Selected Posts
Mosler: Output gap is entirely about net fiscal drag from currency monopolist restricting supply.
Mosler: A CB rate hike redefines the (fwd) value of the currency downward = "pure inflation" per se, aka, the monopolist sets the "own rate"..
Comment: Robert Shiller: In Search of a Stable Electronic Currency.
Mosler: The dollar is an electronic currency for all practical purposes, so it's not about that.
Comment: Ruchir Sharma: Currency crises always start with domestic residents taking money out of the country.
Mosler: Currency balances stay on the 'extended domestic spreadsheet' what changes is the names on the accounts.
Mosler: There is no financial sustainability issue with their local currency public debt.
Mosler: Start with the fact that the currency is a public monopoly/unemployment is evidence of restricted supply.
Comment: Does the ECB play the same role in the EZ re the payment system as the Fed in the US? If so, implications?
Mosler: Yes, currency floats, CB not reserve constrained, CB sets rates.
Comment: Is supply or demand behind the slump in oil prices?
Mosler: How about monopoly price setting...
Mosler: Deficit limits are limits on total net savings of that currency.
Comment: IMF: Countries Should Take Action to Reduce External Imbalances.
Mosler: Floating fx expresses continuous balance between trade flows and non residents' net savings desires for that currency.
Comment: Is there a link between oil prices and inflation expectations?
Mosler: As if inflation expectations are what matters when the currency is a public monopoly and Gov is price setter.
Comment: Why no inflation? The question every banker wants an answer to.
Mosler: The price level is ultimately and necessarily a function of prices paid by the gov when it spends- simple case of monopoly.
Comment: Fed Raised Rates Without a Hitch, and It Only Took $105 Billion, but we're probably talking more like $1T a day soon.
Mosler: For the Fed, it's always about price, not quantity, with floating fx/non convertible currency.
Comment: Everyone at #KeynesPizzaDinner agrees: MMT and the Fiscal Theory of the Price Level are the same thing.
Mosler: FTPL fails to recognize the currency itself is a public monopoly and the ramifications of said monopoly re the price level etc.
Comment: A rousing defense of the universal basic income from @rcbregman: Why free money beats bullshit jobs.
Mosler: Entirely misses the macro points regarding taxation, spending, and currency valuation.
Comment: Yes. I (normally) think of currency as a (de facto/de jure) government monopoly.
Mosler: And monops 'set' 2 prices: Own rate (interest rate for currency) and terms exchange for other goods + services.
Comment: Think perfectly flexible prices & wages, full-employment, very classical etc. Stuff you would hate ;-).
Mosler: Understood, and 'money' is only a numeraire. Ever try modeling a currency as a public monopoly? ;)
Comment: Monopoly Money: The State as a price Setter @ptcherneva - Epic coalition @wbmosler.
Mosler: Mainstream models have yet to model the currency itself as a public monopoly, which would materially alter results.
Mosler: Since today's currencies are gov. monopolies, gov. is necessarily price setter, so they are all necessarily 'manipulated' via gov. policies.
Mosler: Money multiplier applies to fixed fx policy, not floating ;)
Comment: It doesn't apply to any regime. It is just bad accounting.
Mosler: Fixed fx- banks need convertible currency to meet withdrawal demands.
Comment: Keynes on 'money neutrality' and the 'classical dichotomy'.
Mosler: The introduction of imperfect competition by coercive taxation necessarily obviates any notion of neutrality of that currency.
Comment: Lucas/Sargent critique’s inherent contradictions - Equitable Growth.
Mosler: With the currency itself a case of monopoly any notion of "the neutrality of money" is, obviously, entirely inapplicable.
Comment: I will also be infinitely thankful to MMT to open an academic debate about Money itself. Is it really "Credit" or still a "Commodity" ? It is credit in the way it is "created" of course, but still a "commodity" in his functioning and will be a "Commodity" as long as CB will be able to impose a nonexistent "Opportunity Cost" on it, isn't it?
Mosler: The currency is just a tax credit. And I've been proposing a permanent 0 rate policy for a very long time.
Comment: Modern Monetary Theory placed a Job Guarantee at the center of its economic thinking.
Mosler: The 'center' is the recognition that the currency itself is a public monopoly. The rest follows. ;)
Comment: There may in fact be something wrong with the models, I don’t know, I think that continues to be a question.
Mosler: They leave out the fact that the currency itself is a public monopoly.
Comment: Warren, pundits speculating US losing its reserve status. In the event of a SDR type replacement, what happens to the public money monopoly?
Mosler: The currency monopoly remains. Worst case- real terms of trade diminish/real net exports increase.
Comment: Former FOMC member Tarullo: We have no idea how inflation actually works
Comment: Especially nice to see him casting doubt on the obsession with inflation expectations!
Mosler: It's the 'default explanation' when you don't realize the currency itself is a case of monopoly, and government is thereby price setter.
Comment: New post: MMT - School of thought or set of personalities? Semantics or substance?
Mosler: Left out the fact that the currency is a simple public monopoly so the state is necessarily 'price setter'.
Comment: How long would you expect such a transitory appreciation to last in case of a new drachma or new lira?
Mosler: Until net financial assets of the new currency get to maybe 75% of GDP?
Comment: But if the central bank just sets rates in the model, isn't that the definition of public monopoly? I will admit, this is a type III error on the part of academic economists. Right but for the wrong reason.
Mosler: And yes, mainstream recognizes the CB as monopoly supplier of reserves and therefore price setter of the interest rate.
Comment: But govts of monetarily sovereign countries don't need tax collections to fund their spending needs, right? So why keep worrying about taxes? Just convince the govt to spend as u see fit.
Mosler: Those Governments don't need tax revenue per se, but they do require sufficient tax liabilities be in place to sustain a 'need' for that currency.
Mosler: I generally say it this way: spending is constrained by whatever is offered for sale in exchange for that currency.
Mosler: This 1997 article continues to provide the fundamental support for today's JG proposals: Full Employment AND Price Stability - The Center of the Universe.
Mosler: And it was Prof. Paul Davidson who pushed me and assisted me in writing it after he read this from 'Soft Currency Economics' a few years earlier: This understanding allows policy makers the option of taking advantage of the benefits of being a net importer. For example, an increase in net imports that results in the loss of private domestic employment will immediately result in an increase in the number of government $12,500 workers. This increases government spending (and the budget deficit) which may result in other industries hiring workers away from the government. If the pool of $12,500 ELR workers is deemed by the electorate to be too large, taxes can be cut or public spending increased until the number drops to the desired level. The public would associate higher trade deficits with an increasing standard of living, lower taxes, and other such benefits.
Comment: That’s not what MMT says. Tax has many purposes. As @RichardJMurphy would say. But financing spending is not one of them. Thus, Speaking of the need to tax to finance the NHS is hugely damaging. MMT takes a lot from Keynes. More so than most orthodox economists today.
Mosler: I say it this way: tax liabilities and not tax revenues per se, function to create sellers of goods and services in exchange for the state's currency, which the state can then buy.
Comment: So if taxation is not the acceptance of state liabilities, what then exactly is state liabilities and when and where does it come into play? Genuine question.
Mosler: Tax liabilities are expressed in units of the state currency, so those units are best understood as tax credits. The state accepts its tax credits as the means of extinguishing its tax liabilities.
Comment: A pure “free market” system cannot generate full employment. One of the best features of the JG is that it creates a stock of employed people, rather than leaving a buffered stock of unemployed, where social capital depletes rapidly, & long-term social pathologies develop.
Mosler: Except a pure free market economy has no state currency or taxation and therefore no unemployment. Not that I’m proposing this! ;)
Comment: Italy was paying 10% of GDP in interest on public debt, with real interest rates of 4% (nominal rates of 9-10%) and was having inflation above 5%.
Mosler:Yes I met with CB officials back then, suggesting that as rates came down, the annual deficit would fall, inflation would come down, the currency stabilizes, the economy decelerates and unemployment goes up and they would converge with the rest of the EU.
Comment: For those who have not yet acknowledged the demise of so-called crypto currencies, this blogpost from BoEngland Underground provides an introduction to the funeral oration. Only fails to mention why nothing can be a general currency without a State.
Mosler: There is no such thing as another currency of any sort threatening a government's ability to provision itself with its own currency.
Mosler: And Scotland would be able to keep the population fully employed and sustain a 0 policy rate all of which would promote low inflation, a stable currency, and real GDP growth that would cause the forex debt to GDP to diminish over time all with a higher standard of living.
Mosler: My point remains that Scotland optimizes real wealth by sustaining full employment and if it isn't allowed to do this with sterling, it can instead do it with its own currency, regardless of sterling debt and regardless of whether or not the new currency some day depreciates.
Mosler: And scotland's 90% sterling debt under current institutional arrangements is a drag on its economy and will continue to be a drag with its own currency, though it would both be a lesser drag and diminish over time.
Mosler: I've shown how their high policy rate is supporting their inflation rate and depreciating the currency continuously over time. They need to drop it to 0 imho.
Mosler: And note that, currency depreciation is most recently seen as a weapon to gain a trade advantage, which of course entirely misses the point that exports are costs and imports benefits, but that's another story. ;)
Comment: Where does inflation come from? thanks!
Mosler: The price level is necessarily a function of prices paid by gov when it spends or collateral demanded when it lends, because the gov (and its agents) is the sole supplier of what it demands for payment of taxes. Simple case of monopoly....
Comment: I interested to hear what constructive role 'money' could ever have.
Mosler: It's a public monopoly for the further purpose of provisioning government.
Comment: There is massive amount of empirical and theoretical evidence that markets don't self correct. Fisher provide the case when private debt is large, Cambridge controversy show that relative prices mechanisms are not reliable mechanisms of stabilization.
Mosler: That's because the currency itself is a case of a (coercive) monopoly.
Comment: Personally, biggest ones for me would be the idea that fully abolishing CB independence won't have seriously negative effects (when we have great reasons to worry about that), or that permanent ZIRP won't have negative effects.
Mosler: Understood. First, I argue that the base case for a floating fx currency is ZIRP, and operationally it takes continuous state intervention to support rates at higher levels- treasury securities, interest on reserves, etc.
Comment: Governments don't create money, commercial banks and central banks do. Everything I've read on MMT seems to overlook commercial banks creating new deposits and the near instant transfer of taxes.
Mosler: It's only been in all I've written and a critical part of my analysis beginning with Soft Currency Economics (1993) and definitively in this 1998 published paper: A General Analytical Framework for the Analysis of Currencies and Other Commodities - The Center of.... https://t.co/8HeaxooXCV?amp=1
Comment: The disagreement is also methodological. Has anyone taken a standard macro model and seen what happens when you relax assumptions to be in line with #MMT? Probably not. Micro foundations aren't a thing in heterodox circles.
Mosler: You don't relax assumptions, you simply add the assumption that the currency is a state monopoly, the source of that which it demands for payment of coercive taxes, and the rest follows.
Comment: Having looked at the MMT literature, a little unclear on one issue. Why would a government issue bonds? Why incur the interest expense?
Mosler: Anachronism from convertible currency operations maybe?
Mosler: Corruption as a source of inflation: New York Post : Luxury NYC apartments tied to $2.4B Venezuelan 'boligarchs' currency scam.
Comment: Yes! More on the different sources of inflation please !!!!
Mosler: Insiders getting local currency via the banking system and state owned enterprises and selling it for foreign currency for personal use, driving down the currency causing import prices to rise, for example.
Comment: It's an accurately descriptive theory of finance with a poor theory of value. Sheikh's critique of it is pretty clear - and I've been engaged with MMT critically since 2008. Knowing what it is does not equal having to agree with it...
Mosler: MMT is the only credible, logical theory of value- the currency itself is a public monopoly and monopolists are price setters, whether they know it or not.
Comment: If someone can write down the Fed’s model of inflation for me, that’d be super.
Mosler: It's entirely about inflation expectations by default as they don't model the currency as a public monopoly. Their models are relative models with the currency as numeraire, and so there's no other reason why prices are at any given level except history and changing expectations.
Comment: Friedman was never fond of big government. I haven’t came across anything suggesting he would favour leveraging gov monetary monopoly to get the economy near its max potential, besides moderate deficits to him were inflationary.
Mosler: He never understood the currency was a public monopoly.
Comment: Actually, I'm trolling an awful lot of people, including many liberals, who think the market generates inequality and we need the government to correct it. The market generates as much inequality as we design it to create.
Mosler: Agreed, with the currency a public monopoly, it's necessarily entirely about institutional structure.
Comment: I tend to partially agree with Catherine's points on external constraints & exorbitant privilege. Willem's hang up is less fx regime, more QTM. Can there be too much money? Yes. Does ELR have an automatic inflation stabilizer built in? Yes. Does Weimar apply to MMT? No.
Mosler: Buiter agrees the currency is a state monopoly, but doesn't agree it is therefore and necessarily 'price setter' whether it knows it or not. ;)
Comment: Criticism of MMT are that it doesn’t apply to developing countries or those with non-reserve currency status as Frances mentions. These points have been addressed in the academic literature and at the 2017 MMT Conference by its core proponents.
Mosler: Yes, currency fluctuation doesn't per se alter real wealth. It does have serious distributional consequences, best dealt with by adjusting internal institutional structure while sustaining domestic full employment.
Comment: Critics on the left: A fiscal rule is necessary to reassure financial markets.
MMT: Money doesn't grow on rich people.
Critics on the left: MMT ignores power.
Mosler: The currency itself is a public monopoly. Markets function within the institutional structure determined by the state.
Comment: Here's my latest Forbes column, on Facebook's proposed crypto currency - 'Libra.'
Mosler: That's all crypto currency has ever been.
Comment: One of the thorniest aspects of the climate crisis is the fact that many workers make a living (& support broader communities) from work that is environmentally destructive. The workers in this category is broader than usually envisioned in the "Just Transition" frame.
Mosler: With the currency a simple public monopoly, it's all entirely a consequence of incentives from gov. institutional structure.
Comment: I think @wbmosler consistently says that taxes function to create demand for and anchor the value of currency.
Mosler: I say taxes function to create sellers of goods and services allowing the state to provision itself by spending its otherwise worthless currency.
Comment: Turkish lira returns to relatively unchanged for the session in the wake of central bank's largest ever rate cut of 425 basis points.
Mosler: Let me suggest the currency will continue to strengthen and inflation will fall as they continue to lower rates.
Comment: When China was buying its own currency on the market to keep it propped up against the dollar that was manipulation of the currency. China STOPPED doing the manipulation, let it float, and the free market dropped its value against the dollar. That is the opposite of manipulation.
Mosler: Furthermore, since all currencies are public monopolies, and single suppliers are necessarily 'price setters', all currencies are necessarily 'manipulated' via fiscal policy and institutional structure in general. That is, the perceived idea of 'free floating' is inapplicable.
Comment: Here’s what’s not a myth, through this magic policy Kim just described, central banks have manipulated the cost of capital to 0%. When that happens globally, central banks create chaos - especially when alternate forms of digital currency exist with fixed monetary baselines.
Mosler: Cost of capital (equity) isn't 0% but probably double digit for most banks. The Gov policy rate, which is approx the marginal cost of funds for the banks, is probably close to 0%, and there's no evidence I've seen that it's created 'chaos' or that digital currency matters?.
Comment: Hate to burst bubbles given we’re all angered by US profligacy but any buyer of any country’s ultra-long bonds would FIRST be a buyer of US ultra-long bonds. It’s the way it works for the holder of reserve currency and risk-free rate status.
Mosler: Depends on the currency that denominates their liabilities and the long term basis swap....
Comment: This seems like a big deal: We have come to agree w/ the point long stressed by Post Keynesian economists & recently emphasized by Palley that the role of specific frictions in economic fluctuations should be de-emphasized relative to a more fundamental lack of aggregate demand.
Mosler: 'Frictions' are all they have by default when they don't recognize the currency itself as a public monopoly and the ramifications thereof... :(
Comment: Scott Freeman on monetary surprises and nominal government.
Mosler: The currency is a public monopoly. With floating exchange rate policy, the Fed is 'price setter' for interest rates, not 'price taker.' Inflation expectations per se don't alter interest rates. Only with fixed exchange rate policy, interest rates are 'market determined.'.
Comment: That's the classic error made my pro-market reformers in Argentina. They are tempted to borrow abroad because of Argentina's low level of domestic savings & small banking system. Yet Argentina cannot support a high level of external forex debt b/c of its small export sector.
Mosler: Wondering if they know that domestic currency debt creates its own domestic currency funds that buy it... ;)
Mosler: Permanent domestic 0 rate policy, plug leaks/corruption in the payment/banking system that's allowing insiders/exporters/etc. and probably state owned enterprises to obtain and sell local currency for forex?
Comment: Part two of what actually causes inflation!
Mosler: The currency is a public monopoly. As a point of logic, monopolists are 'price setters' and therefore the 'price level' is necessarily a function of prices paid by the state when it spends or collateral demanded when it lends.
Comment: I am looking at things from the perspective of a consolidated bank sector. I think George is looking at things from the perspective of an individual bank. One way to test this is to ask George how his view would change if there was only one (private) bank in the economy.
Mosler: A 'monopoly bank', competitive considerations aside, is a case of 'inside money' for clients. With multiple banks comes 'clearing' considerations to enable clients to shift funds between banks.
Comment: And how does this accord, given no corresponding price movements, with Milton Friedman's.
Mosler: He failed to recognize that the currency itself is a case of a state monopoly.
Comment: Warren, when you say labor market is not a fair game according to game theory & that even last worker without a job still needs to feed a family (which sounds like a solid point), how do you reconcile that with empirical evidence of real term salary growth in specific sectors?
Mosler: Supply/demand for specialties? Monopoly power? Etc?
Comment: For inflation rates to be a fiscal phenomenon, Keynesian macroeconomists must embrace the rational expectations revolution with the zeal of a religious convert!?
Mosler: Doesn't recognize that the currency itself is a public monopoly- the state and its agents are single supplier of that which is demanded for payment of taxes- and the ramifications thereof.
Comment: Did you leave out the role of inflation in MMT?
Mosler: MMT has the only understanding of the source of the price level/'inflation'- it's necessarily about prices paid by gov. The currency itself is a case of monopoly, and monopolists are necessarily price setters, whether they know it or not
Comment: Economists are part of the problem. They forget that their role is merely to promote free markets and to measure the extent to which markets are free. Instead, they tinker.
Mosler: Now that you understand the currency itself is a case of a public monopoly, you need to rethink the notion of 'free markets' operating within that institutional structure... ;)
Comment: Article shows cult nature of MMT: Quite appalling article in NYT by Kelton with hero worship of MMT founder, also makes absurd claim that MMT first to recognize taxes do not fund spending
Mosler: Is there another school of thought that models the currency as a public monopoly, and therefore 'the price level' as a function of prices paid by gov?
Comment: Yes, and whatever pricing level bank loans are financing, i.e. too much bank lending can lead to currency devaluation even if gov does not move towards paying higher prices 'for the same things'. The best example I know of this is Iceland pre-2008, but there are of course others.
Mosler: All with the awareness that 'currency devaluation' as you put it and inflation can be two different things. For example, the yen roughly went from 80 to 120/$US and the euro from 1.45 to 1.05/$US a few years back, etc. and no one noticed an inflation problem.
Comment: Key point. Any EM policy maker will be very critical of #MMT, because they know that the ultimate constraint on a country and it's ability to ease fiscal & monetary policies is the currency. Across EM, currencies have been in free-fall, sharply curtailing the ability to do QE etc
Mosler: I tended to agree with Erdogan that the high rates were contributing to the inflation and currency weakness.
Comment: That assumption is in my models. Not sure what you think falls in place though. It's just standard monetary theory.
Mosler: Monops set 2 prices 1. Own rate= policy interest rate set by Fed as single supplier of net reserves 2. Terms of exchange for other goods and services= price level is necessarily a function of prices paid by gov. spends=source of price level.
Comment: What prices are government agents setting, exactly?
Mosler: With every purchase govt. defines the value of its currency whether it knows it or not. The econ needs govt spending to comply with coercive tax liabilities. It's about who's pitching and who's catching. It's a simple case of monopoly. Elementary game theory/disparity of power.
Comment: I guess the point is, how does one prove the govt IS the price setter, rather than COULD BE the price setter? Isn’t it equally plausible the govt is following the relative market pricing structure within the currency monopoly it created.
Mosler: The dynamics of a monopoly are a clear point of logic as per all mainstream texts. Monopolists are price setters as by definition there is no competition, etc. How they do it is a matter of policy.
Comment: How does currency depreciation not affect ability to import?? Does that apply to all countries, or is this only applicable to reserve currencies?
Mosler: Real exports exchange for real imports, directly or indirectly, at 'world prices' even if you don't have a currency at all.
Comment: Wednesday’s blog post (15/07) is now posted (18:37 EAST) - MMTed Q&A - Episode 7 - http://bilbo.economicoutlook.net/blog/?p=45394 - featuring Dr Pavlina Tcherneva discussing the Job Guarantee with me.
Mosler: My comments: 1. Unemployment defines minimum 'fiscal space'. 2. Job Guarantee does not reduce the ability to import. 3. Currency depreciation does not reduce the ability to import or reduce real wealth, however it does alter internal distribution.
Comment: Knowing how the money moves doesn't equate to knowing how the money should be spent. Only the free market can efficiently allocate scarce resources. This should be obvious to you.
Comment: The currency itself being a public monopoly supported by coercive taxation obviates "free market" as per your school of thought, no?
Mosler: It's in a fixed fx context.
Comment: Wouldn't a change in real terms of trade effect the exchange rate? E.g. AUS, large component of exports is commodity based, commodity prices vs the value of those exchange rate. One influences the other?
Mosler: Yes, in this case, it's more about from the resulting change in the trade balance and foreigners needing more of your currency to buy your exports, etc.
Comment: Demand for the $US comes from tax liabilities+(residual) 'savings desires.' Increased savings desires/lower animal spirits=more unspent income=higher unemployment that requires more public def spending or higher animal spirits/higher private sector def spending/lower sav desires.
Mosler: Therefore unemployment as defined always comes down to $US monopolist restricting supply. Once the currency is 'correctly' modeled as a public monopoly utilizing coercive taxation to create demand, it all comes together.
Comment: Monetarism explains price-level as being determined by supply of some nominal asset relative to demand for that asset. The inflation rate then determined by the relative growth rates in supply and demand of these objects. There are two main issues to deal with here.
Mosler: That presumes sufficient competition/absence of monopoly?
Comment: Many great points here, though personally am not ready to abandon "monetarism" as my provisional theory of (trend) inflation.
Mosler: It's never too late... ;) Models say competitive mkts clear and imperfect competition causes unemployment. NK's say it's sticky wages, etc. Keynes and I agree it's the gov/monop restricting supply/deficit spending to offset unspent income. Therefore price level= f(prices paid by monopolist)
Comment: I will paraphrase Warren Mosler. Lets say that the government said it would not pay 1p more for anything next year, than this. The market increased its prices, and so government spending stopped. £900 billion is now no longer spent. That’s a pretty big deflationary measure!
Comment: It would apply a huge brake to the economy. Companies, firms, businesses would struggle to find the money to pay their tax. And it would only start going again, when the people agreed to supply the government for the same prices as last year. The government sets the price.
Mosler: Micro 101 on monopoly... ;)
Comment: The MMT insight - which is literally what created it as a body of theory - is that a JG can be used as a buffer stock approach to stabilise wages. Saying the JG is not part of the theory just says that you don’t understand the theory.
Mosler: The MMT insight (and a contribution to the economic history of thought) is that tax liabilities are the cause of unemployment as defined=unemployment is a monetary phenomena caused by gov by design to hire the unemployed to provision the gov with its otherwise worthless currency.
Comment: Tying policy to labor force participation would give a more accurate assessment of inflation risks and distance to full employment than just focusing on the unemployment rate.
Mosler: Recognizing the currency is a public monopoly and therefore the state is 'price setter' would also be helpful, as would recognizing rate hikes impart an inflationary bias through interest income and forward pricing channels.
Comment: Yeah, Mosler is really a free market guy. I don't think they like him much among the MMTers ;)
Mosler: Markets function within an institutional structure, which in the US begins with the $US itself a (coercive) public monopoly.
Comment: The purpose of tax is primarily to destroy money in the economy to allow the government essential spending without creating inflation. Secondarily to redistribute wealth. Thirdly to deter social actions, smoking say. What it does NOT do is raise money for government spending.
Mosler: First, to create unemployment- people looking for paid work- for the further purpose of provisioning the state via the spending of its otherwise worthless currency.
Comment: What is the most serious critique of MMT worth reading? Pls don't suggest Cochrane or alike. I said serious.
Mosler: Scholars have poured over all that I've written over there last 28 years beginning with "Soft Currency Economics" and at best found a few typos I've subsequently corrected.
Comment: First of all, thank you very much for your reply. Without an increase in the interest rate and with a lot of Argentinian pesos circulating, what measures would you think should be taken to lower inflation?
Mosler: Start by cutting the local currency policy rate to 0. Then, examine the source of the price increases, including loans to SOE's and 'insiders' that 'count' as deficit spending and result in the selling of those funds for forex.
Comment: I'll be listening to that podcast but this is def where I get lost. If the Fed = Gov't, then why even have the Fed at all? The gov't isn't technically self-financing unless the distinction btwn Fed & Treasury is collapsed no? I'm sure it'll become clearer after....
Mosler: The Fed is the designated score keeper of the currency.
Comment: I’ve followed MMT since 2010 and Bitcoin since 2011. I credit @wbmosler’s “7 Deadly Innocent Frauds of Economic Policy” book for helping me understand why Bitcoin’s success is inevitable. MMT requires governments to have a monopoly on money issuance. Bitcoin breaks the monopoly.
Mosler: Thanks! The gov's monopoly is on that which can be used to pay gov taxes,
Comment: Is this saying that it was the 'hyper-enlarged' deficits that contributed to the hyperinflation? It also mentions failing to balance budget [revenue... failed to keep in step with its spending].I don't think this is in line with the rest of the document? Maybe further clarify: Indirectly through organized private sector wage increases that allowed the domestic sector to pay the higher prices, was the source of the inflation of the German domestic price level. The German state, in competition with private sector buyers, directly and indirectly funded by the state, competed for the limited available output by increasing their offer prices. This process, exacerbated by German interest rate policy, further increased government budget deficits (see Appendix 1), as state revenue, levied in nominal terms, failed to keep in step with its spending (Hetzel 2002), and these hyper-enlarged' deficits supported the hyperinflation of the price level.
Mosler: The point is that the higher prices paid are the redefining/devaluation of the currency. And the paying of the higher prices contributed to gov facing further price increases, that gov again decided to pay. It's the paying of the higher price that redefines/devalues the currency.
Comment: Especially, since this is the last paragraph before the appendix and so be the last thing in the readers mind! Otherwise, there is danger of this being used as a something to knock MMT. "...See, even MMTers say that deficits caused hyperinflation".
Mosler: When gov spending-deficit or otherwise-is via paying the higher prices, that spending redefines/devalues the currency. So it's about gov spending at ever higher prices-gov spending not price constrained- vs price constrained gov spending.
Comment: Turkey's central bank deserves a huge amount of credit and respect for today. Lira appreciation is a de facto loosening in financial conditions and good for Turkey.
Mosler: Fundamentally, with floating fx, rate hikes weaken the currency. I'd cut the policy rate to 0
Comment: The current Federal Debt held by public is equivalent to: + 10 years of (non-recession) Federal income tax revenue or + $50,000 per person or + $141,000 per household.
Mosler: Those are the $ spent by gov that haven't yet been used to pay taxes, and remain outstanding as the economy's net financial assets until used to pay taxes= currency in circulation + reserve balances at the Fed + Tsy secs ($ in securities accounts at the Fed).
Comment: Invoking the limits argument in bad faith, or just badly, has also stoked the equally bad idea [emanating particularly from MMT] that there are no limits, or no practical limits, that taxes don't fund govt spending, and that you can use the printing presses and not worry about it.
Mosler: There are no nominal limits in that spending is a matter of crediting accounts. The real limit to spending is what is offered for sale with a price tag in your currency
All Posts
Mosler: Output gap is entirely about net fiscal drag from currency monopolist restricting supply.
Mosler: Right, the national debt is just the 'monetary base' of the economy for any nation with its own fiat currency.
Mosler: THE micro foundation: The currency is a (simple) public monopoly!
Comment: Because no one collects, 70% is ours, nice little system for unlimited capacity.
Mosler: Currency issuers must spend first, then collect/borrow back own money.
Mosler: Currency wars a deflationary bias for the US.
Comment: Turkish central bank raises overnight borrowing rate to 8% vs previous 3.5%.
Mosler: Backwards, rate hikes like that fundamentally weaken the currency.
Mosler: A CB rate hike redefines the (fwd) value of the currency downward = "pure inflation" per se, aka, the monopolist sets the "own rate"..
Comment: Robert Shiller: In Search of a Stable Electronic Currency.
Mosler: The dollar is an electronic currency for all practical purposes, so it's not about that.
Comment: Ruchir Sharma: Currency crises always start with domestic residents taking money out of the country.
Mosler: Currency balances stay on the 'extended domestic spreadsheet' what changes is the names on the accounts.
Mosler: There is no financial sustainability issue with their local currency public debt.
Mosler: It's the currency monopolist restricting supply.
Mosler: Start with the fact that the currency is a public monopoly/unemployment is evidence of restricted supply.
Comment: Lost in everyone's heroic rush to predict future policy: Yellen's speech is a terrific primer on why it's hard to know anything in economics.
Mosler: Yes, if you fail to recognize the currency is a simple public monopoly....
Comment: Julie Nelson, U. Mass., must understand sociology of markets. The production of good is important, finance should serve that. #mmn #reny2014
Mosler: No mention of the currency being a (simple) public monopoly, etc. :(
Comment: Mainstream econ is equilibrium-obsessed. Keynes' innovations based on disequilibrium expectations #reny2014 #MMN.
Mosler: All obviated by the fact that the currency is a simple public monopoly.
Mosler: Re: Scotland- I'd sustain full employment with a new currency called the 'kilt' as a tease on those wondering what's behind it... ;)
Comment: Dam breaks in Europe as deflation fears wash over ECB rhetoric.
Mosler: And fundamentally deflation = stronger currency.
Comment: In what way?
Mosler: The euro floats vs other currencies. Analogy is the national governments and US states etc. Not currency convertibility.
Comment: EP has no tax raising powers. It is not in any sense a fiscal authority.
Mosler: My point- those rules are a subset of the currency policy not a consequence.
Comment: Does the ECB play the same role in the EZ re the payment system as the Fed in the US? If so, implications?
Mosler: Yes, currency floats, CB not reserve constrained, CB sets rates.
Comment: When currencies are rigidly fixed to gold as in pre-1914 Europe, they act like a single currency.
Mosler: Yes, between currency issuers. Forex policy is the 'first cut'.
Comment: FX policy not "first cut" pre-1914. Was inter-country reserve flow management.
Mosler: Yes, a fixed fx policy between currency issuers.
Comment: That is exactly my point. Multiple currencies rigidly pegged, as in pre-1914 Europe.
Mosler: My point-same goes for the US states and all currency users vs issuers.
Comment: Intra-EZ more like pre-1914 gold standard system in Europe (not US), but without "rules of the game" adjustments.
Mosler: You are mixing metaphors. Gold analogous to pegs/currency bds etc. Beneath that are various structural differences.
Comment: Euro is more like 18 rigidly pegged currencies than one single currency. Hence my analogy.
Mosler: 18 pegged currencies ARE functionally a single currency.
Comment: My point is institutional differences make Euro much more like rigid gold standard than single ccy.
Mosler: But it still mixes metaphors. Gold standard is subsequent to currency formation.
Comment: Very different. US is a single issuer. Eurozone is not. It is not a "sovereign".
Mosler: For example, fixing the euro to gold or another currency fundamentally changes the context.
Comment: Do you really think that's how the oil market works?
Mosler: Yes, simple point of logic beyond dispute, monopoly supplier at the margin is a price setter. Micro 101
Comment: They are price taker, not price maker. They base prices directly or indirectly on Brent/BFOE price. Macro 101.
Mosler: That is price setting and monopoly pricing is covered in micro 101 ;)
Comment: But raised political risk means there is domestic capital flight - ordinary Russians converting rubles to dollars & gold.
Comment: This is the most critical point, evidence MMT needs overhaul that incorporates money demand constraint.
Comment: I think it's all about political credibility.
Mosler: It is all about taxing authority and understanding the currency itself is a (public) monopoly.
Comment: Is supply or demand behind the slump in oil prices?
Mosler: How about monopoly price setting...
Comment: Global Debt Has Risen by $57 Trillion Since the Financial Crisis, Which Is Scary.
Mosler: Local currency debt is just the money spent by Gov that remains outstanding until used to pay taxes.
Mosler: Local currency public debt functions to fund savings desires and not as a loan to be repaid.
Mosler: Deficit limits are limits on total net savings of that currency.
Comment: IMF: Countries Should Take Action to Reduce External Imbalances.
Mosler: Floating fx expresses continuous balance between trade flows and non residents' net savings desires for that currency.
Comment: Is there a link between oil prices and inflation expectations?
Mosler: As if inflation expectations are what matters when the currency is a public monopoly and Gov is price setter.
Comment: Why no inflation? The question every banker wants an answer to.
Mosler: The price level is ultimately and necessarily a function of prices paid by the gov when it spends- simple case of monopoly.
Comment: In 2000, Wray explained the evolution of Godley's NFA/sector balances becoming integrated into MMT via Minsky.
Mosler: And the fundamentals are in Soft Currency Economics (1993), long before I knew Wynne ;)
Comment: Seems to me this whole "debate" about nfa, equity reval, etc., is about Godley/Lavoie models, not mmt. I side with G/L there, btw.
Mosler: There has been no dispute with 'Soft Currency Economics' or with 'Full Employment and Price Stability' which specified NFA.
Comment: I still have to say that means nothing to me.
Mosler: The currency monopolist restricting supply (net fin assets) becomes the source of unemployment ;)
Comment: Fed Raised Rates Without a Hitch, and It Only Took $105 Billion, but we're probably talking more like $1T a day soon.
Mosler: For the Fed, it's always about price, not quantity, with floating fx/non convertible currency.
Comment: Everyone at #KeynesPizzaDinner agrees: MMT and the Fiscal Theory of the Price Level are the same thing.
Mosler: FTPL fails to recognize the currency itself is a public monopoly and the ramifications of said monopoly re the price level etc.
Comment: My latest post on inflation. A basic overview of concepts for the general public.
Mosler: There's a bit more to it as the currency itself is a public monopoly and gov therefore price setter etc ;)
Comment: Article examines whether focus on low real interest rate might be misplaced.
Mosler: Have you modeled the currency itself as a public monopoly?
Comment: Let Y=MV/P and assume (change in M)=G-T (assuming bonds constant) and neg relation between U & Y and you've got it.
Mosler: Yes, define M as G-T, but with M, then a public monopoly gov is 'price setter' for P.
Comment: A rousing defense of the universal basic income from @rcbregman: Why free money beats bullshit jobs.
Mosler: Entirely misses the macro points regarding taxation, spending, and currency valuation.
Mosler: But fundamentally because the currency itself is a (public) monopoly. Once that is appreciated there is no dispute... ;)
Mosler: Largely because the currency itself is a public monopoly ;)
Comment: Vancouver house prices are up 32% in the last year - WSJ.
Mosler: So about flat in $US terms since their currency fell? ;)
Comment: Yes. I (normally) think of currency as a (de facto/de jure) government monopoly.
Mosler: And monops 'set' 2 prices: Own rate (interest rate for currency) and terms exchange for other goods + services.
Comment: Think perfectly flexible prices & wages, full-employment, very classical etc. Stuff you would hate ;-).
Mosler: Understood, and 'money' is only a numeraire. Ever try modeling a currency as a public monopoly? ;)
Mosler: Their first major problem is they don't model the currency itself as the public monopoly that it is.
Comment: Monopoly Money: The State as a price Setter @ptcherneva - Epic coalition @wbmosler.
Mosler: Mainstream models have yet to model the currency itself as a public monopoly, which would materially alter results.
Comment: New article: Whither Mainstream Economics?
Mosler: The error is that of omission: They have all yet to recognize and then model the currency itself as a public monopoly.
Mosler: Cross currency basis is just the difference between actual market interest rates and libor settings.
Mosler: Their models fail because they fail to recognize the currency itself is a public monopoly and the ramifications thereof.
Mosler: Since today's currencies are gov. monopolies, gov. is necessarily price setter, so they are all necessarily 'manipulated' via gov. policies.
Mosler: Money multiplier applies to fixed fx policy, not floating ;)
Comment: It doesn't apply to any regime. It is just bad accounting.
Mosler: Fixed fx- banks need convertible currency to meet withdrawal demands.
Comment: Keynes on 'money neutrality' and the 'classical dichotomy'.
Mosler: The introduction of imperfect competition by coercive taxation necessarily obviates any notion of neutrality of that currency.
Comment: I think you were guilty of claiming that "taxpayers" fund govt spending.
Mosler: Depends on how you are defining the word "fund"... Gov. spending is constrained by what is offered for sale in that currency, not revenue.
Comment: Lucas/Sargent critique’s inherent contradictions - Equitable Growth.
Mosler: With the currency itself a case of monopoly any notion of "the neutrality of money" is, obviously, entirely inapplicable.
Comment: I will also be infinitely thankful to MMT to open an academic debate about Money itself. Is it really "Credit" or still a "Commodity" ? It is credit in the way it is "created" of course, but still a "commodity" in his functioning and will be a "Commodity" as long as CB will be able to impose a nonexistent "Opportunity Cost" on it, isn't it?
Mosler: The currency is just a tax credit. And I've been proposing a permanent 0 rate policy for a very long time.
Mosler: Try adding the assumption that the currency itself is a public monopoly...;)
Comment: The "inventor" of modern money (MMT) @wbmosler federal gov does not need to tax anybody, sovereign countries issue own money.
Mosler: Tax liabilities are required to create sellers of goods and services desiring that currency in exchange thanks.
Comment: Modern Monetary Theory placed a Job Guarantee at the center of its economic thinking.
Mosler: The 'center' is the recognition that the currency itself is a public monopoly. The rest follows. ;)
Comment: There may in fact be something wrong with the models, I don’t know, I think that continues to be a question.
Mosler: They leave out the fact that the currency itself is a public monopoly.
Comment: Warren, pundits speculating US losing its reserve status. In the event of a SDR type replacement, what happens to the public money monopoly?
Mosler: The currency monopoly remains. Worst case- real terms of trade diminish/real net exports increase.
Comment: Former FOMC member Tarullo: We have no idea how inflation actually works
Comment: Especially nice to see him casting doubt on the obsession with inflation expectations!
Mosler: It's the 'default explanation' when you don't realize the currency itself is a case of monopoly, and government is thereby price setter.
Comment: New post: MMT - School of thought or set of personalities? Semantics or substance?
Mosler: Left out the fact that the currency is a simple public monopoly so the state is necessarily 'price setter'.
Comment: How long would you expect such a transitory appreciation to last in case of a new drachma or new lira?
Mosler: Until net financial assets of the new currency get to maybe 75% of GDP?
Comment: Rebuilding Macroeconomic Theory, our brand new issue, is NOW LIVE. Follow us, share and engage with the bold and varied arguments made.
Mosler: Don't forget to include the currency itself as a public monopoly driven by coercive taxation, etc... ;)
Comment: But if the central bank just sets rates in the model, isn't that the definition of public monopoly? I will admit, this is a type III error on the part of academic economists. Right but for the wrong reason.
Mosler: And yes, mainstream recognizes the CB as monopoly supplier of reserves and therefore price setter of the interest rate.
Comment: Would love to here people's thought.
Mosler: Not to forget the currency is a public monopoly = state is price setter etc.
Comment: But govts of monetarily sovereign countries don't need tax collections to fund their spending needs, right? So why keep worrying about taxes? Just convince the govt to spend as u see fit.
Mosler: Those Governments don't need tax revenue per se, but they do require sufficient tax liabilities be in place to sustain a 'need' for that currency.
Mosler: I generally say it this way: spending is constrained by whatever is offered for sale in exchange for that currency.
Comment: Good money is benign and just allows the economy to function effectively. Bad money management is damaging and there is nothing money management can do to benefit the economy and make things better. I think we are saying the same thing.
Mosler: Are you recognizing the state currency functions as a public monopoly? That is, funds accepted for payment of taxes ultimately come only from the state (or its designated agents).
Mosler: This 1997 article continues to provide the fundamental support for today's JG proposals: Full Employment AND Price Stability - The Center of the Universe.
Mosler: And it was Prof. Paul Davidson who pushed me and assisted me in writing it after he read this from 'Soft Currency Economics' a few years earlier: This understanding allows policy makers the option of taking advantage of the benefits of being a net importer. For example, an increase in net imports that results in the loss of private domestic employment will immediately result in an increase in the number of government $12,500 workers. This increases government spending (and the budget deficit) which may result in other industries hiring workers away from the government. If the pool of $12,500 ELR workers is deemed by the electorate to be too large, taxes can be cut or public spending increased until the number drops to the desired level. The public would associate higher trade deficits with an increasing standard of living, lower taxes, and other such benefits.
Comment: That’s not what MMT says. Tax has many purposes. As @RichardJMurphy would say. But financing spending is not one of them. Thus, Speaking of the need to tax to finance the NHS is hugely damaging. MMT takes a lot from Keynes. More so than most orthodox economists today.
Mosler: I say it this way: tax liabilities and not tax revenues per se, function to create sellers of goods and services in exchange for the state's currency, which the state can then buy.
Comment: So if taxation is not the acceptance of state liabilities, what then exactly is state liabilities and when and where does it come into play? Genuine question.
Mosler: Tax liabilities are expressed in units of the state currency, so those units are best understood as tax credits. The state accepts its tax credits as the means of extinguishing its tax liabilities.
Comment: A pure “free market” system cannot generate full employment. One of the best features of the JG is that it creates a stock of employed people, rather than leaving a buffered stock of unemployed, where social capital depletes rapidly, & long-term social pathologies develop.
Mosler: Except a pure free market economy has no state currency or taxation and therefore no unemployment. Not that I’m proposing this! ;)
Comment: But if the central bank just sets rates in the model, isn't that the definition of public monopoly? I will admit, this is a type III error on the part of academic economists. Right but for the wrong reason.
Mosler: Paul Davidson is 88 today- happy birthday! 20 years ago, he read 'Soft Currency Economics' and demanded I write 'Full Employment AND Price Stability', working with me continuously to get it right for publication in his journal. The rest is history! ;)
Comment:
Mosler: Yes I met with CB officials back then, suggesting that as rates came down, the annual deficit would fall, inflation would come down, the currency stabilizes, the economy decelerates and unemployment goes up and they would converge with the rest of the EU.
Comment: For those who have not yet acknowledged the demise of so-called crypto currencies, this blogpost from BoEngland Underground provides an introduction to the funeral oration. Only fails to mention why nothing can be a general currency without a State.
Mosler: There is no such thing as another currency of any sort threatening a government's ability to provision itself with its own currency.
Mosler: But said debt need be no worse with your own currency, and less of an issue if you have your own currency and sustain higher levels of real domestic output?
Mosler: True. But the higher levels of domestic output from having your own currency works in your favor in support of your real wealth.
Mosler: Seems they have the same issue, new currency or not?
Mosler: I'm thinking of Greece going to drachma, sustaining domestic full employment output levels, and then facing currency depreciation. GDP would be maybe 25% higher and growing. Or Italy, for another example.
Mosler: It doesn't follow, it leads. I agree that if you are already at full employment, etc. you don't need to go to your own currency. So the context is, you made the change to your own currency to increase GDP growth, etc.
Mosler: And Scotland would be able to keep the population fully employed and sustain a 0 policy rate all of which would promote low inflation, a stable currency, and real GDP growth that would cause the forex debt to GDP to diminish over time all with a higher standard of living.
Mosler: My point remains that Scotland optimizes real wealth by sustaining full employment and if it isn't allowed to do this with sterling, it can instead do it with its own currency, regardless of sterling debt and regardless of whether or not the new currency some day depreciates.
Mosler: And scotland's 90% sterling debt under current institutional arrangements is a drag on its economy and will continue to be a drag with its own currency, though it would both be a lesser drag and diminish over time.
Mosler: Debt to GDP is only 28% so it's not about excess fiscal expansion?
Mosler: And over time, the rate of currency depreciation isn't that much different from the policy rate of interest, so it doesn't look 'out of control' to me?
Mosler: I've shown how their high policy rate is supporting their inflation rate and depreciating the currency continuously over time. They need to drop it to 0 imho.
Mosler: And note that, currency depreciation is most recently seen as a weapon to gain a trade advantage, which of course entirely misses the point that exports are costs and imports benefits, but that's another story. ;)
Mosler: I do look at it unfavorably. Just saying, it's no worse if you have your own currency. And with Turkey, it doesn't read like the problem is the state increasing demand.
Mosler: Turkey's fx debt is about 50% of GDP which is high. I'm saying it would be a larger problem if they didn't have their own currency because they wouldn't be able to sustain full employment. But they aren't doing that now, even though they could.
Mosler: I just see they have $128 billion of forex reserves! That means the gov has somehow directly or indirectly been selling lira to buy fx and driving the currency down.
Mosler: Yes it does. And investors use 'borrowed/hedged' local currency which removes currency risk.
Mosler: Laced with fundamental errors from a failure to recognize state currencies as public monopolies. Particularly weak on neutrality and inflation.
Mosler: Yes, you know the inflation and currency depreciation isn't about excess demand.
Comment: Where does inflation come from? thanks!
Mosler: The price level is necessarily a function of prices paid by gov when it spends or collateral demanded when it lends, because the gov (and its agents) is the sole supplier of what it demands for payment of taxes. Simple case of monopoly....
Comment: I interested to hear what constructive role 'money' could ever have.
Mosler: It's a public monopoly for the further purpose of provisioning government.
Comment: A question for the #MMT-Pro(f)s which might also interest others: How would you define the role of wage policy and distribution conflict in regard to targeting inflation in MMT? Could there be common ground between Kaleckians and MMTers?
Mosler: With the currency a state monopoly it's all necessarily a consequence of state policy.
Mosler: And it's all in my very short free online non technical book thanks!
Mosler: Including the understanding that tax liabilities function to create sellers of goods and services (who then need that currency) so the gov. can then spend its otherwise worthless currency.
Comment: There is massive amount of empirical and theoretical evidence that markets don't self correct. Fisher provide the case when private debt is large, Cambridge controversy show that relative prices mechanisms are not reliable mechanisms of stabilization.
Mosler: That's because the currency itself is a case of a (coercive) monopoly.
Comment: Personally, biggest ones for me would be the idea that fully abolishing CB independence won't have seriously negative effects (when we have great reasons to worry about that), or that permanent ZIRP won't have negative effects.
Mosler: Understood. First, I argue that the base case for a floating fx currency is ZIRP, and operationally it takes continuous state intervention to support rates at higher levels- treasury securities, interest on reserves, etc.
Comment: Governments don't create money, commercial banks and central banks do. Everything I've read on MMT seems to overlook commercial banks creating new deposits and the near instant transfer of taxes.
Mosler: It's only been in all I've written and a critical part of my analysis beginning with Soft Currency Economics (1993) and definitively in this 1998 published paper: A General Analytical Framework for the Analysis of Currencies and Other Commodities - The Center of....
Comment: The disagreement is also methodological. Has anyone taken a standard macro model and seen what happens when you relax assumptions to be in line with #MMT? Probably not. Micro foundations aren't a thing in heterodox circles.
Mosler: You don't relax assumptions, you simply add the assumption that the currency is a state monopoly, the source of that which it demands for payment of coercive taxes, and the rest follows.
Comment: Having looked at the MMT literature, a little unclear on one issue. Why would a government issue bonds? Why incur the interest expense?
Mosler: Anachronism from convertible currency operations maybe?
Comment: I see. Thanks! I've now written a short piece trying to capture this point (corrections welcome).
Mosler: You did say only MMT recognizes that the currency itself is a simple case of a public monopoly, and monopolists are price setters, etc? ;)
Comment: IMHO "MMT" is about as realistic as "rapture" and is definitely a low-quality idea (I might concede some people may be using it in good faith, but same may be true for some cases of people blathering about divine intervention)
Mosler: Core MMT understanding: The currency itself is a public monopoly- the thing needed for payment of taxes comes only from the state or its agents. (The rest follows.)
Comment: How did they manage to Magic up our own currency (presumably the Haggis) and the SNP didn't and the UK gvt said it was impossible.
Mosler: Can I call the new currency the Kilt?
Mosler: Corruption as a source of inflation: New York Post : Luxury NYC apartments tied to $2.4B Venezuelan 'boligarchs' currency scam.
Comment: Yes! More on the different sources of inflation please !!!!
Mosler: Insiders getting local currency via the banking system and state owned enterprises and selling it for foreign currency for personal use, driving down the currency causing import prices to rise, for example.
Comment: It's an accurately descriptive theory of finance with a poor theory of value. Sheikh's critique of it is pretty clear - and I've been engaged with MMT critically since 2008. Knowing what it is does not equal having to agree with it...
Mosler: MMT is the only credible, logical theory of value- the currency itself is a public monopoly and monopolists are price setters, whether they know it or not.
Comment: Just in case anyone feels the need for yet another MMT thread.
Mosler: Pavlina Tcherneva: “Critical Review of Warren Mosler's Soft Currency Economics,” EPIC Discussion Paper 7, Coalition of Economic Policy Institutions, June 1996.
Comment: “[Tarullo] was particularly doubtful about the weight inflation expectations play in rate-setting policy, given the ‘range and depth of unanswered questions’ about how they are formed and measured.”
Mosler: Powell and the rest continue to be entirely wrong. They fail to realize the $ is simply a public monopoly and monopolists are necessarily prices setters, not price takers. :(
Comment: Fed's John Williams Warns of Risks of Low Inflation Expectations.
Mosler: Any economic model that does not model the currency itself as a public monopoly is inapplicable to our monetary system.
Comment: If someone can write down the Fed’s model of inflation for me, that’d be super.
Mosler: It's entirely about inflation expectations by default as they don't model the currency as a public monopoly. Their models are relative models with the currency as numeraire, and so there's no other reason why prices are at any given level except history and changing expectations.
Comment: Thursday's blog (07/03) is now posted (05:58 EAST) - The conga line of MMT critics - marching into oblivion.
Mosler: The critics are up against "Pure Force of Logic" of 'Soft Currency Economics" drafted in 1992: "Statement of Purpose: The purpose of this work is to clearly demonstrate, through pure force of logic, that much of the public debate on many of today's economic issues is invalid..."
Comment: We have all said it thousands of times. I don’t think there’s a communication problem. There’s something else going on.
Mosler: They can start by acknowledging (or not) that the $US is a public monopoly. The rest follows... ;)
Comment: I really can’t stress enough as a philosopher and social theorist by training how ridiculous the vast majority of mainstream economist’s “models” are as accurate reflections of the organized social provisioning process we call “the economy”.
Mosler: None of them model the currency as a public monopoly.
Comment: Friedman was never fond of big government. I haven’t came across anything suggesting he would favour leveraging gov monetary monopoly to get the economy near its max potential, besides moderate deficits to him were inflationary.
Mosler: He never understood the currency was a public monopoly.
Comment: Wow. This thread earned me a block from Brad DeLong. So please retweet. I guess when he said "the baton rightly passes to our colleagues on the left" he was just kidding. After all, what reason is there to give jobs to people who want to work!
Mosler: Until he and the rest of the headline left recognize the currency itself is a public monopoly, they'll continue to get it all wrong.
Comment: Deflation is the major risk of our time but also MMT is crazy because it would risk hyperinflation""inflation expectations are overblown but also we need to preserve existing macro framework at all costs to avoid destabilizing inflation expectations" can't make this shit up.
Mosler: Yes, seems they miss THE contribution of MMT no matter how many times its repeated: The currency is a public monopoly.
Comment: Thanks. Seems like rational expectations are the core difference? Hard to see (for me) how other assumptions affect empirical predictions of MMT vs FTPL.
Mosler: The core difference is that MMT alone recognizes that the currency itself is a public monopoly that begins with coercive taxation.
Comment: Actually, I'm trolling an awful lot of people, including many liberals, who think the market generates inequality and we need the government to correct it. The market generates as much inequality as we design it to create.
Mosler: Agreed, with the currency a public monopoly, it's necessarily entirely about institutional structure.
Comment: I tend to partially agree with Catherine's points on external constraints & exorbitant privilege. Willem's hang up is less fx regime, more QTM. Can there be too much money? Yes. Does ELR have an automatic inflation stabilizer built in? Yes. Does Weimar apply to MMT? No.
Mosler: Buiter agrees the currency is a state monopoly, but doesn't agree it is therefore and necessarily 'price setter' whether it knows it or not. ;)
Comment: The government doesn't use tax revenue from any source for spending on anything. It all gets deleted from the national debt. The Tories are *choosing* to starve the NHS. Learn Modern Monetary Theory. Check out how the government actually spends at.
Mosler: Right, the gov uses tax liabilities to create sellers of goods and services in exchange for the currency.
Comment: Criticism of MMT are that it doesn’t apply to developing countries or those with non-reserve currency status as Frances mentions. These points have been addressed in the academic literature and at the 2017 MMT Conference by its core proponents.
Mosler: Yes, currency fluctuation doesn't per se alter real wealth. It does have serious distributional consequences, best dealT with by adjusting internal institutional structure while sustaining domestic full employment.
Comment: The price level is necessarily an aggregate of production costs and desire for profit. Millennials have different preferences. Insights from MMT make this possible. What am I missing?
Mosler: The currency itself is a public monopoly.
Comment: Critics on the left: A fiscal rule is necessary to reassure financial markets.
MMT: Money doesn't grow on rich people.
Critics on the left: MMT ignores power.
Mosler: The currency itself is a public monopoly. Markets function within the institutional structure determined by the state.
Comment: How is it so easy for so many econs to 'forget' that 'printing money' at ZIRP is not inflationary IN THEIR OWN MODEL? Did they all miss Krugman's bazillion op-eds on HIS (i.e., not Keynes's) 'liquidity trap'?
Mosler: He misses MMT 101: The currency is a public monopoly, and thereby price setter. :(
Mosler: Except the currency is a state monopoly, so the price level is necessarily a function of prices paid by gov when spending, and not inflation expectations.
Comment: Here's my latest Forbes column, on Facebook's proposed crypto currency - 'Libra.'
Mosler: That's all crypto currency has ever been.
Comment: One of the thorniest aspects of the climate crisis is the fact that many workers make a living (& support broader communities) from work that is environmentally destructive. The workers in this category is broader than usually envisioned in the "Just Transition" frame.
Mosler: With the currency a simple public monopoly, it's all entirely a consequence of incentives from gov. institutional structure.
Comment: I think @wbmosler consistently says that taxes function to create demand for and anchor the value of currency.
Mosler: I say taxes function to create sellers of goods and services allowing the state to provision itself by spending its otherwise worthless currency.
Comment: Turkish lira returns to relatively unchanged for the session in the wake of central bank's largest ever rate cut of 425 basis points.
Mosler: Let me suggest the currency will continue to strengthen and inflation will fall as they continue to lower rates.
Comment: When China was buying its own currency on the market to keep it propped up against the dollar that was manipulation of the currency. China STOPPED doing the manipulation, let it float, and the free market dropped its value against the dollar. That is the opposite of manipulation.
Mosler: Furthermore, since all currencies are public monopolies, and single suppliers are necessarily 'price setters', all currencies are necessarily 'manipulated' via fiscal policy and institutional structure in general. That is, the perceived idea of 'free floating' is inapplicable.
Comment: Thank you for the link. Read I b4. No disagreement on rates natural rate is 0. Big disagreement that Govt will set wages, Gov't gives jobs, Gov't gives healthcare, Govt will make it all green, Gov't will control production, Gov't will control inflation via suppression of wages tax.
Mosler: As currency monopolist via coercive taxation, it's necessarily been that way all along, whether anyone knows it or likes it or not....
Comment: Here’s what’s not a myth, through this magic policy Kim just described, central banks have manipulated the cost of capital to 0%. When that happens globally, central banks create chaos - especially when alternate forms of digital currency exist with fixed monetary baselines.
Mosler: Cost of capital (equity) isn't 0% but probably double digit for most banks. The Gov policy rate, which is approx the marginal cost of funds for the banks, is probably close to 0%, and there's no evidence I've seen that it's created 'chaos' or that digital currency matters?.
Comment: The Case for a Guaranteed Job by Robert Skidelsky.
Mosler: ??? The govt. created unemployment, by design, by imposing tax liabilities, for the further purpose of provisioning itself by spending its otherwise worthless currency. Residual unemployment is the evidence that the tax liabilities created more unemployed than the gov hired.
Comment: Hate to burst bubbles given we’re all angered by US profligacy but any buyer of any country’s ultra-long bonds would FIRST be a buyer of US ultra-long bonds. It’s the way it works for the holder of reserve currency and risk-free rate status.
Mosler: Depends on the currency that denominates their liabilities and the long term basis swap....
Comment: This seems like a big deal: We have come to agree w/ the point long stressed by Post Keynesian economists & recently emphasized by Palley that the role of specific frictions in economic fluctuations should be de-emphasized relative to a more fundamental lack of aggregate demand.
Mosler: 'Frictions' are all they have by default when they don't recognize the currency itself as a public monopoly and the ramifications thereof... :(
Comment: Scott Freeman on monetary surprises and nominal government debt.
Mosler: The currency is a public monopoly. With floating exchange rate policy, the Fed is 'price setter' for interest rates, not 'price taker.' Inflation expectations per se don't alter interest rates. Only with fixed exchange rate policy, interest rates are 'market determined.'.
Comment: That's the classic error made my pro-market reformers in Argentina. They are tempted to borrow abroad because of Argentina's low level of domestic savings & small banking system. Yet Argentina cannot support a high level of external forex debt b/c of its small export sector.
Mosler: Wondering if they know that domestic currency debt creates its own domestic currency funds that buy it... ;)
Mosler: Permanent domestic 0 rate policy, plug leaks/corruption in the payment/banking system that's allowing insiders/exporters/etc. and probably state owed enterprises to obtain and sell local currency for forex?
Mosler: To create sellers of goods and services desiring that currency in exchange, as per the gov's desire to provision itself via the spending of its otherwise worthless currency....
Comment: Part two of what actually causes inflation!
Mosler: The currency is a public monopoly. As a point of logic, monopolists are 'price setters' and therefore the 'price level' is necessarily a function of prices paid by the state when it spends or collateral demanded when it lends.
Comment: I am looking at things from the perspective of a consolidated bank sector. I think George is looking at things from the perspective of an individual bank. One way to test this is to ask George how his view would change if there was only one (private) bank in the economy.
Mosler: A 'monopoly bank', competitive considerations aside, is a case of 'inside money' for clients. With multiple banks comes 'clearing' considerations to enable clients to shift funds between banks.
Comment: Someone didn't understand this is the @mmtconference. The FIRST thing we learn is spending doesn't necessarily lead to inflation. (Well, that's actually the second thing. The first is taxation and spending aren't directly correlated).
Mosler: With the currency a public monopoly, the price levels is necessarily a function of prices paid by the state- the 'money monopolist'- when it spends.
Comment: My heart fluttered when @WilliamKBlack talked about the "micro side" and "micro foundations" of #MMT YES YES!! And more more!!
Mosler: The micro foundation is that the currency is a public monopoly.
Mosler: Turkey- Massive interest rate cuts and at least so far lower inflation and a firming currency. Not that this proves anything, of course. Just that the reverse didn't happen. And just in time for Thanksgiving! ;)
Comment: MMT Heaven and MMT Hell for Chinese Investment and U.S. Fiscal Spending - Carnegie Endowment for International Peace.
Mosler: The fact that the price level is a function of prices paid by govt, the currency monopolist and price setter, has again been omitted by an MMT proponent. :(
Comment: Inflation may or may not be a concern going forward, but we can afford not to worry it right now (market-based measures of inflation expectations have tumbled). This is not to say we won't have to worry about inflation ever again, of course. Stay safe out there!
Mosler: Another bridge for you to cross: The $ is a public monopoly, so first order the price level is necessarily a function of prices paid by gov, and not inflation expectations.
Comment: Supply-demand is not great for thinking about business cycles and nominal income generation at a macro level. For an alternative, see how the flow of funds accounts are constructed: a matrix of flows across the balance sheets of different sectors of the economy.
Mosler: Keep in mind that the currency itself is a public monopoly, and the ramifications thereof... ;)
Comment: And how does this accord, given no corresponding price movements, with Milton Friedman's.
Mosler: He failed to recognize that the currency itself is a case of a state monopoly.
Comment: Warren, when you say labor market is not a fair game according to game theory & that even last worker without a job still needs to feed a family (which sounds like a solid point), how do you reconcile that with empirical evidence of real term salary growth in specific sectors?
Mosler: Supply/demand for specialties? Monopoly power? Etc?
Comment: For inflation rates to be a fiscal phenomenon, Keynesian macroeconomists must embrace the rational expectations revolution with the zeal of a religious convert!?
Mosler: Doesn't recognize that the currency itself is a public monopoly- the state and its agents are single supplier of that which is demanded for payment of taxes- and the ramifications thereof.
Comment: Did you leave out the role of inflation in MMT?
Mosler: MMT has the only understanding of the source of the price level/'inflation'- it's necessarily about prices paid by gov. The currency itself is a case of monopoly, and monopolists are necessarily price setters, whether they know it or not
Comment: Economists are part of the problem. They forget that their role is merely to promote free markets and to measure the extent to which markets are free. Instead, they tinker.
Mosler: Now that you understand the currency itself is a case of a public monopoly, you need to rethink the notion of 'free markets' operating within that institutional structure... ;)
Comment: Always a pleasure, Eric. Goodnight!
Mosler: Hint: introduce the fact that the currency itself is a case of a public monopoly and it all falls into place.
Comment: Article shows cult nature of MMT: Quite appalling article in NYT by Kelton with hero worship of MMT founder, also makes absurd claim that MMT first to recognize taxes do not fund spending
Mosler: Is there another school of thought that models the currency as a public monopoly, and therefore 'the price level' as a function of prices paid by gov?
Comment: Webinar on 25th June at 1pm BST.
Mosler: Looking forward to when the model incorporates the currency as a (coercive) public monopoly! ;)
Mosler: Micro foundation: The currency itself is a public monopoly. And this is MMT's contribution to mainstream economics that's in the process of becoming common knowledge.
Comment: Yes, and whatever pricing level bank loans are financing, i.e. too much bank lending can lead to currency devaluation even if gov does not move towards paying higher prices 'for the same things'. The best example I know of this is Iceland pre-2008, but there are of course others.
Mosler: All with the awareness that 'currency devaluation' as you put it and inflation can be two different things. For example, the yen roughly went from 80 to 120/$US and the euro from 1.45 to 1.05/$US a few years back, etc. and no one noticed an inflation problem.
Comment: What gives trade deficit nations their exceptional purchasing power? They need to be producing g&s of value, at least domestically? Or is domestic consumption enough to give currency strength? Argument for more local supply chains ahead of further pandemics and a climate crisis?
Mosler: It comes to desires of non residents to net save financial assets denominated in that currency. Helps to get into the JPM global index which is used by 'savers' globally to allocate their financial assets, for example...
Comment: Key point. Any EM policy maker will be very critical of #MMT, because they know that the ultimate constraint on a country and it's ability to ease fiscal & monetary policies is the currency. Across EM, currencies have been in free-fall, sharply curtailing the ability to do QE etc
Mosler: I tended to agree with Erdogan that the high rates were contributing to the inflation and currency weakness.
Comment: Neither. Unemployment is defined as "not employed and engaged in active job search." So search frictions give rise to unemployment. Bargaining power influences recruiting intensity, but could also have demand effects. At least, that's what modern labor market theory tells us.
Mosler: It's the currency monopolist/govt. restricting supply of that which is needed to pay taxes and desired as net savings.
Comment: That assumption is in my models. Not sure what you think falls in place though. It's just standard monetary theory.
Mosler: Monops set 2 prices 1. Own rate= policy interest rate set by Fed as single supplier of net reserves 2. Terms of exchange for other goods and services= price level is necessarily a function of prices paid by gov. spends=source of price level.
Comment: Always a pleasure, Eric. Goodnight!.
Mosler: Hint: introduce the assumption that the currency itself is a case of a public monopoly and it all falls into place.
Mosler: I see Keynes effective demand as about currency monop restricting economy's supply of net financial assets from gov deficit spending.
Comment: It’s not clear to me that Keynes knew what Keynes had in mind. Here is a quote from his 1937 QJE article: There are other criticisms also which I should be ready to debate But tho I might be able to justify my own language, I am anxious not to be led, through doing so in too much detail, to overlook the substantial points which may, nevertheless, underlie the reactions which my treatment has produced in the minds of my critics. I am more attached to the comparatively simple fundamental ideas which underlie my theory than to the particular forms in which I have embodied them, and I have no desire that the paper should be crystallized at the present stage of the debate. If the simple basic ideas can become familiar and acceptable, time and experience and the collaboration of a number of minds will discover the best way or expressing them. I would, therefore, prefer to occupy such further space, as the Editor of this Journal can allow me, in trying to reexpress some of these ideas, than in detailed controversy which might prove barren. And I believe that I shall effect this best even tho this may seem to some as plunging straight off into the controversial mood from which I purport to seek escape, if I put what I have to say in the shape of a discussion as to certain definite points where I seem to myself to be most clearly departing from previous theories.
Mosler: Yes there can be persistent unemployment without monop (and other frictions)/labor market won't clear due to issues in the monetary system he described but failed to label as a govt monop where the gov and its agents are the sole supplier of funds to pay taxes and net save.
Comment: What prices are government agents setting, exactly?
Mosler: With every purchase govt. defines the value of its currency whether it knows it or not. The econ needs govt spending to comply with coercive tax liabilities. It's about who's pitching and who's catching. It's a simple case of monopoly. Elementary game theory/disparity of power.
Comment: Agree that in principle it can be price setter. But this was not your claim, which was that government *is* price setter. I asked how. You answered whenever govt buys something. Evidently, this is not the case.
Mosler: As monop gov sets 2 prices. Let's start with the 'own rate' for the $- the policy interest rate. The Fed sets it (by vote) as monop supplier of reserves currently via int on reserves. With floating fx the idea of markets setting the policy rate is inapplicable. Ok so far?
Comment: For example, right now the govt is buying N95 masks in bulk. They are paying a lower price in many instances than other buyers due to scale, yet there exists a price floor beneath which suppliers won’t go because they lose money on every mask. So clearly markets play some role.
Mosler: Yes, that's all covered early in standard micro economics texts. They start with monopoly, then go on to oligopoly and then broader forms of competition. Fortunately the $US is the simplest/easiest one- monopoly. ;)
Mosler: Fixed fx gives you that price formation story.
Comment: Except that the U.S. govt does not set "the" interest rate. The Fed has an interest rate policy rule that influences how the path of a particular short term money market rate will evolve over time (and in response to a variety of contingencies) for the purpose of achieving D.M.
Mosler: Yes, the Fed, as monopoly supplier of reserves, which also happen to have a 0 marginal cost of production, decides to set rates directly or indirectly. (Textbook monopoly dynamics.)
Comment: I guess the point is, how is how does one prove the govt IS the price setter, rather than COULD BE the price setter? Isn’t it equally plausible the govt is following the relative market pricing structure within the currency monopoly it created.
Mosler: The dynamics of a monopoly are a clear point of logic as per all mainstream texts. Monopolists are price setters as by definition there is no competition, etc. How they do it is a matter of policy.
Comment: How does currency depreciation not affect ability to import?? Does that apply to all countries, or is this only applicable to reserve currencies?
Mosler: Real exports exchange for real imports, directly or indirectly, at 'world prices' even if you don't have a currency at all.
Comment: Wednesday’s blog post (15/07) is now posted (18:37 EAST) - MMTed Q&A - Episode 7 - featuring Dr Pavlina Tcherneva discussing the Job Guarantee with me.
Mosler: My comments: 1. Unemployment defines minimum 'fiscal space'. 2. Job Guarantee does not reduce the ability to import. 3. Currency depreciation does not reduce the ability to import or reduce real wealth, however it does alter internal distribution.
Comment: Knowing how the money moves doesn't equate to knowing how the money should be spent. Only the free market can efficiently allocate scarce resources. This should be obvious to you.
Comment: The currency itself being a public monopoly supported by coercive taxation obviates "free market" as per your school of thought, no?
Mosler: It's in a fixed fx context.
Comment: Wouldn't a change in real terms of trade effect the exchange rate? E.g. AUS, large component of exports is commodity based, commodity prices vs the value of those exchange rate. One influences the other?
Mosler: Yes, in this case, it's more about from the resulting change in the trade balance and foreigners needing more of your currency to buy your exports, etc.
Comment: Demand for the $US comes from tax liabilities+(residual) 'savings desires.' Increased savings desires/lower animal spirits=more unspent income=higher unemployment that requires more public def spending or higher animal spirits/higher private sector def spending/lower sav desires.
Mosler: Therefore unemployment as defined always comes down to $US monopolist restricting supply. Once the currency is 'correctly' modeled as a public monopoly utilizing coercive taxation to create demand, it all comes together.
Comment: Monetarism explains price-level as being determined by supply of some nominal asset relative to demand for that asset. The inflation rate then determined by the relative growth rates in supply and demand of these objects. There are two main issues to deal with here.
Mosler: That presumes sufficient competition/absence of monopoly?
Comment: Many great points here, though personally am not ready to abandon "monetarism" as my provisional theory of (trend) inflation.
Mosler: It's never too late... ;) Models say competitive mkts clear and imperfect competition causes unemployment. NK's say it's sticky wages, etc. Keynes and I agree it's the gov/monop restricting supply/deficit spending to offset unspent income. Therefore price level= f(prices paid by monopolist)
Comment: Investors dilemma in 21st-century capitalism: How do you gauge the basic balance btw stocks & bonds when there is reason to believe that stocks are suffering irrational exuberance, but bond markets are under influence of giant central bank intervention?!?
Mosler: The currency itself is a case of a public monopoly so bonds are always and necessarily that way... ;)
Comment: I will paraphrase Warren Mosler. Lets say that the government said it would not pay 1p more for anything next year, than this. The market increased its prices, and so government spending stopped. £900 billion is now no longer spent. That’s a pretty big deflationary measure!
Comment: It would apply a huge brake to the economy. Companies, firms, businesses would struggle to find the money to pay their tax. And it would only start going again, when the people agreed to supply the government for the same prices as last year. The government sets the price.
Mosler: Micro 101 on monopoly... ;)
Comment: The MMT insight - which is literally what created it as a body of theory - is that a JG can be used as a buffer stock approach to stabilise wages. Saying the JG is not part of the theory just says that you don’t understand the theory.
Mosler: The MMT insight (and a contribution to the economic history of thought) is that tax liabilities are the cause of unemployment as defined=unemployment is a monetary phenomena caused by gov by design to hire the unemployed to provision the gov with its otherwise worthless currency.
Comment: The worthwhile focus is avoiding the real loss incurred by those reliant on the swings in value. And the survival of the currency is eventually pegged to the survival and endurance of these participants is their avoidance of harm. Inflate slowly and short term transactional.
Mosler: That's what the likes of social security are for. The currency itself has higher priorities that are jeopardized by prioritizing it an investment vehicle.
Comment: The original intent of reserve requirements is to preserve bank solvency. See Sahil’s thread below for an incredibly well-detailed explanation of how reserves function.
Mosler: With fixed exchange rates, reserves of convertible currency protect bank solvency in the case of depositors' withdrawals/demand for convertible currency. This is inapplicable to today's floating exchange rate policies.
Comment: Tying policy to labor force participation would give a more accurate assessment of inflation risks and distance to full employment than just focusing on the unemployment rate.
Mosler: Recognizing the currency is a public monopoly and therefore the state is 'price setter' would also be helpful, as would recognizing rate hikes impart an inflationary bias through interest income and forward pricing channels.
Comment: A good illustration of the 'Pandemic Inflation Gap' that the ECB needs to address with PEPP asset purchases. Services inflation at 0.7% and super core around 1% or below is not acceptable. Too big risk to inflation expectations.
Mosler: The price level is not a function of expectations. The currency is a simple public monopoly. The state is 'price setter'.
Comment: This kind of thing gets said a lot. I would like to know which MMT propositions are *not* special cases of the neoclassical synthesis. What precisely is new? [Not saying there isn't anything, but I strongly suspect it's much less than some people think].
Mosler: The 'special case' is the assumption that state currency itself is a case of monopoly with the state and its agents the sole source of the funds that can be used to satisfy state tax liabilities. The rest follows.
Comment: Yeah, Mosler is really a free market guy. I don't think they like him much among the MMTers ;)
Mosler: Markets function within an institutional structure, which in the US begins with the $US itself a (coercive) public monopoly.
Comment: Why do we need taxes then?
Mosler: The currency is a tax credit. What's a tax credit worth without a tax? ;)
Comment: Please help me make a precise & general statement of that: National fiat money 'debt' is the net supply of the national fiat money?
Mosler: Formally, the net financial assets of that currency.
Comment: The purpose of tax is primarily to destroy money in the economy to allow the government essential spending without creating inflation. Secondarily to redistribute wealth. Thirdly to deter social actions, smoking say. What it does NOT do is raise money for government spending.
Mosler: First, to create unemployment- people looking for paid work- for the further purpose of provisioning the state via the spending of its otherwise worthless currency.
Comment: What is the most serious critique of MMT worth reading? Pls don't suggest Cochrane or alike. I said serious.
Mosler: Scholars have poured over all that I've written over there last 28 years beginning with "Soft Currency Economics" and at best found a few typos I've subsequently corrected.
Comment: With respect, I agree neutrality can be obviated by taxation. However, the point is, by and large central banks actively shape, make, and co-create markets - which de facto obviates neutrality.
Mosler: Yes, neutrality implies the absence of monopoly, and the currency itself is a case of a (public/state/cb) monopoly.
Comment: First of all, thank you very much for your reply. Without an increase in the interest rate and with a lot of Argentinian pesos circulating, what measures would you think should be taken to lower inflation?
Mosler: Start by cutting the local currency policy rate to 0. Then, examine the source of the price increases, including loans to SOE's and 'insiders' that 'count' as deficit spending and result in the selling of those funds for forex.
Comment: I'll be listening to that podcast but this is def where I get lost. If the Fed = Gov't, then why even have the Fed at all? The gov't isn't technically self-financing unless the distinction btwn Fed & Treasury is collapsed no? I'm sure it'll become clearer after....
Mosler: The Fed is the designated score keeper of the currency.
Comment: Has the Phillips curve flattened? Our new paper concludes: Not really. It has always been flat. Take a look.
Mosler: The $US is a monopoly, gov is price setter, price level necessarily=f(prices paid by gov), game theory says P curve not applicable.
Comment: Proving the neo Fisherians wrong once again! (Neo Fisherians believe the way to lower inflation is to lower interest rates. Erdogan is a neo Fisherian.)? @wbmosler is the "man" for that! :-)
Mosler: They recently hike rates to support the currency. So far the opposite has happened.
Comment: Loved this episode! the Kilt = Free "balling" fiat. LOL.
Mosler: The first thing people ask about a currency is 'what's behind it'... ;)
Comment: I’ve followed MMT since 2010 and Bitcoin since 2011. I credit @wbmosler’s “7 Deadly Innocent Frauds of Economic Policy” book for helping me understand why Bitcoin’s success is inevitable. MMT requires governments to have a monopoly on money issuance. Bitcoin breaks the monopoly.
Mosler: Thanks! The gov's monopoly is on that which can be used to pay gov taxes,
Comment: 13- Ms. Kelton’s response also misses the crux of Erik’s question. Economics 101 tells us that when you increase the supply of something, the value of each individual unit of that thing falls. Why would this basic economic concept not hold true for money?
Mosler: The currency is a monopoly, so gov is "price setter."
Comment: Stiglitz is, of course, absolutely right. DSGE models are worse than useless' — and [yet] still, mainstream economists seem to be impressed. It is difficult to see why.
Mosler: Is he modeling the currency as a public monopoly yet?
Comment: Is this saying that it was the 'hyper-enlarged' deficits that contributed to the hyperinflation? It also mentions failing to balance budget [revenue... failed to keep in step with its spending].I don't think this is in line with the rest of the document? Maybe further clarify: Indirectly through organized private sector wage increases that allowed the domestic sector to pay the higher prices, was the source of the inflation of the German domestic price level. The German state, in competition with private sector buyers, directly and indirectly funded by the state, competed for the limited available output by increasing their offer prices. This process, exacerbated by German interest rate policy, further increased government budget deficits (see Appendix 1), as state revenue, levied in nominal terms, failed to keep in step with its spending (Hetzel 2002), and these hyper-enlarged' deficits supported the hyperinflation of the price level.
Mosler: The point is that the higher prices paid are the redefining/devaluation of the currency. And the paying of the higher prices contributed to gov facing further price increases, that gov again decided to pay. It's the paying of the higher price that redefines/devalues the currency.
Comment: Especially, since this is the last paragraph before the appendix and so be the last thing in the readers mind! Otherwise, there is danger of this being used as a something to knock MMT. "...See, even MMTers say that deficits caused hyperinflation".
Mosler: When gov spending-deficit or otherwise-is via paying the higher prices, that spending redefines/devalues the currency. So it's about gov spending at ever higher prices-gov spending not price constrained- vs price constrained gov spending.
Comment: Key point of interest to me is the revival of Keynes’ animal spirits. My argument was that this is a core hidden variable of good macro models; apparently Farmer beat me to that observation by a few decades.
Mosler: Does it model the currency as a public monopoly, etc?
Comment: Though mainstream religious dogma clings on 'Stiglitz is, of course, absolutely right. DSGE models are worse than useless' — and [yet] still, mainstream economists seem to be impressed' It is difficult to see why.
Mosler: Is he modeling the currency as a public monopoly yet?
Comment: Keynes' own words here are good too ... not sure whether @tragicbios included that in his write-up:"The contention that the unemployment, which characterises a depression is due to a refusal by labour to accept a reduction in money-wages [nominal income] is not clearly supported by the facts. It is not very plausible to assert that unemployment in the United States in 1932 was due either to labor obstinately refusing to accept a reduction in money wages or to obstinately demanding a real wage beyond what the productivity of the economy was capable of furnishing."
Mosler: Unemployment is necessarily the consequence of the gov- the currency monopolist- not spending enough to cover the tax liabilities it imposed + 'savings desires'
Comment: Turkey's central bank deserves a huge amount of credit and respect for today. Lira appreciation is a de facto loosening in financial conditions and good for Turkey.
Mosler: Fundamentally, with floating fx, rate hikes weaken the currency. I'd cut the policy rate to 0
Comment: Financial stability requires a "hedge finance" constraint for most private agents: profitability should be judged on income gains, not capital gains. In the government sector, the constraints are resource availability and political constraints.
Mosler: Financial stability requires active management by the currency monopolist. ;)
Comment: *Assuming a competitive market, no search costs, no inverse work supply, etc.
Mosler: Yes, and coercive taxation with the currency/tax credit itself a public monopoly obviates 'competitive market.'
Comment: "Bitcoin is still too volatile to be used as an actual currency".
Mosler: Please define 'actual currency' thanks! ;)
Comment: Best of Mankiw No. 8: What is the primary job of banks?: Take in deposits and use those deposits to make loans.
Mosler: True for fixed exchange rates/convertible currency.
Comment: Warren, I first heard this idea on a podcast where you were a guest. It's very interesting and really got stuck in my head. I looked at your website but didn't see an in depth document. Do you have a reference for more reading on the idea?
Mosler: Soft Currency Economics (1993)
Comment: The current Federal Debt held by public is equivalent to: + 10 years of (non-recession) Federal income tax revenue or + $50,000 per person or + $141,000 per household.
Mosler: Those are the $ spent by gov that haven't yet been used to pay taxes, and remain outstanding as the economy's net financial assets until used to pay taxes= currency in circulation + reserve balances at the Fed + Tsy secs ($ in securities accounts at the Fed).
Comment: Which part? Chicken and egg? Output gap?
Mosler: Pretty much all of it, except the price level being a function of prices paid. That monopoly thing was new to them.
Comment: Invoking the limits argument in bad faith, or just badly, has also stoked the equally bad idea [emanating particularly from MMT] that there are no limits, or no practical limits, that taxes don't fund govt spending, and that you can use the printing presses and not worry about it.
Mosler: There are no nominal limits in that spending is a matter of crediting accounts. The real limit to spending is what is offered for sale with a price tag in your currency
Comment: We weren't individually prepared, and could not have insured ourselves against covid if we tried. The govt support and financing is a call on an insurance policy maintained by all past and future generations, one that we contribute to a bit ourselves in analogies to premiums.
Mosler: It's about the currency monopolist (gov) not restricting supply. Demand for gov spending = tax liabilities + 'savings desires'.
Comment: New MMT resource: The Post Keynesian view of fractional reserve banking. Based on my recent interview (plus followups) with @John_T_Harvey (Yes, we have fractional reserve banking [zero percent since 3/2020]. And no, banks are not reserve constrained.)
Mosler: Fractional is about convertible currency reserves to meet withdrawals. Not applicable with noon convertible currency.
Comment: And they started manipulating it now/yearXYZ, whereas previously they did not manipulate it? And manipulation in this context means something different than creation and destruction?
Mosler: The currency is a public monopoly- $ to pay taxes come only from state agents. It's therefore necessarily a case of continuous 'manipulation'.
Mosler: Why would anyone/ the government care if you traded in their currency or not? The government only cares that it can provision itself with its currency by demanding it for payment of taxes to force sellers of the good and services they want to obtain.
Comment: When Mosler says to be careful not to make UBI a living wage, which could undermine the whole system - which “system”?. Is the system “the narrative?”?
Mosler: Undermine the state's ability to provision itself via spending its currency.