking about the public debt their share or their actual debt like the actual de debt as dist I mean I think that the way that this is calculated is that they take the public debt and then they divide it by the number of households and so each household carries some share of that whether mortgage or carp I thought were talking about no so let’s say we were in Pompei and there 20,000 coins in the street and there were thousand people living there you’d say Okay each one had a debt of 20 coins you know you could say that because they’re part of the government liability head debt but it’s not anybody’s burden or anything in that sense as if they had a a debt you know uh some loan shark who’s coming after them for money or anything this is just a money supply so you know to use the public debt that way and I don’t know that Michael Hudson does again I haven’t spoken to him in 20 years now is uh we’ll have to get them back on you it’s it’s anually dishonest yeah but I mean people do carry there are a lot of households that spend more than they earn right and so oh yeah yeah the average the average household is the households on total or net Savers again not that it matters and if you look at Debt Service now how much they’re spending as a percentage of their income it’s at historic lows it’s way down there were times when it was much much higher and so uh you know what do you think because interest rates were on the loans are high well they’re pretty high now but if you if you’re just uh it’s because they have less of it relative to their income so if you say okay we should have less private debt you say okay nobody should have a car unless they can pay for it first it’s like you know nobody can buy a house they have to be able to pay cash you know what what are you what are you trying to say you know what I mean in terms to the real world how you want it to operate well this comes back to this question of of runaway inflation right because if you it does it does it only if you bring it back to that but it doesn’t there’s no not per se okay well okay so let let me let me try something on precise so you have a situation where let’s say in the 1950s it was possible for a family of four to own a house on a single income and obviously if you adjust that for inflation if you if you adjust that for inflation they weren’t necessarily that much cheaper than houses are right now but something has changed in the way that we occupy space and resources that has driven us which is my point exactly yeah and now both parents have to work and just to get by so we’re actually a lot worse off in that sense now now part of it is our the things we want to own if got or more you know nobody has cell phones and things like that so well the houses the houses are bigger too right and now instead of having one car you have two cars and there’s all we had two cars we had two cars you could you know three or four dollars an hour back then you could have house and a couple cars and send your kids to school state school was $300 a year it was paid for by the state that’s where I went to University of Connecticut um so where where’s it all going yep okay so it’s all going sadly tragically to compliance costs real compliance costs what does that mean yeah so I like to start with the biggest one out there the low hanging fruit and and the you know in the financial sector which is part of the same thing uh to give you um an example when I started in 1973 previous year we had uh I worked in a savings bank uh made $140 a week in the loan department and we had um we used to take in deposits at 5% make mortgages at 8% Which is higher than today there were 2.6 million housing starts that year this year we’re at 1.4 million the population back then was I don’t know 180 million maybe 200 million today it’s 350 million so about half the people and twice the housing starts what is a housing start uh somebody building you know building a house when uh somebody starts playing a foundation gets a permit and starts building a house so and it takes about a year for construction so housing construction we’re building twice as many houses okay with half as many people and the financial sector back then it share of profits was maybe 5% of the S&P 500 now it’s maybe 40% 35% or something like that and and today you know it’s considered a bubble if we get to half what we had back then with this massive financial sector so obviously it’s got nothing to do with our ability to build houses and go live in them and finance it was all done by people making $140 a week who you know go off and play golf at four o’clock and didn’t do much except Tak in deposits and make loans we don’t need all the rest for anything obviously or we would have been deficient on some of this stuff back then but we weren’t we had everything we needed financially okay and so what’s happening is we’ve got millions of people making a lot of them huge money so to speak taking it away from you know we got this massive distribution of incoming consumption that the people working are supporting with other people who are doing what a m to digging holes and filling them in some are digging the holes and some are filling them in it’s nothing useful for the real economy so I think for income taxes if you think about that if we replace the income tax with the property tax how many people how many man hours women are tied up in tax compliance keeping records of all your taxes for income tax keeping all the receipts all the trees cut down to make all these paper receipts all the corporate recordkeeping all the lawyers uh tax accountants and tax firms Tax Strategies and U people going to school to learn taxes and accountants uh you know JP Morgan spending probably 20 billion dollar a year on account armies of accountants that are tied of with tax related issues all the legal system that’s tied up in all the people have to go to law school to learn it and if you you know all the people you go get your income taxes done all those people have to be able to do it you got to get over there you’re burning gasoline whatever all all the real resources we’re using for tax collection now if we didn’t have the income tax I mean the government wouldn’t even have to know you your name okay the only reason you have all these records about pay and everything else is to pay taxes on them the government would need to know any of that and the government itself employs I don’t know how many people keeping track of everything and auditing and everything else uh and um if you go property tax like we have now where each house has to pay a tax you don’t have to have any of that if the house doesn’t pay you sell it you don’t even have to know who owns it okay so the compliance costs go from maybe 15% of our Workforce down to like nothing tenth of 1% or something like that now what advantage is that to us not to have 20 million people’s worth of time you know which is what it is maybe higher TI doing something that we don’t have to do we could just go to a property tax what you know what’s it what’s what could these people otherwise be doing okay they could be curing cancer they could be growing food they could be you know doing uh you know writing software and doing all kinds of things we could all have the day off we could cut back 20% in our hours and have more Leisure Time you know we could you know there’s like no telling we we’d all be 20% we could have you know that much more in terms of Public Services public transportation free public education all these things would be quote paid for by having this labor time freed up from what it’s doing now it would be there to do things like public education and transportation now if you look at who would benefit by this enhanced these enhanced free medical care who who would benefit from these enhanced Public Services the medical care public education public transportation it’s all people in the lowest income groups who would benefit the most because people in the highest income groups already have all the medical care they want you know they they’re not going to go from you know they’re flying in private jets once a month they’re not going to go to twice a month you know it’s not doesn’t affect them at all whatever the standard of living is is not function of how much money they have or anything else so they’re their standard living stays the same so all the gains will ACR to the lowest income groups you’re talking about 50% increase in the real standard of living of a substantial part of the population just by eliminating the income tax and it wouldn’t cost anybody anything everybody has more it’s a positive sum game you’re eliminating waste If you eliminate government securities with my zero raid policy permanent zero raate policy how many people are tied up in government securities you know a lot maybe a million I don’t know you know all the banks all the Traders all the people involved in them all the recordkeeping all the the whole cottage industry of people making five 1020 million a year doing this stuff is gone you know it’s like killing the Buffalo so the Indians can’t eat you just get rid of the government securities and youve taken away the food supply these people are feeding on let’s look at the uh Money Management Group in the financial sector how large is that silly thing all the Pension funds all the pension fund managers all the Wall Street dealers that feed off of them which you know and their entire industry if we that’s all being fueled by our savings incentives that are creating the pools of money that they’re feeding off of we’re creating the feeding the wh you know creating the whales that the sharks are eating if we just stop doing that there’s another 10% of GDP maybe more you’re talking about massive increases in the real standard of living and real well-being just from those two things you know that’s you know is loow hanging fruit would you then have to increase property taxes though yeah but the total tax bill wouldn’t be any more than it is now with the income tax let’s say goes to 10% flat 10% and so on a $500,000 house you’re paying $50,000 a year of taxes but you and your wife and you’re paying no income taxes no sales taxes no anything else it’s you already it’s the same number it’s just getting redistributed and you can there’s some experimentation with this in the Northwest here right I believe Washington no they can’t they can’t they can’t take away federal income taxes not federal but at the that’s a big one right yeah that’s the big one the states can’t do it they can toy around with it but they can’t do it is there any country that has even approached this no no and why just because so my favorite answer to that is you must be new here I am I am I am but so is there an answer to that or is it just the kind of gesturing at interconnected it starts out it starts out with having the sequence backwards from the beginning that I started with right that’s the but unless you get that right you’re not going to get to the rest of it very difficult you got to get past that the fact that there’s this you know sort of democ hanging over your head called the public funds and you gotta you know and it’s just like what do they call a ticking time bomb look up ticking time bombb in the deficit and you’ll see like every public speaker you can imagine talking about this thing from every business leader every Bank president everybody in Congress and that we’ve got to do something about this ticking time bomb and it just paralyzes everything so okay the argument for the fear of public debt is is at its base inflation well there is no base they’ll come up with these things it’s like the kid who gets to ask him a question then he shows the wrong answer so comes up with another one you’re fighting a Hydra you can hit one head two more grow somewhere else there are some people who will say inflation then you put that away and they say oil and solvency and then oil if the debt grows faster than GDP is unsustainable and I mean you’ll have then they’ll start showing these intergenerational budget models that have an implication you know have assumptions that they don’t even realize they’re in there so I I you know you just you can get to the end of it but it’s it’s a process especially if it’s like a Wharton Professor you know but you will get there and if you sat me down with somebody like that find somebody who thinks there is a problem and’ll have us both on at the same time see how long it lasts it come what’ll happen is after all his answers have been shown to be wrong going well if people knew this they just spend like crazy on free things and the whole and that would be inflationary it’s like okay you know either you believe in informed electorate or you don’t right and and so they can always fall back on well we don’t believe in an informed electorate we think you have to keep people scared and stupid otherwise the economy won’t work it’s like okay I can’t argue with that well so let’s take apart this the the your argument for why this doesn’t cause inflation because you said that the dots don’t connect between Zimbabwe first of all yeah why it what is it that causes or doesn’t cause INF uh deficit spending Japan’s public debt is 260% of GDP ours is 130 okay Japan’s had zero interest rates for 30 years and Japan’s annual deficit has been much higher than ours and no inflation oh Japan’s an exception okay well we had that you know after 2008 we had zero rates for 10 years well that was an exceptional period Well Europe’s had it for 10 years so that’s an exception I started three currencies at universities and they’ve had no inflation well there’s a small economies and you know there’s always like excuses okay but we’ve got every example out there you can imagine or just massive examples showing that these things are not per se inflationary and uh you know yet the confirmation bias turns them into it’s a special situation it’s because the people in Japan are really Frugal and all all this stuff it’s just complete nonsense of course but go ahead I think cultural effects do let’s go to let’s go to viar so they lose a War World War One the Treaty of heride puts huge War reparations requirements on it and they have no GDP is collapse because there’s nothing there and they are forced to deficit spend which any country can do sell Securities because it spends first and then sell Securities so whether they know it or not they can all deficit spent even in Zimbabwe even in your worst Latin American inflations they were all selling securities offset their deficit spending so the argument that they were monetizing and all that is not is not caal that had nothing to do with it every one of them had government securities so vmar would spend okay deficit spending of 50% of GDP they do it to buy foreign exchange they have to buy marks not marks they have to buy Franks they have to buy uh pounds they have to buy gold to pay for um pay their War reparations they have to do it every month when they bought this stuff they were basically what you casually call printing marks deficit spending and then afterwards selling securities so they quote weren’t monetizing but doesn’t matter they were definitely spending spending in excessive taxes by 50% so that would be like our deficit is 6% of GDP multiply times 10 so if we increase our deficit spending from 2 trillion this year to 20 trillion or even 15 trillion I have no doubt in my mind that would cause uh we would drive up prices we would have inflation we’d have a continuous increase in prices for as long as we continue to do that just and that’s what happened in Viber they were forced to deficit spend roughly 10 times what we’re doing now and that drove up prices until they stopped when they stopped under the new guy then the inflation stopped which is the other myth about inflation you know one false move and you’ve got vmar and there’s no end to it everything disappears well it doesn’t disappear it just keeps going until somebody stops doing it Argentina had a wild inflation going thousands of a percent uh the last few years this new guy comes in with a chainsaw Cuts soup kitchens and all that cuts the public thatb uh you know what they call the primary deficit but initially doesn’t CH touch the interest expense they were paying 200% interest rates you know how much deficit spending that is pesos that’s what was causing the inflation after a while took him a month or two they started cutting interest rates and then the inflation came down because that component of deficit spending came down and that was their largest component so they’ve cut rates from 200 to like 40 and the inflation’s come down from like 200% to 40% or something like that I don’t know what it is so far and if they figured it out and they bring that down to zero then they will have eliminated their inflation problem they still got a lot of other problems but that that particular one will be not eliminated but they’ll be down to you know under 10% which so you said something interesting in there you said something interesting which is that if we were to spend proportionally as much as Yar we would see inflation that’s right I think so that would be my forecast so then public debt does Drive inflation or there’s some not the public debt the public debt is the residual that’s that’s when you add it all up that’s how much we spent more than we taxed what does it is the proactive the deficit spending when we spend instead of7 trillion do we increase our budget to you know 20 27 trillion and leave the taxes at five that increased spending going from seven to 27 will drive up prices so you’re confronted by two factors so you’re confronted here by two factors because people seem to like uh for example stimulus payments there’s a lot of talk about Ubi and Ubi would come from the government as you say in in common terms printing money Y and so that argument is that if the government prints money in order to fund these sorts of public programs then it would drive inflation and so you do okay so you got to say these sorts of public programs public employment is different from Ubi very very different yes Ubi would be if in Pompei they said the tax is going to be 20,000 coins a year and we’ll give everybody Ubi a 20,000 they’d never be able to hire anybody but if they say the tax is going to be 20,000 we have jobs that’ll pay 20,000 they’re gonna have all those people working for the government so it’s a very different thing Ubi takes away your ability to provision yourself alternative what’s the Full Employment alternative that that you imagine the Full Employment alternative would be like Pompei saying the tax is 20,000 coins on everybody’s house and we’ll give anybody a job in sanitation or public service who wants a job anybody who shows up now everybody’s not going to show up because that might be a spending of 50,000 coins and it’s economy doesn’t need that many coins the value would be lower to the point where nobody would bother to do that work it’ be like really low paid work so the the market for Source itself out where the the actual deficit spending is equal to the actual savings desires and that happens in every country in the world every minute of the day you can see it the data and so do you think that during 2008 where there were all the bank bailouts do you think that that made a massive contribution to inflation that we’re seeing now or do you think that those things are disconnected because it seems like that’s what that would be the mechanism where money always the every year is disconnected because if there is a what you’re calling inflation like we had prices are higher we’ve now had that adjustment in prices you know pompe has decided instead of paying 10 coins for a worker they’re going to pay 12 well now that adjustment ripples through the economy now that’s your starting point now inflation from that point on would be the rate of change from that point they just leave it at 12 then they’re price level stays where it is there’s no inflation it’s at zero it’s only when they decide to increase it that it goes up so it requires continuous a continuous increase in prices requires a continuous increase in government paying more for the same thing without that it does it can’t happen and so when the government does pay like so when the banks are operating in a way that doesn’t need a bank doesn’t need a government bailout the government spends x amount of dollars on supporting the banks and then all of the sudden the banks are insolvent and the government has to come in print money in order to pay them well the bank didn’t the government didn’t do that that’s not what happened okay they they didn’t give them income they they I don’t think they gave them any money I don’t remember them giving them anybody at all in the bills now we had the tarp is that what you’re talking about maybe hold on let me see if I can figure it out I remember the auto companies getting bail offs and not the government not the banks I think they got liquidated and then FDIC took so long okay tarp all right so here’s my tarp story I I you know I’ve got like so much of this stuff I was at the FED talking to Jim classus he might still be there in monetary Affairs and we’re talking about the Tar this was shortly afterwards and we’re two things the first thing is that that was originally started for the government to buy troubled assets was a troubled asset relief program the first thing I said is they’re not going to be able to buy any troubled assets because uh a troubled asset is already marked to Market so if it was a loan that was originally a $100 loan and now it’s only worth 50 cents on the dollar because of losses or something risk it’s on the bank’s books at 50 right now they marked it to Market and so so if the government came in to buy them at a price of 50 the bank’s not going to sell it like it’s not any better off selling it’s already carrying it as an asset worth 50 if it has cash worth 50 Banks had no reason to sell it at the Mark to market price if the government paid them extra sure the bank would sell it but the government wasn’t going to do that that would be a bailout to pay more than the thing was worth there’s no way they can figure out which bank should get paid a premium you know that’s just a pure handout so I said this thing’s politically starter they can approve it all they want it’s not going to it’s not going to work so um so nothing happened under CH originally okay and then we had um the banking crisis where the banks lost their Capital their net worth went down so I’ll give you some round numbers to help keep track of this but let’s take a bank City Bank and I’ll make up a number they had a trillion dollars in in uh deposits let’s say um no I’m sorry they had a trillion dollars in assets let’s say they were loans they had all loans trillion dollars at market value of their loans and they had 900 billion of deposits so they had an extra hundred billion of net worth trillion dollars of loans that presumably they could sell or whatever and depositors were equal 900 billion the other 100 billion was their own money that’s called Capital that’s the shareholders it’s their own money and the FED required the FDIC required that the capital be 10% of assets so they had a trillion dollar of assets behind that was a they were paid for by a trillion dollars of the bank’s own money and they were paid for by 900 billion of depositors money then we hit the crisis hit and all of a sudden the assets are no longer worth a trillion they’re only worth 950 billion so now the banks in trouble it’s supposed to have Capital net worth you know its own money worth 10% of assets it only has 5% because there’s 900 only 950 billion of mortgages now and 900 billion of deposits that leaves only 50 billion cushion in there right of the bank’s net worth because their their 100 billion has shrunk in half because it was you know was it was all in the mortgages in in the loan portfolio and so now the bank’s capital is only 5 percent it’s not quite but let’s just say 5 percent it’s a little bit more five five and a half anyway and so now they’re um they’re out of compliance and Sheila bear was head of the FDIC and she starts up the bulldozer and she’s headed towards the City Bank building you know in in Manhattan she’s going to take it down because they’re you got to demolish City Bank they’re out of compliance and nobody knew what to do bulldozers are moving kind of slowly but it’s on the way and so pawson I forgot was it dick pawson he his um he’s got this tarp money $750 billion he goes wait a minute I’ll buy 50 billion of capital in City Bank I’ll inject 50 billion that’ll get their net worth up to 100 billion was at 50 it’ll be up to 100 then there’ll be 100 billion of 950 billion of mortgages 50 billion of my money and 900 billion of deposits so the FDIC is safe you know they got their 10% Capital ratio so that went in front of Congress and they turned it down at night and like stocks go down a thousand points million people lose their jobs you know all a and somehow at two or three in the morning it passed and paon put in the 50 billion and they uh they turned off the bulldozers and turned them around and City Bank was allowed to operate because now his Capital was restored to 100 billion which was 50 billion of shareholder money and 50 billion of aon’s tar treasury tar money got me so far following so far okay so now let’s look at before and after before Austin put the 50 billion in if City Bank had lost if the assets had dropped another 51 billion if they had Lo had another 51 billion in losses they would have wiped out their Capital plus a billion in losses would have gone to the FDIC right they would have had to cover that when they paid off all the depositors okay after pawson put his 50 billion in if they lost 51 billion the same depositor would be wiped out but the extra billion of loss would be Paulson’s loss to treasury’s loss instead of the fdic’s loss it’s like so what it’s both the US government they’re both funded at to treasury it’s like nothing changed nothing in the government’s risk profile changed it’s like the insurance company when whoever they’re insuring is taking a loss to give them more money to cover it it’s their own money this is like stupid you know and it’s it’s like all they did they didn’t give City Bank 50 billion they didn’t spend any taxpayers money though they thought they did and the arguments were was that’s our Healthcare money we shouldn’t be doing this okay all they did was allow City Bank to run with 5% Capital instead of 10 that’s called regulatory forbearance so this whole tarp thing Bank bail out was nothing more than regulatory forbearance City Bank had to operate was allowed to operate with 5% Capital with all kinds of terms and conditions no dividend salary caps whatever they could have done that by saying oh you know what uh you just lost 50 billion you only have 5% capital okay we’ll let you run with that but under this these terms and conditions that would have been the exact same thing as burning up vast amounts of political capital and stirring up all this fear mongering over putting 50 billion of Treasury money into his capital and it’s functionally identical now when I talked to Jim at the FED I said I didn’t hear this from anybody you know I didn’t hear from Jamie Diamond I didn’t hear it from anybody in the Banking Committee anybody from the FED anybody at Treasury he goes no nobody understood it that way they all had it wrong there was no understanding that that’s what they were actually doing he says you’re right but there was that there was no understanding okay so when you go back and use these examples a lot of times these examples are like misleading because they’re like a it’s a wrong understanding of what happened it’s not what happened the headlines of what happened are not necessarily what did happen and that’s what the narrative future narratives get based on these headlines well the narrative in terms of the government giving Banks this money is what happened and you’re saying that it didn’t have to well what I’m saying it was functionally identical to regulator forbearance there was no more or less government money on the line because of that it was just like a placebo or something it was just like something that was inconsequential to anything that might happen to the govern or anything that might happen to the banks you know it was a story that you know without substance but it contributed sub to deficit spending or you or you think that it didn’t well that’s a good question well how did they account for the 750 I think they counted it as a deficit spending and then when it got paid back they picked it up as a reduction of the deficit which is also like you know fine but it gives you another reason why the deficit per se doesn’t give you the kind of information people think it does as to what’s happening in real terms it could be absolutely nothing happening of any consequence look if the man on the moon wins the federal lottery it’s all deficit spending and he gets 10 trillion dollar and he puts it into Thousand-Year treasury ponds and doesn’t ever sell them or do anything like what difference does it make you know if it happened or didn’t happen it be it’s completely inconsequential so it’s not that it didn’t add to the deficit the way accounting works but there’s no consequence you know that should have any influence on any kind of policy like over a long enough period of time because it gets repaid yeah well in this well in this one even any period of time there was no time frame where this mattered it was just you know putting a debit and a here and a credit there and a debit there and a credit a that was completely disconnected from that had no connection to any in the real world or anybody’s finances or anything City Bank was running with 5% regulatory forbearance under a different you know arose By Any Other Name is still arose right but if they were getting this deposit from the federal government then didn’t that change the deficit that the bank was running under because now they have the extra however many billion that they need in order to make up what they’ve lost so is it really regulatory for baren if they actually have the funds so let’s talk about outcomes of what might have happened next let’s say they were to lose 101 billion what would happen they’d lose five billion of their own money and five billion of Treasury money what would have happened under regulatory forbearance they lose 5 billion of their own money and five billion of FDC money it’s the same thing just a different pocket of government they the liability moved from government’s left pocket the FD the government’s right pocket to treasury nothing from the government’s Consolidated point of view nothing changed it just changed on their on the government’s Side Of The Ledger from City bank’s point of view their capital is first is still in first loss position and still only 50 billion okay that makes sense so basically what you’re saying is that given the way that the government is structured prior to anything paid out over tarp they’re already on the line for insurance payments for any kind of further loss yeah and and they’re the insurance company yeah yeah if you’re the insurance company and somebody there’s a loss and you you agree to put up to give the guy money so he can pay you for the loss he’s just paying you with his own money what was the terms of tarp though like what was did they have toay with did they have whatever they were whatever yeah but whatever they were they could have done that as regulatory for parents instead of repaying they could have just added it to Capital which is what happened or they could have put a tax on them they could have said okay we’re going to put 100% tax on your income until it gets to over to the next five billion because that’s the penalty for regulatory forbearance there’s a hundred ways they could have skinned the cat and come up with the same thing without the the facade of putting up money what do you think was important they didn’t understand what banking or how it worked so that’s all they could come up with that’s what Jim told me flat out he was a friend you know he wasn’t like trying to cover for anybody he you know senior officer at the division of monetary Affairs at the Federal Reserve Bank for 15 years or so it’s a really smart guy we used to review all kinds of stuff like that we never like we never had any dispute over how anything worked okay everybody at the FED at Monetary Affairs knows exactly what I’ve been telling you how all this works they knew the sequence they they say have a different word for it we can’t do a reserve ad without a prior Reserve drain I’m sorry we can’t do a reserve drain without a prior Reserve ad which means they have to add the money to the system before payments can be made they have to sell the movie ticket before they can collect it I mean that’s what they that’s their job that they’re they do every day it’s just routine for them it’s routine job I talk about it it’s like oh wow what is this this is their like routine job it’s what they do and so uh yeah go ahead well so the if inflation does go up so with with tarp you’ve you’ve made say it this way if the price level goes up if the price level goes up so the price level goes up is there some way to then bring it back down is that a goal that you should have I you could but I think the political reality is it’s a lot less disruptive to just leave it alone and keep it from rising and use your other distributive policy fiscal policy is entirely distributive who gets taxed who gets a spending they’re making a distributional decision every minute you know continuously with that use that to make people whole if somebody’s lost who you think should have been lost if you think pensioners have gotten hurt and you you don’t want them to give them an increase if you think somebody’s gotten helped who shouldn’t have been do something to remove that going forward but it’s a lot less disruptive to people’s lives and to the real economy to just leave it alone and keep it from happening again than it is to go back and try and reset it it’s just hard to it’s like when you enter into the used car you know the car return oh back up and do it again it’s like you got all those you’re going to tear up all your tires there’s a lot of like things in institutional structure that caus you to say no let’s not do that let’s just go forward and figure it out and how does inflation play out on a global trade condition because if you have the it doesn’t it doesn’t it doesn’t how so no so I used to be I used to go to Newcastle every year and give a talk at Bill Mitchell’s conference town in Australia and had all these coal ships lined up and I used to say look the coal the ships leave Newcastle full coal and they go to Hong Kong and the coal exchanges for television CS whatever they’re making back then they come back full of television sets and the ratio of coal to television sets depends on World prices determined somewhere other than Australian you know it’s not it’s got nothing to do with the Australian dollar Australian inflation or anything else so many tons of coals at World prices exchange for so many television sets and and they don’t really care what your inflation rate is is what your interest rate is even if you have an Australian dollar they just don’t care those that coal will exchange for that to those are your real terms of trade they said what what it does matter what the Australian dollar or what your policies do matter for is who has to dig the coal and who gets to watch the television sets that’s what it’s all about it’s all about the domestic distribution of the net effect of your trade same with South Africa you know they send the gold up to you know gold coins up to London and each gold coin buys one men’s suit or whatever the historical thing has been exchanged for a men’s suit and they don’t care what the South African rand is doing or even if there is one what that’s important for is who has to dig the gold and who gets to wear the suit these are all domestic distribution of the conse you know the real terms of trade the real consequences of foreign trade and that’s lost in all the discussion and you know uh and And when everybody starts talking about trade and balances and everything you got to stop them and say all right in real terms let’s look at what’s happening and where you want to go and whether it’s a problem or not and whether what you want to do about it and it immediately diffuses everything they’ve been talking about like the whole thing well you make a case in the book about let’s say China selling cars to the United States and the way that that exchange occurs is that exchange occurs in US Dollars that are then added to an account for that Chinese company inside the fed or whatever and so as long as the United States can continue to pay in dollars for those goods then it holds but what if the what if China starts to demand payment in Yuan yeah and then the US dollar which has lost it’s not about whether the US can pay it’s about what China wants in return for its carbs right yeah and if they decide they don’t want to sell cars to the US then we’re out of luck you know everybody decides not to sell car to Russia Russia can’t have any cars for whatever reason doesn’t have to be because of the currency that’s what sanctions are all about Russia decides they want you know rubles for their oil first thing that happens is they can’t sell any because nobody has any they figured that out pretty quickly and uh the value of the ruble starts going up because nobody can get any they’re not buying anything with them that surprised everybody that when we cut Russia off and didn’t allow them to import because Rupal went up look of course it goes on I mean how could it you know that’s what it’s all about because they’ve lost sight of these things this is Janet Yellen and all these famous people making these you know really I’ll call them moronic you know in the uh not trying to be whatever sense of the word it’s just like not nonsensical statements you know that’s like show no understanding of actual markets or what’s going on you know behind the headline rhetoric and so yeah why does China it’s not the government the corporation the government will then buy the dollars from the corporation why do they do that why do the great exporters like China and South Korea and Japan have all these US Treasury Securities because that’s how you target a nation for your exports because you want to export to them you want to make real goods and things and give them to somebody else but why would you want to do that well because it’s of personal interest to the entities in charge the exporters are a small percentage of the company maybe the the employes and the owners but they’re large and they have political power and they support this export-led growth narrative that the IMF is also supporting and that’s been supported for a long time as a vestage of the gold standard which was a fixed exchange rate system where the you know the winner of the game was the one who got the most goal it’s called mercantilism Whoever has the most gold wins and the US went into World War II with more gold than anybody in the world unfortunately we had no planes or boats or soldiers and took us four years to catch up right but we had the gold there’s a you know a game we used to play as a kid you can only do it once to somebody a gag it’s like who can touch the other person the softest and I say you go first and I put my hand out and you touch me as soft as you can then I hit you as hard as I can and say oh you won right and that’s the way these guys are playing the trade game oh who can export the most oh you win boom it’s like you know and that’s what chapter 5 is about in my book and and how the ex that shows that the exporters and their export narratives are in control and they may even be sincere about it certainly helps them and you’ve got the business schools and everybody else behind it I’m not and I think they’re just I know those people uh I don’t give them enough credit to have some kind of agenda of any kind they’re all like Jared Bernstein right he’s you can’t single him out they’re all don’t know how anything works and uh at least in my 50 years of meeting these people that’s how they’ve been there’ve been a few sharp people but not not very many and I guess so one of the one of the fears that I’ve heard about inflation is that if the value of the US dollar Falls and then let’s say the exporting countries that have the goods that we want have economies that are stronger than the United States then we’re at an immense disadvantage in terms of our buying power because we want the cars from China but we can’t afford them anymore at the value of our currency and presumably we have to print more and so it creates this accelerating cycle of wanting things that we don’t have and so it’s sort of like almost quasi reparations in or like the the conditions are similar to to the reparation conditions in the Yar Republic where you’re having to purchase uh foreign currency and print money in order to be able to do that which gradually drives you deeper and deeper into this hole where your currency isn’t worth as much because the other economies are doing better than you yeah now I could go back to the beginning and unpack each step of the way you can see it’s like one thing filed on another that you know there’s no the foundation is made out of sand you know quick sand so um I don’t know where to start do you have an example of that happening anywhere I mean a better example would probably be chip sets and computer manufacturing which isn’t done domestically okay so look there are strategic considerations where um and there are foreign monopolis of things that you want so I think oil’s a good example where you know we burn 20 million barrels a day and we only produce 13 million even though the largest producer we’re still short 7 million which we import which is product you burn product you produce crude oil so um but taken together we net important and so we’re subject to a foreign monopolis if there was one which it happens to be in it’s Saudi Arabia and there’s not much you can do about that it’s like if you’re living in an underground city and you’re buying the air from somebody on the surface uh underwater city and you’re buying the air they’re pretty much in a position to dictate price there’s not much you can do about that except you know hope they they don’t do too much there’s a disparity of power so just because we have our own currency doesn’t mean there’s not a disparity of power when it comes to resources that we don’t have and and I call all that kind of falls under strategic considerations right that are going on and so what do we do and then you can say well what do we do about that so if you look at every inflationary period we’ve had uh it’s always been oil prices whether it’s the 70s whether it’s right after covid saudi’s immediately raised the price of oil to 120 cover cover was the Ukrainian War we had that Big Spike as soon as that went down our inflation rate came back down it’s still higher than it was before prices are still higher it it follows that too close for comfort it’s not perfect following but it’s very close and you can look at 2008 that was preceded by the Saudi raising price up to 155 until the economies crashed we were vulnerable because of our low deficit and our leverage but that was the Catalyst that brought it down and in 2000 the same thing happened of course in the 1970s oil went from 3 to 40 that’s like over 10 times moves that’s like going from 70 today to 700 and we wound up crashing you know after to that so um and again I have more details of what happened there a narrative that differs very much from the whole PA voker story again but um so what do you do about that okay if the Saudi raised the price and and I can give you the detail you want the details on how they do it yeah sure they do it okay takes a minute I know you have limited time they um the the I’ll use round numbers they not that far off the total consumption is about 100 million barrels a day crude oil and the total Productions well the total sales are 100 million inventories are Prett you know stay reasonably constant there seasonable adjust seasonal adjustments so it’s 100 million produced 100 and the only country with excess capacity that could raise their production tomorrow is Saudi Arabia they could go from 9 to 11 let’s say an extra 2 million if they if there was demand and the first thing that tells us if your Market if you understand markets is that everyone’s selling at the market except the sies everybody’s selling all their production except them they’re acting as a price Setter they’re setting the price then letting their sales adjust to whatever the residual demand is people bu are buying the other uh 90 uh yeah you know I think they actually export about 7 million so they’re buying the other and sa we’ll assume Saudis aren’t using any of the own oil just for this example they buy the other 90 million first or 91 million whatever the price but then for the last million they have to come to the Saudi the last n million they have to come to the Saudis so they have their total of 100 million and they you only have two choices you either pay the Saudis price you have to shut your lights off at 3:00 in the afternoon right because you know you can’t like change your consumption on any given day it’s all rigid it’s not a market that’s infinitely flexible like you know would be needed for prices to be able to adjust like they do under perfect competition that assumes infinite buyers infinite Sellers and adjustments and all that what we have in this market is um kind of a fixed demand every day of 100 million which can’t be modified somebody’s not going to not drive home from work and still the price of gas gets really high on his way home okay it so it’s kind of a fixed demand and excess Supply so 100 million demand there’s 102 million in Supply if you just let Supply they just tried to sell the whole 102 million the price would drop low enough till somebody stopped producing and uh if the Saudis didn’t sell their last 10 million the price would go up to whatever 300 4005 till somebody didn’t drive home from work whatever it takes the cut consumption that that day so in the it’s called inelasticity in the short term it’s inelastic things don’t the supply and demand don’t change so it would be simple enough if the Saudi just said we want 80 $80 a barrel and then that would be what the price was because you couldn’t buy it you couldn’t buy that last so many million that they sell at the end of the day if they uh you know from anybody else it’s not there it doesn’t exist we have to pay that price uh if there was enough Supply elsewhere so we didn’t need their oil yeah then the price could drop okay and the price can’t go higher than that because they’ll sell as much as you want at 80 they’ve got two million extra Supply the world can’t take that one day it can take a few hundred thousand but they they can’t uh so the price won’t go above 80 so they would just set the price at 80 and uh I’ll give you another analogy in a second but I’ll finish this one now um but they don’t do that because then they’d be accused of price setting but that would be the way a normal swing producer would set the price the Saudis would they don’t have much choice they just try to sell everything like everybody else the price goes to zero which we saw a few years ago it actually went negative when there was an excess Supply okay because at that point the market didn’t need the saud’s oil and everybody else just tried to sell everything and went to zero um now Russia Today could do the same thing Russia can get any price for its oil it wants it might sell a little bit less but not a lot less because every day the world needs 100 million Barrel it’s getting seven or eight million from Russia if it rais the price to 120 we either have to pay them the price or shut off the lights they don’t know that so anybody thinks they’re Savvy as to how the oil Market works is completely wrong they’re in the dark just like the rest of these people because the studies have thinly disguised their price setting enough to for these people like Russia to not understand it because you know if they did they would okay and so they don’t so um so what the Saudis do is they set what’s called their OSP it’s their official um selling price and instead of setting a price like 80 they set a an incremental price over what’s called a benchmark so every day they publish benchmarks or benchmarks are published like Brent North Sea crude West Texas intermedia Dubai what these are are reports of the price of the that these grades of oil sold at yesterday so yesterday’s closing prices for all these different grades of oil and there’s an averaging in there to smooth it out so it’s it’s not too uh too volatile but it’s basically a report of Prior prices Saudi oil has a certain sulfur content so it’s worth either more or less than any one of these grades if if the Saudi oil has more sulfur than North Sea Brent then it’s worth a little less if it has less sulfur it’s worth more because sulfur sulfur is a there a cost to refine it out of the order okay so there’s a fair price for Saudi oil versus these where you’d be indifferent between buying North Sea PRS or buying Saudi oil if the Saudis set their price at a premium to that fair spread let’s say a $2 premium let’s say the fair spread happens to be zero and they set their price at $2 above Brent it sets an upward dynamic in place for price because now nobody’s going to buy the Saudis at $2 over Brent because it’s not worth it it’s only worth even so they’ll buy everybody else but then from everybody else but then at 3 o’clock in the afternoon they have to start looking at this Saudi oil whether they like it or not or shut the lights off so they start paying everybody a little more trying to pay you know they’ll start paying him at if everybody was at 80 and the Saudis were at 82 they’ll start offering them 80 and a half 81 81 and a half 82 they still don’t want to buy from the Saudis because they ate them they don’t want to pay their price but then when they get the 82 and a half they’ll stop and they’ll go and buy the Saudi one then they’ll get their 100 million barrels and then everybody goes home and uh the Saudi sold their oil at their $2 premium and they set premiums at last month and they’ve sold all their oil at that premium the next day where is Brent going to be well they look at the previous days trades and I see it went up to 82 so oh now Brent’s up to 82 okay so now the siud are at 84 so the same thing happens again now it doesn’t take just one day because they have averaging and this type of thing but it creates this Relentless upward force and you can see when the Saudi osps are at enough of a premium this upward Trend in the price of oil you look at the chart you can see it it’s like a straight line and it’ll go down once in a while because there’ll be a scare peace in Gaza you know Russian increas yourx you know this like news in the world and there’s plenty of massive speculators that will sell oil short and drive the price of the Futures down for a couple days and then they’ll go up might stay whatever so you get volatility I’m not saying it’s it’s perfect with no volatility but Underneath It All they are controlling this price whether it’s going to be on an upward slope or downward slope by setting their osps at either a premium or a discount to the price of oil and so we have this external price setting and most of our inflation what’s called inflation or shifts in the price have occurred for that because of saudi’s influence on oil prices and what they’ve done they took over pricing in 1971 from the Texas Railroad Commission which used to do this with the west Texas companies to Riad because we ran out of excess capacity you know the world was buying all our oil and the Saudis became the only ones with excess capacity so they took over that role and instead of keeping oil at $3 where we did for 15 years which was our 15 years of our best stability ever the Saudis had different ideas other than American stability and over the 10y year period you know took it up to 40 before uh demand collapsed in a huge recession and they couldn’t do that anymore the demand fell so far that nobody needed their oil at all but theand came back over time and now they’re back in the driver’s seat doing what they’re doing so I don’t know was that worth your time to hear that no that that that definitely was and okay good good the uh it seems like Russia can’t do the same thing because there’s an embargo on their oil prices yeah but what’s going to happen if they stop if they stop producing oil well first of all there’s an embargo but they’re selling all their production some well they’re selling but this is what’s interesting is that they seem to be selling their production to India and China instead of to the to the Europe and United States is that yeah and they and they’re theyve switched their source of Supply away from Saudi Arabia or wherever they were buying Qatar before that so it’s just been a shift in you know where the supply is going so whoever used to buy Russian oil is you know shift so I guess I mean this is this is a geopolitical question but the the way that I look at it is that the world is breaking into two axes which is let’s get back to before you do that let’s get back to the oil let’s say Russia said our new price is 100 instead of 70 what happens the world consumes 7 million barrels less every day all of a sudden if it’s two million Barrel if it’s one million Barrel a day less it’s disruptive it’s a major disruption the spr can only be released at 1 million a day at two million a day you’re looking a major oil disruption like 1973 we’re trying to get out from under that by transitioning to a green economy right and when tomorrow in one day one day no not tomorrow not tomorrow but would happen tomorrow I mean the long term is a series of short terms let’s look at the first six months of short terms price goes to 100 till China transitions or whatever India but you know until that happens the demand is is fixed China can’t just turn it off in one day yeah I mean lots of countries have this right that the electricity goes off at three o’clock yeah but what happens to the price the price goes up yeah and Russia sells to the higher at the higher price or it gets shut off everywhere and what I’m saying is if they knew that they’d go to the higher price to see what’s going to happen they know they sell it to China whatever they’re already selling because China would pay the higher price because everybody else would be even higher but isn’t this like a basic of market economics like that Russia economics 101 so and you’re saying that Russia doesn’t know they don’t know how that there must be some there must be some other Factor that’s preventing there’s no evidence that anybody other than the Saudis know this I’ve watched interviews I’ve watched everything to see if somebody’s gonna figure this out they do not know this how is that possible that just seems so how could they not know they government money to pay taxes comes from the government everybody in a Fed knows it how do they not know this how do they not know that how do they not know that it’s better to to receive than to give economics is the opposite of religion right how did they not know that exports are a cost very dark I mean I how can they not know that if everybody saves the economy goes to zero that they’re creating a need for deficit spending it’s been around for 400 years how can they not know any of this how can Jared Bernstein not know why the government spends Prince money and borrows I mean I I think that that I can at least excuse by saying you have to do a thought experiment that returns you to initial conditions you have to have higher order metaphoric thinking and perhaps you’re not interested because of like you said it was cause a panic in the foundation of economics and people are really good at not looking at things that are inconvenient for them so like let’s say that that’s the aspect of human nature that prevents them from looking at this but the idea that Russia isn’t looking at their balance sheets and saying hey this is what oil sells for everybody needs it everybody’s desperate we could just raise the prices seems yeah that just seems bananas to me it does but watch out what they do with the ruble look at what they do with their monetary system and their economy they can’t possibly know how it works it’s just not possible do you think that it’s they more like China no China has a much better idea how the monetary system works in Russia not perfect but they’re way ahead of do you think the difference look at the difference why is there such a difference Russia has all these resources China doesn’t have them China’s an importer look at all the you know relative prosperity and development they have compared to Russia it’s not because Russia doesn’t want to do that they just don’t know it they just don’t get it and you don’t or they don’t care or they don’t care but I would assume more that there’s like behind the scenes dealings between Moscow and Beijing that have set these prices as opposed to you can yeah well you can that’s fine I’m just telling you that they could set any price they want and I look at the simplest answer which is because I look for evidence that they actually know this and you know it’s it’s innocent fraud right which is worse well so whether they’re committing fraud or they’re innocent innocence is more daming because it means they’re not to dumb enough to figure it out I actually smart to figure it out I look at it as being a signal of there being something that like minations that we’re not seeing right because and the reason that’s okay so we each have our confirmation bias here sure sure sure exactly I definitely have shila’s always after me for my conspiratorial mindset having met these people and I don’t know if met people who’ve gone to Russia to do business if you can’t drink three VOD because before you know before dinner served they won’t deal do business with you it’s just a different kind of place you know yeah I actually um uh I’m Russian I was born in Russia and so so you know that they’re a very different type of people but the reason that I think that they might be doing something in the background is because I was reading um I think that it was uh Ed Conway just published a book called material world and he uh uh yeah Ed Conway and he basically goes through and he looks at the eight main resources that power the world which is like copper oil and gas lithium salt uh and petrol and there’s a couple of other things oh semiconductors and the reason that this is relevant is because I’m like Comm yeah basically you you think so wait why well no I’m just saying you know people talking propaganda propaganda I the poite word for that is common or do you think that why do you think that it’s propaganda no I say that’s one of the forces in the world is yeah yeah that’s absolutely true but he makes this case in his chapter on semiconductors where he’s uh pointing to the fact that there’s really only one place in the world that can produce the kind of technology that everybody needs and it’s tsmc in Taiwan yeah and there we go I had Danish machines to build them absolutely and so he he Maps out this massive interconnected structure of the world where you know you start with sand in one place and it moves around the world four or five times before you end up with this semiconductor chip that’s manufactured in and in 2022 I found out that by reading this book that the United States had uh instituted really strict controls on the sale and export of uh technology to China in order to prevent them from ever being able to manufacture semiconductors and so if I take that and I look at China’s announcement that they’re going to maybe probably invade Taiwan and I look to see at okay Russia’s not selling oil at $100 a barrel but they’re only really selling to China and India to me it seems like that’s the the coalescing of these motives of an axis that’s breaking in the world where you have a a a nation Russia which is being embargoed into dealing with China and China’s looking around and they’re like well we need to be able to manufact factur semiconductors there’s only one place in the world that can do it we’re going to take it over and we’re going to be the AIS of Power with Russia that can stand up to the The Bullying of the American economic system yeah I mean yeah it’s a it’s one narrative but um you look at the spread between what Russia sells to China at and you know the other benchmarks and it’s pretty constant so you know when Brent goes up to 90 from 80 and Russia’s price to China goes up by $10 maybe goes from 65 to 75 something so it’s you know they may have negotiated a discount but not an absolute price but with oil oil operates differently than almost any other resource right because of what you say like if you run out of bread you can eat rice if you run out of meat you can eat tofu but if you run out of oil and China’s so oil hungry for all of their production mechanisms yeah that it seems like this pivot at which geopolitics operates really deeply like after 911 no I I don’t disagree I don’t disagree with that I’m just saying that Russia’s been able to do this for a long time and has never showed any sign of understanding it’s not just two years you know so like been for 15 years or 20 years interesting so like they just got this recently yeah and same with same with you know other nations they’ve used the Saudis as their umbrella you know because none of them want to sell less than their actual production so they let the Saudis do that and then just you know in return the Saudis you know whatever they don’t like it so they try and get the others to help they’ve gotten Russia to help you know a couple years ago Russia cut production to help Saudis because if Saudis had just set the price they wouldn’t have sold enough toh be able to uh I mean there’s their production would have gone low enough we had to shut Wells down you know so they were at their minimum production so they they would have had to sell market prices and so Russia came in held that’s when the price went to what $20 a barrel a few years ago where because demand dropped so quickly because of Co um the Saudis lost control on the downside there wasn’t any demand for their oil so Russia worked with them to cut prices to get them up so they they had some inkling that they didn’t just say oh no we want to sell the China at a discount you know and they weren’t even doing that it was before the Embargo they weren’t selling to China at a dis at discount before the Embargo they weren’t getting any special treatment but I’m not trying to like discredit your narrative but I’m just saying no I discredit away these are because we we can talk about something else but you know I’ll just say it could be could be correct I mean I don’t have any but you’re you’re basically like they they didn’t do it even before the Embargo they might be immed they they didn’t do it before W you know with China until the Embargo they get sell to them that was a big switch to go to especially India don’t have any deal with India yeah but you know for me the evidence tells me that they they don’t know they’re not sitting with China saying look we can charge whatever we want 120 but we’re trying to get something going with you we want you to invade Taiwan so we’ll sell at 60 they don’t they don’t say I can’t maybe that’s what happens in negotiations I don’t know but I I would bet on it fair enough I mean I there’s so many things I wanted to ask you still but you know Healthcare Israel Palestine race cars there’s so much that we could talk about uh I I really I hope that maybe we can get you back here again down the line because there’s I don’t think that they can fit into this conversation very easily and we’re almost at three hours here so okay uh you know if you can make time for it maybe we can meet up again and uh so so where does all this go from here you’re going to have other guests the other thing run are you gonna run some of this by them that’s that’s the Hope exactly actually if you if you want to get you to the point where you can conduct some interviews to reveal some of these things and that’s that’s often some of the best ways to go when we do follow up interviews too is when we’ve had some time to speak with other people and put these ideas in front of them yeah uh yeah so I mean it’ be great if you could give us some suggestions of people we could talk to as well people who might disagree with you that that would be interesting people that you’d like to actually come back and debate with because a lot of our best conversations are people that are on opposite sides of some questions and then we moderate the conversation but they’re basically each laying out their ideas and then people can see it in action when it’s hidden behind you know in private conversations it’s hard for people to parse yeah I don’t know who you have access to but you know let me know who you’re going to be doing I’ll tell you if there’s I have something to add or maybe can work with you on the interview or something that’d be fantastic yeah yeah you don’t have to say it right now but if if you can if you think of anybody uh I mean I can think of names you know people from you know Dr po or something like that but you know Janet Yellen her names but I don’t have any in to get finding those emails might be difficult that’s the the hardest part of this job is finding people’s emails finding a way to actually access them we need to hire a private investigator is what we need we do or develop this skills yeah like Stephanie Kelton I I spent forever trying to find a way to get a hold of her yesterday and I just could oh you should have asked me I have that for you all right well that might be a good help at least yeah you can email us later we we’ll follow up but I like your approach to this which is that getting the ideas in front of people so that enough people see them and enough people understand them so that they can start to comat the narratives that are presented to them is really the the heart of what we do right right right right so they can make an informed decision and have an informed judgment have an informed opinion right now their opinions are informed by you know bunch of nonsense inheriting them too right a lot of Legacy institutional it’s the same thing it’s funny because this exact same story plays out in all of the Sciences too that we explore you know it’s very very similar story where there’s a narrative that’s been corrupted and and indoctrinated and corrupted and indoctrinated and pretty soon you end up with fresh scientists who aren’t even considering the fundamentals anymore uh they don’t really have they have no latitude to do so really they got their heads down in the trenches working on some tiny little aspect of a bigger problem so yeah this this is a really Central feature of our modern world because it drives so many political decisions too right at the end of the day oh all all a them right and if people don’t know how to make a smarter decision then there’s just a quick one look we’ve got two presidential candidates neither of which can pass a cognitive test like how did we get there really that that is there’s some process that’s making this happen right now I I trace it back year without an election I TR it back to campaign finance and uh it may be more than that and my proposal is not unique to me I found out but where you can contribute as much money as you want to any candidate but let’s just say 40% goes to the opposition and yeah and that just takes the money completely off the table you know takes it out of politics 95% and you know moves us in a massive direction towards away from a lot of these problems that are getting worse it just reverses them but I can’t get any traction on that period I’ve been 20 years I’ve been talking about that it just doesn’t people love it they like it but it doesn’t go anywhere yeah like maybe it’s to close you can you can talk a little bit about what it was like running for office where you have ideas that people like but it seems like it didn’t it didn’t take because that’s the direct that’s the direct connection between Theory and action well it did a little bit because uh I was there to promote my idea for peril holiday because we were still down from 2008 to 2009 crash and uh this was 2010 I think when I was running and um my idea was to just um have a payroll full payroll tax holiday which for a husband and wife would have been $650 a month that they stopped taking out your paycheck you know and instead the treasury makes a payment so the accounting doesn’t have to change for Social Security it add to the deficit so it’s a massive tax cut it was probably a trillion dollar a year tax cut and and but it’s going to people working for a living and these are the people who are responsible for everything we have without people working at the power company we don’t have power people working in the banks we can’t go buy anything people driving the trucks to the supermarkets working there fixing the roads teaching school this is these are people working for a living right and so there’s no moral hazard it’s not like you’re giving people money to do nothing so nothing’s going to get done this is like just giving rewarding people a little bit who are actually doing all the work so I saw no moral hazard in it and what it would have done this was in the middle of 08 when I started this is allowed PE people to when the crisis hit would have allowed people to keep making their mortgage payments for example and their car payments okay and the only difference between a AAA Loan mortgage loan and a toxic waste loan is with the AAA the guy’s making his payment with the toxic waste he isn’t making his payment we threw 8 million people out of work at the same time and all of a sudden people can’t make their payments surprise the banks are all full of this toxic waste and we get everything that happened and Car Sales went from 17 million to 9 million and suddenly nobody can make their car sales and everybody’s out of work uh people can’t make their car payments with the $650 a month people would have been able to make their car payments make their house payments and the financial crisis would not have spilled over into the real economy and probably nobody would have cared City Bank and Bank of America would have shareholders would have lost money debit here credit there you know auction off the paper new shareholders whatever but you know life would have gone on people would still be going to work making cars and driving them building houses and living in go to work grow food and eat it you know that part of the real world wouldn’t have changed and yeah there would have been been some winners or losers but it wouldn’t have been anything like what happened and the employment numbers would have stayed up the whole time if somebody did lose their job they would have gotten another job because there’d be enough aggregate demand to support everything so it’s pretty simple but it didn’t get done Congress actually did nothing between the middle of 08 when the problem started and March of 09 when the first part of the too small stimulus hit so um that’s that’s what I was running for office over now it I got on Fox News I got on CNBC talking about this I got support from some of the other people they were interviewing who liked it too and people heard about it and it went to a guy named I think it was well Troy Nash who I knew from UMKC was a student of Stephanie Kellon and he knew this kid named Ricky love or something was a basketball player was uh OB I think it was basketball player Obama’s personal assistant President Obama’s personal assistant and he liked the idea and he told the president president liked the idea and it got proposed and it actually got passed they didn’t cut the whole thing they cut 2% which was still a fair amount of money and it did increase people’s income and it did keep the economy from getting bad enough for him to lose the election so in that sense it saved them that way and two years later they repealed it because they uh were afraid of the deficit but um it turned out that I was told that that was the only legislation passed by the Obama Administration on a bipartisan basis and probably before or since except they might have had some compromised budget resolution that had some bipartisan but this was unanimous bipartisan everybody was in favor of this so it it’s kind of interesting that these ideas that I have that I talk to you about are entirely bipartisan that you know that both sides when they hear them listen to them support them just like that you know that legislation well anyway that’s the reason I was running was to get that past so it was a partial success at least and uh so I know I know you’re out of time here but I’ve got lots of stories like that yeah let’s let’s pick it up again in a couple months we’ll uh we’ll do some due diligence and find some other people to talk to and it’s it’s really a pleasure talking to you you too okay thanks very much I really appre thank you so much byebye take care bye everybody a [Music]
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He speaks as if the $s get destroyed when taxes are paid, in fact the gov spends the collected taxes & then some
1:48:00 housing crash
Bob murphy or Robert murphy "money mechanics" he can come on an talk about austrian economics which is opposite of mmt.
In his book he has a section debunking mmt
Peanut butter going up 100% in price is called price gouging, not inflation.
The US doesn't want interest rates to go up to stop inflation, they want them to go up so working people can't afford basic necessities like shelter so their buddies in Blackrock can swoop in and buy all the properties and force working people to rent in perpetuity. These people are not ignorant, they are evil.
Why is he so anti Michael Hudson?
I don’t agree with Warren’s tax ideas. Rich people already manipulate their assessments. The also get laws changed so their expensive prperties don’t have to pay on 100% of their assessment while common homes do have to. Also he doesn’t want corporate taxes because he claims they raise the prices and pass it on to the customer but corporate taxes are on the profits after all their write offs. If they raise prices, their profits go up and that means their taxes go up.
I want Warren to debate Ron Paul
The Bitcoin alternative would be an interesting debate. Saidfedean Ammous ?
Tax Property and remove all other taxes ???
– Will this not distort the property market and what will that disruption bring ?
– What about income earned by those not owning property that may live outside the country, they may fly in and rent/hotel for periods.
I can see the logic to remove that layer of BS jobs adding no value. Also perhaps a better more equal tax for the lower income earners.
I heard of another policy option being some form of transaction tax, every transaction in the system is taxed and paid each QTR.
Would be easy to calculate and banks could add the sum to bank statements and provide a rolling summary.
Low income should actually get a tax free level.
Debt jubilee is not the same as bankruptcy. There are specific qualifications that need to be met to declare bankruptcy, but a debt jubilee would relieve the debt of all those who do not meet those qualifications. If anyone is being intellectually dishonest, it's Mosler.
As long as we have a corrupted government it doesn’t matter what monetary system we use. Fix that and we can have a meaningful conversation.
Damn I loved that.
Fiat monetary systems have never stood the test of time.
Where does money get its value?
Lose track of that and it’s downhill all the way, just look at Weimar Germany and Zimbabwe.
Money comes out of nothing, and it gets its value from the real wealth in the economy, which lies in its goods and services.
The limited supply of gold means it’s a good store of value.
The limited supply of gold means it tends to be deflationary and hold back growth.
The economy can grow faster with fiat currencies, where the supply can be readily increased in line with economic growth.
We need gold as a safe haven because policymakers keep losing track of where fiat money gets its value.
They start to think wealth lies in money, and creating more money will solve all their problems.
Money comes out of nothing, and it gets its value from the real wealth in the economy, which lies in its goods and services.
There is too much money and money is losing its value.
Where does money get its value?
You need to know where the wealth in the system lies.
Richard Werner was looking back to see how Japan developed the successful, stable economy they used to have before they discovered financial liberalisation.
Japan didn’t issue bonds until 1965, as the BoJ created money for the Government to spend.
The BoJ used credit/window guidance to control the amount of money created by banks, and they directed that money for productive purposes. This was the secret of the success of the Asian Tiger economies.
The BoJ knew how much money was being created by banks, and could see how much money they could safely give the Government to spend.
The BoJ had the big picture of the whole system and could ensure the economy got the stable money supply it required.
Banks create money and debt at the same time.
Directing bank lending for productive purposes ensures that the associated debt doesn’t rise unsustainably.
The problem with the dollar is not internal. It's geopolitical. Through the dollar, the US directly taxes the world . Like the king with the tally sticks in old Britain. Mr. Mosler, at a point, correctly compared it to war compensation. But the world lost no war against the US. This is what makes the US a the facto world empire. Through the dollar, it effectively taxes the world as there is no other way to get dollars than to give the US real goods. That is the debt that the US can never repay, to produce the goods that would be bought by the dollars held as reserves. So the dollar must remain the world's currency. For that, there needs to be political regimes all around the world that are compliant with Wall Street. That is why there is a war in the Ucrânia and one brewing in Taiwan.
But Bernanke correctly explained to Paul Bryan in Congress that they simply typed the money for the Wall Street bailout into the computer.
MMT is really Marxism in that it shows labor and or resources are the only thing of value, money is a political system or heiarchy, it’s never had inherent value
I’m trying to understand more how Mosler disagrees with Hudson, he seems to imply that debt deflation isn’t a potential issue?
MMT is a fairy tale like unicorns. Real money is a commodity not paper (fiat). This MMT is why we have so many problems. Read Austrian Economics. Study Mises and Rothbard.
Awesome, you have ABSOLUTELY no idea of the difference between currency, wealth and money. And the principle of fraud… wow such highly educated dunces….
ITS NOT FAITH BUT FASCISM !!!! YOU ARE NOT ALLOW TO OWN NOTHING OUT RIGHT !!!!!! FOR YOU WILL BE LOOTED BY FORCE !!!! THATS NOT FREEDOM THATS ENSLAVEMENT !!!!
I am sorry but this guy is misrepresenting the Federal Reserve's role. It is an agent of the government but not part of the government. It is a private institution created by a banking cartel. Why didn't you ask why Jackson was against a central bank? Why was the creation of the current central bank such a hot topic around 1910 to its inception? Of course, the government spends money first then it goes into debt and the treasury proceeds to SELL BONDS to the Federal Reserve in exchange for dollars. His claim that the government prints money is not accurate.
Seems to me that Mosler’s model completely ignores production. No production , no economy! A worker at McDonalds contributes to our economy’s growth, Jamie Diamond does not.
"in order for the Govt to collect tax revenue, it must first create money". Do you really think that all the money in the world would go out of existence if the Govts stopped collecting taxes? Money has historically just been the most widely traded commodity with certain characteristics such as durability, divisibility, consistency, ease of movement, ease of verification, etc. Such goods would not simply dematerialize in the absence of Govts, nor would the need for humans to engage in exchange with each other. To repeat myself, Govts are not the sole provider of items with properties suitable for facilitating exchange. Rather Govts are monopolists who block all other competition for such products and they derive immense privilege from this monopoly. You would benefit greatly too if you had the ability to freely counterfeit the only "acceptable" medium of exchange in an economy. The end result is that resources are confiscated from the private sector and put to use (wasted) in the pursuit of the plans of delusional egomaniacal bureaucrats who are surrounded by yes-men and are never held accountable for any mistakes. We live in a finite world and it is not wise to allow such waste to continue for long.
Hudson is NOT intellectually dishonest, Mosler overestimating his knowledge. Hudson lays out the what happened over civilisations and shows that debtor vs creditor was always an issue which ends up with the parasite (creditor) killing the host. Mosler, if anything, is being intellectually dishonest or outright stupid to say students can go bankrupt. They start bankrupt.
You should have Robert Breedlove, Saifodean Ammous or Micheal Sailor. They are all proponents of the heretical school of economics, i.e. Austrian school. They have extremely negative view on central banking and central government of markets.
Thank you!
Inflation happens when you expand the currency supply without expanding production and services. More dollars chasing fewer goods = higher prices. It’s actually way more simple than we like to make it. Supply and demand. It does matter who gets those dollars though. When you send money directly to people who would normally be making those products and services they stop making the products and services and just start consuming, which raises prices.
Please also have Stephanie Kelton on this topic. She has very intuitive ways to explain the whole matter.
Warren is sometimes hard to follow since quite technical, though very right 😉
I'm in UK but surely US has 4 candidates for their president election
Great discussion! please get yanis varoufakis on your podcast
They can print (borrow) as much money as they want until the collapse.
They get away with it by only allowing the rich (deep state) to get the money. NOT the general public.
TARP (troubled asset rescue program), more than 700 Billion dollars went to bail out the bankers in 2008.
QE1, QE2, QE3, went to the bankers and Wall Street. Trillions…..
The inflation that produced was ASSEST inflation. The stock market (bubble) and real estate prices.
When they sent money to the people QE4 (Covid), we got consumer price inflation. That they don't want.
Print as much money as you want for the rich oligarchs, and for god sake, keep it from the people…..
you guys run a fab show, but i wish you gave up your annoying American accent….yayayyaya
Loved your show! Warren is the Goat!
I think Ritik Goyal would be great to have on. He recently graduated from Duke and worked for a hedge fund and maybe explains MMT better than Warren! But think he is not om favor of zero rates. Def a brilliant mind
This man's views are exceptional in it's different and simplicity I find his theory to be enlightened and yet I have not heard of an implementation methodology. Please have this gentleman back!
Also Douglas would brink alot of energy to show
MMTmacrotrader.
Warren himself pretty much annointed Douglas to carry the MMT torch for the next generation
I did not understand a thing this guy talked about. As for what he says of Argentina, he makes it look very easy, just adjust interest rates and in a few days the inflation went down. In the other hand, he talks as if all in this matter was a natural phenomena, there is always someone deciding as you may see. This does not work as nature. Now, if this how monetary works it would be great if government prints money for all, and solve every problems. We should go back to the gold standard, even Botcoin works this way. Peace, love.
More MMT please, thank you.
I LOVE THIS GUY! 😃
🤣👏👌