Mosler: A Fed rate hike is nothing more than the federal government's decision to pay more interest on what's called its public debt'.

Comment: I happen to agree. The Chinese yuan won't become a global reserve currency any time soon.

Mosler: As long as China has a current account surplus the rest of world is 'net borrowing' yuan by identity.

Comment: In other words, US deficits are TOO SMALL! Fiscal policymakers aren't doing their jobs.

Mosler: If there isn't a long term inflation problem there isn't a LT debt prob. Fed, cbo say 2%, TIPS even less ;)

Comment: Are negative interest rates simply a tax in disguise?

Mosler: Removing income reduces total borrowing power.

Comment: #Eurogroup Van Overtveldt says it's strange tht #IMF asks for unconditional debt relief, we always maintained that relief comes w conditions.

Mosler: For the economy, relief comes from more public debt from increased deficits, not less!.

Mosler: The blind leading the blind. Doesn't matter whether they buy tsy secs or not and never did.

Mosler: Except debt=means to pay. it's about policy response to unspent income.

Comment: The most explosive chart for Renzi: Suggests that Euro has killed Italy's economy & lowered living standard.

Mosler: Euro fiscal limits punish the member nations who are the good savers (public debt= 'private' savings (net financial assets).

Mosler: For every $ borrowed there's a $ saved, one man's debt is another's savings. (the net is 0).

Comment: Good starting place though. Six more years of deficits, still no solid growth.

Mosler: The public debt is a large component of the 'money supply', that's all.

Mosler: Public debt, aka money supply, declined rapidly as a % of gdp.

Comment: There Really Is No Reason for Germany Not to Do a Fiscal Stimulus Right Now, except that they want to reduce debt.

Mosler: Yes, their debt/GDP ratio exceeds the treaty limit.

Comment: This is what I keep saying: our economic recovery is driven by debt, so it's a fake/bubble-driven recovery.

Mosler: All recoveries are driven by debt to offset unspent income. The only question is public or private.

Comment: We can do a 'quantitative easing' on student debt.

Mosler: The debt purchase is qe. The forgiveness is functionally deficit spending, accounted for as reduced Fed capital.

Comment: So-called Fraud #5 "trade deficit is an unsustainable imbalance". Very US-centric.

Mosler: The problem is the sustainability of private debts of gratitude... ;)

Mosler: MPS bank proposal- Regulator ECB writes the check, other member nations also get equal per capita basis ECB check that lowers their debt.

Comment: Money, that’s what. It’s not nonsense. It’s called a balance sheet. That debt does NOT just disappear.

Mosler: $s are tax credits. The debt is the $ spent by gov that haven't yet been used to pay taxes, in $ accounts at the Fed.

Comment: Savings from AHCA were expected to give breathing room under sequester rules for tax reform.

Mosler: Right, it was going to take $1t off the projected debt 'making' room for tax cuts.

Comment: Pete Peterson just loves this graphic, but as @AriRabinHavt explained, it significantly exaggerates the ratio, NTIM.

Mosler: Depends on what the govt. was borrowing... ;)

Comment: I just published “Macroeconomics — a view from the peanut gallery”.

Mosler: Gov debt is 'repaid' via the CB crediting a reserve account and debiting a securities account, all on its own spreadsheet.

Comment: The national debt is nothing more than the outstanding quantity one kind of financial asset, provided by the US government.

Mosler: The national debt is the $US spent by gov that have not yet been used to pay taxes and constitute the $net financial assets of the economy.

Comment: The REAL question now is whether the Fed will pause but STILL begin balance sheet reductions, or whether pausing means no reduction.

Mosler: The real question is whether the general ongoing bank lending collapse is being offset by borrowing elsewhere.

Comment: The US nat'l debt is near $20T, caused by continued budget deficits. Yes, but also by responsible savers desiring to hold net financial assets.

Mosler: The 'inflation adjusted' public debt is necessarily enabled by non government 'savings desires' as a simple point of logic.

Comment: In D.C. spending, there's Social Security, Medicare, Medicaid, & Defense. Everything else is chump change.

Mosler: The 20t is the $ spent by gov that haven't yet been used to pay taxes, resting in Fed reserve accts, securities accts (tsy secs) and cash.

Comment: Senator Lankford statement on DACA: "We as Americans do not hold children legally accountable for the actions of their parents."

Mosler: Yet we hold the current residents of Puerto Rico, Greece, etc. etc. entirely responsible for the debts of their fathers... :(

Comment: Binzagr Institute Advisory Board Member Charles Goodhart co-authored a Must Read piece: Between the 1980s and the 2000s, the largest ever positive labour supply shock occurred, resulting from demographic trends and from the inclusion of China and eastern Europe into the World Trade Organization. This led to a shift in manufacturing to Asia, especially China; a stagnation in real wages; a collapse in the power of private sector trade unions; increasing inequality within countries, but less inequality between countries; deflationary pressures; and falling interest rates. This shock is now reversing. As the world ages, real interest rates will rise, inflation and wage growth will pick up and inequality will fall. What is the biggest challenge to our thesis? The hardest prior trend to reverse will be that of low interest rates, which have resulted in a huge and persistent debt overhang, apart from some deleveraging in advanced economy banks. Future problems may now intensify as the demographic structure worsens, growth slows, and there is little stomach for major inflation. Are we in a trap where the debt overhang enforces continuing low interest rates and those low interest rates encourage yet more debt finance? There is no silver bullet, but we recommend policy measures to switch from debt to equity finance.

Mosler: Seems to me, causation runs from savings desires to the "debt overhang" helped by tax advantages and state forex accumulation to support exports.

Comment: Wrong. The *practical* (not theoretical) limit is inflation. It really should be obvious. The chief economic advisor to the Senate Democrats believes that there is no theoretical limit to government borrowing or spending.

Mosler: Public debt per se doesn't cause anything. It's the spending and taxing that are the active ingredients.

Comment: Savings desires or savings capacity? Seems higher disposable income increases ability more than desire.

Mosler: All debt (public and private) is "funded" by savings desires.

Comment: Required reading for anyone that doesn't understand why Trump was elected...

Mosler: Debt service ratios are very low last I saw?

Comment: The Great Italian Experiment by JD Alt. As I said Italy is now experimenting with paying for public services with tax credit.

Comment: Problem is the EU has said it will include net tax credits spent as part of the annual deficit and cumulative debt. :(

Comment: No. My position is that it is really freaking bad if a country loses control of its monetary system. I think I know something about risk. Increasing the risk (even if very low) of calamity on next generation to get extra 0.1% gdp for this gen is incredibly reckless (and selfish).

Mosler: The public debt is just the $ spent by gov that haven't yet been used to pay taxes.

Mosler: Those $s sit as balances in fed reserve accounts, securities accounts and some as actual cash.

Mosler: The national debt = cash + reserves + securities which = total net financial assets. Think of it as the net money supply.

Mosler: Close examination shows gov from inception spends first and then can collect taxes or sell securities, as the $ to pay tax or buy secs come only from gov. “It fills our children and grandchildren’s boats with additional debt. They are losers,” said Sen. Richard Blumenthal (D-Conn.) NOT!.

Comment: You want to know what we *can't* afford? A third of Puerto Rico being without electricity two months AFTER a hurricane hits the island. That's the kind of stuff that destroys a society. We can't afford that.

Mosler: Not to mention a lot of it comes down to "punishing the children for the sins of the fathers."

Mosler: I've proposed outlawing all municipal debt and instead funding municipal projects etc. with federal grants.

Mosler: Only under a narrow definition of money that doesn't include tsy secs.

Mosler: Seems debt forgiveness advocates would be best served by working to relax/reform bankruptcy laws which were recently made creditor friendly.

Comment: It looks like borrowing, and it is borrowing, so arguing that is too difficult.

Mosler: State spending or lending adds $ to reserve accounts at the fed then borrowing shifts the $ to securities accounts also at the fed.

Comment: A better way is to point out that central banks have created huge amounts of money during the Great Recession.

Mosler: Only if you don't count $ in fed securities accounts as "money".

Comment: It was supposedly @wbmosler who was the first to figure out that even when it was the US Treasury selling public debt it was still just a reserve draw and not a funding operation. So no borrowing ever.

Mosler: More precisely, that there is no borrowing imperative.

Comment: RE: Mr. Mosler being technically correction on MMT: If i jump out of an airplane with no parachute, technically I am flying. It is a wonderful illusion for a few seconds...right up until the point that I hit the ground at terminal velocity.

Mosler: Exactly, the late 90's run up in private debt that 'funded' the govt. surplus that caused the collapse we're still fighting comes to mind....

Mosler: Govt. produces $ (tax credits) either consumed (used to pay taxes) or saved for later use < Y=C+I ;) > and labeled as "public debt".

Comment: "long-term" as in 1836 to present when the national debt has gone from 0 to current level? Is that long term enough to squash the notion that it can't increase "long-term"? Or is it that debt can grow for 182 years but you've then reached "long-term"?: Fair enough. Long term, we can't just increase the deficit, right? So I believe in fiscal responsibility from a first-order perspective. But that doesn't mean any individual president should bring it down.

Mosler: The US public debt is the net money supply so makes sense that it grows with time, no?.

Mosler: So from the charts it looks like the recession cut total oil consumption for electricity with subsequent growth from gas and other sources? Inflation caused debt/gdp to fall followed by recession. Nat gas dereg helped shift consumption away from oil by securing long term supply.

Mosler: Yes, the national debt is the pounds spent by gov. that have not yet been used to pay taxes, and remain outstanding until so utilized.

Comment: Here are six things you might like to know about the Congressional Budget Office’s 2018 Long-Term Budget Outlook, which was released on Tuesday.

Mosler: The public debt is nothing more than the $ spent by gov that haven't yet been used to pay taxes. They sit in the economy as cash and as $ in reserve accounts and securities accounts (tsy secs) on the Fed's books. It functions as the net money supply.

Mosler: It's a 'one man's savings is another's debt' world, and the causation is from loans to deposits, etc. ;)

Mosler: The $800+ million budget already had a structural deficit of maybe $200 million and $150+ in unpaid bills plus nearly $100 million of unpaid tax refunds. This is just one of several shameless pre election appropriations of money that doesn't exist. :(

Comment: I wonder what @wbmosler actually believes? If only there was a way to (re)search it. Guy has been advocating permanent ZIRP for nearly a decade. Golly.

Mosler: Rate reductions can be contractionary. Depends on inst. structure, debt to gdp, issuance policy, propensities, etc. 0 has always been my preferred policy rate.

Comment: I cannot imagine how in the world anyone who paid the slightest attention to your work could not know this. You were like a broken record for years. No offense. )

Mosler: That is, I favor a tax cut or expanded public services over a rate hike. ;)

Comment: Correct. And AFAIK, he never claimed raising rates *is* expansionary. Only that there’s an income-effect (and perhaps other effects) that tends to get overlooked, making it possible that hiking is pro-cyclical.

Mosler: Link to your paper on how debt to gdp ratios line up with policy rate effects?

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: And with higher domestic gdp growth, and no new external debt being added, the external debt to gdp ratio is continuously declining.

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 fx 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 it's own currency, though it would both be a lesser drag and diminish over time.

Mosler: But what did they actually do that resulted in that measure of lira expanding?

Mosler:

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: Depends on how you define constrained but I do agree Turkey's fx debt reduces their real terms of trade potential vs. that of the UK. But both can quickly get to full employment and a 0 rate policy.

Mosler: And Turkey's domestic consumption potential is slightly lower due to fx debt service.

Mosler: I just see they have $128 billion if fx reserves! That means the gov has somehow directly or indirectly been selling lira to buy fx and driving the currency down.

Mosler: Probably to keep real wages down to support exporters with political clout.

Mosler: In general private sector borrowing (deficit spending) has been climbing rapidly, probably supported by state controlled banks (?).

Comment: Should be stated much more radically, as sovereign gov. debt in the current neoliberal depression is absolutely necessary = investment in the economy, society and future for our children and grandch. Read "The Seven Deadly innocent frauds of Econ Policy" by @wbmosler & stay calm.

Mosler: Unemployment and the public debt are unspent income stories.

Mosler: Fyi: "Ocasio-Cortez...She subscribes to modern monetary theory, a burgeoning theory among some economists positing that the federal debt is not an economic restraint for the US."

Mosler: 3. So gov borrowing supports rates, it doesn't fund expenditures. 4. Likewise interest is paid by instructing the Fed to credit the appropriate accounts, and likewise those $ are paid first, and then taxes are paid or bonds are paid for.

Mosler: The public debt is the $ paid by gov that haven't yet been used to pay taxes and remain outstanding as cash, balances in reserve accounts at the Fed, or balances in securities accounts (tsy secs) at the Fed until used to pay taxes.

Mosler: Responses to 'how are you going to pay for it?': 1. The Tsy instructs the Fed to credit the appropriate account. 2. The $ to buy bonds or pay taxes comes only from the gov and its agents, so gov spends first, and then taxes are paid or bonds paid for.

Mosler: 3. So gov borrowing supports rates, it doesn't fund expenditures. 4. Likewise interest is paid by instructing the Fed to credit the appropriate accounts, and likewise those $ are paid first, and then taxes are paid or bonds are paid for.

Mosler: The public debt is the $ paid by gov that haven't yet been used to pay taxes and remain outstanding as cash, balances in reserve accounts at the Fed, or balances in securities accounts (tsy secs) at the Fed until used to pay taxes.

Comment: For JR, the inverse relationship between I and r isn’t in Keynes. Is Warren navigating these waters too? I guess JR’s argument is that in Keynes, r is determined by the ‘monetary system’/liquidity preference. It is about how people hold their hold their financial assets....

Mosler: No, I'm starting with the interest income channels. And the higher the debt/gdp the more the income from state interest payments overwhelms differing private propensities to spend interest income.

Comment: Having a hard time understanding MMT interest rate predictions. MMT claims high rates make inflation worse. High rates attract $. But if banks can’t lend bc no one can afford the interest, credit/money shrinks, which reduces inflation.

Mosler: The gov is a very large net payer of interest on what's called the public debt, and so rate hikes increase the economy's income by that much to support spending and support the ability of the private sector to borrow.

Mosler: CB's believe rate hikes fight inflation but say with high pub debt rate hikes= higher interest pymts= inflation, so using fiscal to fund a JG=no option to hike rates to fight inflation. I say THEREFORE they have it backwards and lowering rates fights inflation=no problem with JG.

Comment: These guys really believe that the Fed raising interest rates definitely slow economic activity and vice versa. They have not a doubt. I don't know whether they have read the MMT stuff to the contrary or not, probably not. But this is their sincere, unquestioned view.

Mosler: Yet they say-and make my point- that with high public debt rate hikes are inflationary via interest payments. See the contradiction?.

Comment: “Is there no ability to substitute monetary for fiscal policy? Answer: Little to none. In a slump, cutting interest rates is weak tea against depressed expectations of profits. In a boom, raising interest rates does little to quell new activity, and higher rates could even support the expansion via the interest income channel.” Well then. MMT thinks interest rate hikes might be expansionary during a boom.

Mosler: And Professor Krugman agrees when he (contradicting himself) uses the same argument to explain why high deficits and debt remove the option to use monetary policy (rate hikes) to fight inflation with his 'interest rate higher than growth rate= unsustainability' story.

Comment: So one thing I learned from the past few days of discussion is that MMTers believe that budget deficits necessarily increase the money supply. That's an interesting view, where by "interesting" I mean "completely wrong" 1/.

Mosler: Only because you aren't including tsy securities, which are $ deposits at the Fed, as 'money supply', as fed aggregates S and L used to report. But you know this, and that tsy secs = (non gov) net financial assets, and all the rest....

Comment: Some people think they found a graph that disputes my point about the relationship between deficits, reserves, and interest rates. Here’s what he’s missing: I said deficit spending-absent some action to prevent it-results in a net injection of reserves that will send the overnight rate down. So he is graphing the monetary base and claiming I'm all wrong when the point is that the government is coordinating its deficit spending with bond sales, thereby doing a reserve drain AND a reserve add so the newly added reserves get transformed into newly added bonds. He's jumping over my point. I said the natural gravitational effect is downward pressure on interest rates if no action is taken. Obviously, the current practice is in bond sales, so action is taken".

Mosler: Also note his definition of deficit spending is borrowing then spending (simply net spending is called something else, like OMT, or monetization, etc.). What he doesn't realize is that (from inception) that's not possible and spending comes first as closer examination shows.

Comment: An interesting reply from a central bank that surely ought to understand monetary operations well enough to avoid this kind of embarrassing commentary: Praet: The general idea that government debt can be financed by central banks is a dangerous proposition. In the past, this has resulted in hyperinflation and economic turmoil. That’s why central banks are independent.

Mosler: I haven't noticed negative rates and massive ECB buying of member nation debt being inflationary? ;)

Comment: As recession looms, could MMT be the unorthodox solution? The MMT theory debate is welcome in a world laying bare the constraints of conventional policy.

Mosler:Yes, except what they call 'money financing' is functionally identical to what I've proposed for a very long time- a zero rate policy and limiting the Treasury to issuing nothing longer than 3 month t bills- which doesn't require changing anything else.

Comment: Warren, I get that higher rates add $ to the economy in the form of govt spending (assuming no fiscal budget cuts in response), but... Didn’t Volker hiking rates increase the dollar, which lowered oil prices, decreasing inflation in the early 80s.

Mosler: The progressive tax structure via inflation= fiscal contraction that shrank the 'real' public debt causing the recession that cut oil demand (helped some by the dereg of nat gas) too large for Saudi output cuts to counter caused oil to collapse from approx $40 to $15

Comment: And .. how many errors here?: Lagarde Says MMT Is No ‘Panacea’ But May Help Fight Deflation.

Mosler: Not to forget Japan: "Abe said he nevertheless did not subscribe to the view that governments can increase debt without consequences and added that a sales tax increase planned for October was meant to help control debt."

Mosler: A Fed Chair that understood reserve accounting wouldn't care if member bank balances were in reserve accounts or securities accounts: The Fed is looking at a new program that could be another version of 'quantitative easing'.

Comment: : I think swaps characterize the event well. But yeah, drill down to the characteristics of the instruments being swapped: 1. Fixed-price (hence Fed-set aggr stock), Fed-set rate, zero-maturity for: 2. Variable-priced (so variable stock), market-set rates (?), dated maturities.

Mosler: Both reserves and tsy secs are deposits at the Fed defined as "money" under broader definitions of money, and the same goes for checking and savings accounts at other bank's.

Mosler: QE in Japan, the US and the euro zone has demonstrated to me that it's just a placebo that doesn't per se increase aggregate demand or inflation.

Comment: Because of duration, the true reality is diametrically opposed to what MMT claims it be” any thoughts?

Mosler: Yes, the issuance of longer duration tsy secs adds duration to non government $US net financial assets. And the resulting yield curve expresses investor indifference levels. And the Fed and Tsy are agents of Congress. Where's the disagreement?

Comment: Exactly true. There are two ways you get into this situation. Either banks don’t lend due to balance sheet issues, or they perceive borrowers aren’t credit worthy. I agree govt deficits, and QE, can help in this regard, depending on the nature of the problem.

Mosler: QE per se doesn't help.

Comment: It does when banking regulations require you to hold reserves.

Mosler: For all practical purposes, no. The CB buying securities or doing repo just for offsetting operating factors and adding required reserves isn't called QE.

Mosler: I propose both, which for the US can most readily be done, functionally, with a permanent 0% policy rate (no interest on reserves) and tsy sales of only 3 month t bills to all be in compliance with current law.

Mosler: I support free higher education and student debt relief. But making the ultimately false analogy of 'trillions for bank bailouts' undermines implementation, just like (inapplicable) proposed tax hikes for Medicare for All have kept it from being implemented.

Mosler: Students have too often been grossly overcharged. Immediate refinancing at Treasury rates and extending maturities can dramatically reduce inflation adjusted debt burdens and eliminate any moral hazard concerns.

Comment: Yes to offer people a safe investment asset but they aren't not necessary to fund public spent, since the FED creates the money to provide the Govt's services.

Mosler: Insured bank deposits are the 'base case' 'safe investment asset' and don't contribute to income distribution issues due to trading etc. the way bonds do...

Comment: When discussing the #debtbrake, it should be noted that public „debt“ (circulating tax credits) will not be „paid off“. It is usually rolled over, since the State is the currency issuer, not a currency user, like the Swabian housewife. In Sweden, the debt office has it clear.

Mosler: The public debt already is 'the money', rendering the notion of 'paying it off' inapplicable. ;)

Comment: It is a tax, a bank tax, but nonetheless a tax. When you raise taxes people want to save.

Mosler: That is, they reduce their borrowing to spend.

Comment: Do you think the Volcker shock supported employment?

Mosler: Yes, and supported the inflation as well, which continued long after oil prices collapsed due to the higher rates. It was fiscal tightening (public debt shrunk in real terms) that caused the initial recession.

Comment: How would a permanent zero rate make the job easier -for those who have the power to set a permanent zero rate?

Mosler: Don't pay interest on reserves and don't sell tsy secs, so the system stays net long reserves.

Comment: A recent oldie but a goodie from our friends at BIS.

Mosler: Explains where that much 'borrowing to spend' may have been coming from. Anything more current?

Comment: Hope springs eternal.

Mosler: And policy response determines whether a debt crisis spills over into the real economy.

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: First of all, why is Greece the second country after the United States spending so much money on its military? Could it be that the EU forced them to buy 15% of Germany's total arms exports & 10% of France's total exports (in 2012) while forcing them to cut everything else?

Mosler: Not to mention the contribution to the debt and Ultras low refinance rates...

Comment: Note the role inserting the word "somehow" in front of every claim about what MMT thinks plays in making MMT sound absurd, without any actual argument. Yeah, Permanent Zero Interest Rate Policy makes sense. What of it? So is fiscal policy in the lead, with stronger Auto stabilizers.

Mosler: New Keynesians already say that if the public debt gets too high, monetary policy doesn't work because the increased government interest payments become inflationary. I say the public debt is already way more than 'that high' which is why the Fed has the rate effect backwards.

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 fx 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... ;)

Comment: What happens "in the first instance" is not important for assessing the macroeconomic consequences of (in this case) increasing RR.

Mosler: What's important to know is that it's not about the Fed 'accommodating a shortage,' as the higher reserve req. *is* functionally a loan from the Fed, and it's the penalty rate and stigma of window borrowing that causes banks to try to replace that Fed loan via bidding up fed funds.

Comment: That relied on private financing and private debt, and it’s being pushed again today. The time is now to get in front of leaders and influencers and make sure they know and understand we cannot continue to rely on the financial sector.

Mosler: Not to forget that the 'private money' is created by the 'private debt' through government initiatives to pay a premium return to that money... :(

Comment: Could be, but not necessarily. Tax destroys money (though can be re-created). Money offshore remains lurking, waiting to return one day (though it may circulate indefinitely too, granting the issuer an "exorbitant privilege."

Mosler: Dollars 'offshore' are (equal) dollar denominated assets and liabilities in T accounts not subject to US regulation.

Comment: Not to pick on this individual. But this logic -- that job growth is only robust because now we're imposing a national debt burden on our children -- presupposes that children would be better off with unemployed parents today. That seems crazy to me.

Mosler: Public debt per se is not a burden. It's just the dollars spent by gov that haven't yet been used to pay taxes.

Comment: The point is, government debt is money owed to other parties, e.g., investors, China. We don't owe it to ourselves. If we don't pay it back, there's trouble ahead. If we lose world's reserve currency status, we're screwed. Krugman is wrong... again.

Mosler: The public debt is dollars in Fed securities accounts. It's already 'the money.' At maturity the Fed debits securities accts and credits reserve accts, thus shifting the balances between Fed accounts without taxpayers or grandchildren in sight. That's called 'paying it back.'

Mosler: Public debt=cash+reserves+tsy secs=total $ spent by gov that haven't yet been used to pay taxes=total outstanding "tax credits"=net "money supply".

Mosler: Don't even bother reading this type of stuff about funding the Federal deficit. Treasury securities are just what the Fed calls a 'reserve drain' of no economic consequence.

Comment: This is a really important point that @StephanieKelton makes here: A) In a very concrete sense, we've been "monetizing the debt" for a long time. B) Its a largely unimpactful practice that has surprisingly few ramifications in the economy or financial markets.

Mosler: The public debt *is* 'the money' in that it's just $US in time deposits at the Federal Reserve Bank, which are functionally just like time deposits in commercial banks.

Comment: And doesn't matter if the Fed buys the bills or not.

Mosler: The T bills are 90 day $ deposits in client securities accounts at the Fed. If the Fed buys them, they pay for them by crediting $ reserve accounts at the Fed for the same clients, and debits their securities accounts. Either way clients have their $ in Fed accounts.

Mosler: They have to know by now they have the rate thing backwards, so time for the Fed to make the 0 rate policy permanent and the Tsy limit new issues to 3 month bills, which ultimately eliminates the Tsy secs trading industry and it's distributional consequences

Comment: Warren Mosler oggi su come eliminare il problema del debito pubblico. la Banca Centrale lo compra e annuncia che terrà i tassi a zero per sempre. Il Tesoro emette solo titoli a scadenza 3 mesi (che la BCentrale compra) il costo del debito = 0.

Mosler: And doesn't matter if the Fed buys the bills or not.

Comment: Do you think that we should have federal bonds Mr. Mosler?

Mosler: No, but for all practical purposes limiting issuance 3 mo bills does the trick and doesn't require changing the institutional structure.

Comment: Raghuram Rajan, the quintessential central banker-professor, is back. Explains the process and consequences of monetisation in detail in a LinkedIn post. “Monetisation Is Neither A Game Changer Nor A Catastrophe.”

Comment: Monetization is neither a game changer in stressed times nor a catastrophe. It helps a little at the margin.

Mosler: Doesn't help at all except politically.

Comment: If times were normal, banks would 'use' up the reserves by lending more (say to businesses) and thus also expanding the deposits their customers hold with them.

Mosler: Banks are not 'reserve constrained' in any case when making loans and creating deposits.

Comment: However, in abnormal times, banks are reluctant to lend to business.

Mosler: Either way loan demand is not altered per se by said RBI accommodation of gov.

Comment: Effectively, RBI borrows from the banks through special window.

Mosler: It is a way for the state to support rates at its policy rate targets. It either does it by paying interest via bond sales or paying interest on reserves. Functionally they are identical for the economy.

Comment: Instead of the banks holding government bonds paying 6% or so, they hold claims against the RBI paying 3.75%. Of course, the claim they hold is shorter term and possibly more liquid. Most important, it is not subject to interest rate risk.

Mosler: Yes, but the two rates differ due to maturity differences which expresses the risk that the policy rate could be increased in the future.

Comment: In abnormal times, the government gains by placing the paper quickly with the RBI.

Mosler: Yes, but it's just about as quick and easy to sell short term bills.

Comment: The only way out for an individual bank would be to make more loans.

Mosler: Which doesn't happen because loan demand is not a function of RBI purchases of securities.

Comment: or buy more gov bonds.

Mosler: (from the gov) which presumably has already sold all of its bonds to the RBI.

Comment: This it may be reluctant to do because of the additional risks involved.

Mosler: As above, there aren't any new bonds for sale.

Comment: Collectively, however, banks have no choice but to accept the reserves the RBI creates. This is why the financing is forced.

Mosler: ' forced' isn't the right word. The result of net gov spending is that much additional reserve balances. And either bonds are offered as alternatives or they are not.

Comment: Such direct financing is not inflationary per se, so long as banks are reluctant to lend further to business or consumers.

Mosler: The loan demand is what it is either way. Banks are demand constrained when it comes to lending, not reserve constrained.

Comment: However, as normal times return, the central bank will have to pay higher rate on excess reserves, or sell its gov bond holdings and extinguish excess reserves, else it will risk excessive credit expansion and inflation.

Mosler: Neither of those works to bring down inflation.

Comment: This process of extinguishing excess reserves is manageable (though see the caveat below).

Mosler: Yes, short term bills can always be issued and sold and in any quantity.

Comment: The government does not get a free lunch.... ... Not only is the RBI paying 3.75% for the money it on lends to the government (which will reduce the annual dividend the RBI pays the government commensurately), the banks get 3.75% instead of the 6% they could get by buying the government bonds directly.

Mosler: Again, the rates are equal on a risk adjusted basis (MmtIndia: major portion of this pay out goes to banks in which gov has 70% ownership).

Comment: Since the government owns 70% of the banking sector, its dividends from public sector banks also falls commensurately..... .Their lower profitability will affect their capital and their lending over time.

Mosler: Lending is not ultimately capital constrained as banks can raise new capital at a price (or from the gov). (MI: cashflow effect of interest is between tsy, RBI & banks owned mostly by gov).

Comment: If the fiscal deficit and the growth in gov debt is deemed unsustainable, investors and rating agencies will take fright.

Mosler: ??? No evidence that matters with floating fx policy. Japan has been downgraded repeatedly, for example, and the US has been downgraded as well.

Comment: MmtIndia: what matters is whether we are monetarily soveriegn, which can be achieved with our himalayan human resources by securing our food, water & energy. Our presumed dependence on investors & rating should come down, with so much internal strength).

Comment: This is where we need to put in place measures that ensure we will go back to fiscal health over the medium term – such as the debt target and the fiscal council suggested by the NK Singh Committee.

Mosler: If that's the only reason he has, he doesn't have a reason.

Comment: Modern Monetary Theorists are wrong to think that central bank financing of the government can be ignored. The consolidated liabilities of the government and the central bank have to be seen as sustainable, else confidence in both money and government debt will collapse.

Mosler: If it was about confidence it would have collapsed a long time ago in most nations.

Comment: Direct financing of the government obscures market signals for a while when the government spends beyond its means.

Mosler: What market signals???

Comment: It is important the government get market feedback.

Mosler: Only with fixed exchange rate policy, like a gold standard.

Comment: The RBI/government accord allows the RBI to say no to the government, even if it rarely does so. It is best to retain the fig leaf.

Mosler: No.

Comment: Not so long as the banks are willing to passively reinvest excess reserves.

Mosler: Willingness to do this isn't a factor.

Comment: However, the more the government issues to the RBI, the more debt the government will have to service, and the less creditworthy the debt.

Mosler: Why is it less credit worthy? Paying it off is just a matter of debiting securities accounts and crediting reserve accounts.

Comment: If the government’s debt falls in value, RBI’s balance sheet will get eroded. Once again, what is manageable in small quantities becomes problematic in excess.

Mosler: Why??? RBI capital is an accounting residual only.

Comment: The government’s true deficit would not be lower since it would have commensurately lower equity at the RBI (by the exact amount of the dividend)..

Mosler: True. But again it's just an accounting residual, as also is the public debt. It doesn't matter to the economy which way net spending is accounted for by the gov.

Comment: The RBI would have fewer assets to sell to absorb the excess reserves when times normalized.

Mosler: Irrelevant, as they can simply pay interest on reserves.

Comment: This is not a problem if the amount to be sucked out is 1 LC, it does become a problem if it has to reabsorb 10 LC. Knowing this, market participants could become more worried about inflation.

Mosler: Why does that matter?

Mosler: The $T coin proposal shifts residual $US created from deficits to short term-reserves-vs longer term-Treasury securities, a policy I have long supported, but this requires the understanding the Fed has the interest rate thing backwards as it makes rate hikes that much more toxic.

Comment: Got to think in real terms not nominal terms. In real terms fiat currency always looses value. So debt is paid by inflation itself not necessary to repay it in real terms. And at the same time, increase taxes so get the best of both sides. It's the only way to support defecits.

Mosler: The public debt does the 'supporting' as it's the net financial assets supporting the entire private sector credit structure.

Comment: Govt loves, no needs inflation. It's the only way to pay off it's debt in real terms. It's the reason we went off the gold standard, so unlimited, unchecked amounts could be printed after USA was bankrupted by Vietnam. At a 2% inflation rate, real debt depreciates by 90% in 30yr.

Mosler: Inflation reduces the real value of the net money supply (public debt) slowing the economy until the net money supply (public debt) increases sufficiently. Check out the 1979 time frame when inflation decreased the real public debt and caused the recession.

Comment: What would be the purpose of shorter than 90 days securities?.

Mosler: Doesn't require institutional change like 'no securities' does. That's all.

Comment: ... permitted inflation to decline permanently (of course, Volcker brought inflation down temporarily by creating a temporary recession)..

Mosler: You don't attribute that recession to the fiscal tightening? The real public debt contraction due to the inflation, bracket creep, etc.?

Comment: The lessons from these three examples are these: 1. The fact that people die has important consequences for the implications of fiscal policy. It matter whether government purchases are funded by debt or taxes because the people who repay the debt ... 4/n.

Mosler: Repaying the debt = Fed debiting securities accounts/crediting reserve accounts=shifting $ from one Fed account to another as any bank does when savings accounts mature and $ shift from savings to checking. The debt already is 'the money' -$ spent by gov not yet used to pay taxes.

Comment: This may help explain why inflation is missing in action right now ....

Mosler: Yes, typically the savings rate is a reflection of changes in borrowing to spend.

Comment: 5 more days. "The Deficit Myth is simply the most important book I've ever read.”

Mosler: I like this quote from Baron's: "The Deficit Myth succeeds in exploding many common misconceptions that plague the public discourse about government spending, taxes, and borrowing....

Comment: Paul, you hedge with language taking about things like, “people are still willing to lend to the US,” I haven’t heard you say in uncertain terms that the only restriction on US federal spending is potential inflation. Full stop.

Mosler: In fact, from inception, with $ to pay taxes coming only from the gov or its agents, gov necessarily spends first, and then taxes can be paid and bonds purchased. In Fed speak, you can't do a reserve drain without a prior reserve add. So 'willing to lend' is inapplicable.

Comment: @stephaniekelton's lessons from Walter Mosler are so brilliant. When interest rates are near 0, you should invest wisely in your future.

Mosler: With the economy a net saver of over $20 trillion (=public debt), I call a positive Fed policy rate basic income for people with money, which isn't my idea of wise investment. So I propose a permanent 0 rate policy + efficient public infrastructure that support public purpose.

Comment: Please rethink the 'repay the outstanding debt' presumption, when it's nothing more than the $ (tax credits) spent by gov that haven't yet been used to pay taxes=tsy secs=$ balances in securities accounts at the Fed=net financial assets in the economy= the 'net money supply'.

Mosler: That is, the public debt already is 'the money', and what's called 'paying it back' is the Fed, when Treasury securities mature, debiting securities accounts and crediting reserve accounts for the same amount of $. No tax payers or grandchildren are involved....

Comment: Seems to me to be an asset market version of the Household Fallacy.

Mosler: Please rethink the 'repay the outstanding debt' presumption, when it's nothing more than the $ (tax credits) spent by gov that haven't yet been used to pay taxes=tsy secs=$ balances in securities accounts at the Fed=net financial assets in the economy= the 'net money supply'.

Comment: Sectoral Balances (from UK Office for National Statistics).

Mosler: And let me suggest better understood as the net money supply of the economy: cash + $ balances in reserve accounts at the Fed and securities accounts at the Fed. That is, it 'already' is 'the money' at all times. 'Paying it back' isn't in any way applicable.

Comment: Austria has the right idea. Just sold 13 billion euros of 100-year debt with yields of less than 1% in its second-ever century bond offering. Huge demand from investors. How soon before 100-year bonds are the new 30-year....

Mosler: The real price is paid when Austria spends the 13b and real resources transferred from private to public domain. Also I wouldn't be surprised if the bonds were sold at a discount to their theoretical value inclusive of convexity, and were thereby a gift to the financial sector.

Comment: Treasuries/Corporate bonds. Corporate bonds are risky. (well they used to be until the Fed decided to bail them out. If it were't for Treasuries $15T would be exposed to risk.

Mosler: If bonds get downgraded or default the Fed doesn't keep buying them.

Comment: Could you expand upon how China has capitalized (pun intended) on MMT? Is this intentional and with an awareness of the theory or coincidental? Has the party leadership addressed MMT?.

Mosler: They make fiscal adjustments based on their assessment of their economy and not based on the size of the public debt, seems to me. And part of that is what they call loans to state owned enterprises and local governments, etc. which are functionally fiscal distributions.

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: In any case with floating fx policy QE per se is just a placebo. It only increases M under narrow definitions that don't include tsy secs. Fixed fx is an entirely different matter.

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: If the CAD as %GDP grows year after year, the county's debt burden can spiral out of control. If this happens indefinitely, you're looking at a house of cards. Eventually the country's income will not be able to service that debt.

Mosler: Not public sector debt.

Comment: If a countries CAD is ever expanding, a few problematic things can start to happen. One is that the country becomes very indebted. I'm not talking about government debt. I'm talking about private sector debt.

Mosler: Private sector debt can be resolved by bankruptcy at no real cost to the economy.

Comment: That is, they inflated away the purchasing power vs CPI of anyone actually holding Treasuries or bank savings deposits, as yields were forcibly kept below the prevailing inflation rate. People/institutions with substantial USD savings were hurt; those with hard assets preserved.

Mosler: Either way with floating fx the public debt is just $ (tax credits) in securities accts at the Fed-it already is 'the money'-so it's never about gov 'paying it back' as it is with fixed fx. Gov/real domestic wealth doesn't gain or lose from changes in the price level.

Comment: You need to consider: who does the fed actually owe the money to? The answer is simple when you realise the fed is a currency issuer. It doesn’t need to go out to the markets to issue money.

Mosler: 'The (net) money' in the economy is Fed liabilities=client deposits in accounts at the Fed= reserve account balances+securities account balances+cash in circulation=the public debt.

Mosler: Until they recognize they have the interest rate thing backwards, they will have what they think is good reason to avoid public debt. MMT White Paper - The Center of the Universe.

Comment: Fed balance sheet recaptures $7tn mark. Total assets rose by $53bn to $7.01tn, equal to 36% of US GDP. Balance sheet expansion is driven by MBS ($44bn) & Treasury (25bn) purchases. Central-bank swaps down $4bn, down to $96bn from a peak of $448bn. 81% of remaining swaps used by BoJ.

Mosler: It's just how we account for the mix between cash, reserves, and tsy secs in the economy. The total = the net money supply and that total isn't changed by the Fed's actions.

Comment: 1.5 trillion into excess reserves since late 2019.

Mosler: Replacing 1.5 t of tsy secs, all at indifference levels.

Comment: Aren't most in assets, which inflate when rates <= 0%?

Mosler: Public debt=net fin assets in the economy. Paying interest to gov on that=tax that removes income per se reducing agg demand etc.

Comment: 15/ So if we saw someone inventing money out of nothing and paying for real assets (like bonds) with it, we’d know that was monetization. But isn’t that what QE does?.

Mosler: Yes, except the asset purchased by the Fed is already 'money' under broader definitions of 'money', so it's just a shift from one form of money- securities account balances at the Fed- to another form of money- reserve account balances at the Fed.

Comment: Post-origination, both kinds of debt become tradable assets, so t’s most useful to think of post-origination debt as a ‘proper’ asset, just like a house or a building. Debt does have its own unique properties: (risk, yield, spread, other stuff…) But it’s just an asset. Interesting conclusions. In context of environmental breakdown, I wonder how much these are the right questions.

Mosler: Debt is a financial asset of the lender/owner, and a financial liability of the borrower.

Comment: Interesting conclusions. In context of environmental breakdown, I wonder how much these are the right questions. For example, with negative real interest rates - green government infrastructure investment pays for itself even if the multiplier is zero. So why not is the q?

Mosler: More likely lower, as adding to the public debt (net money supply) doesn't involve an indefinite stream of gov. interest payments which are net interest income for the economy that add to aggregate demand.

Comment: High rates are a disincentive to investment in productive assets.

Mosler: The additional income paid by gov to the economy (from the higher net interest payments to the economy on the public debt that supports those higher rates) adds to aggregate demand which is a positive incentive for investment.

Comment: Could you walk through the actual operations of what the banks use to pay for the treasuries and then also the mechanics of immediately selling them to the Fed? I’m missing something in this process and have not found any good sources that explain the exact mechanics of this.

Mosler: When banks buy tsy secs, the Fed then debits the bank's reserve account and credits its securities account. When the Fed buys tsy secs, it then debits a securities account and credits a bank's reserve account.

Comment: Well, here is why I disagree, but I think at least any economist considering themselves some sort of Keynesian should know the Keynesian part of it anyway ...

Mosler: 1st, Keynes context was fixed fx/mine is today's floating fx. 2nd I point to how the interest income channel alters demand and as debt/gdp increases likely overwhelms differences in propensities to spend between borrowers and savers. 3rd is forward pricing of goods and services.

Comment: US fiscal policy became looser between 1973 and 1985, at least on the data i have.

Mosler: Look at it in real terms. Inflation lowered the real size of the public debt in the late 1970's to the point that in real terms the gov reported a real fiscal surplus with a nominal deficit.

Comment: So much nonsense is being spewed on public regarding "debt deflation". @ProfSteveKeen and @tymoignee are my most trusted sources on "debt deflation".

Mosler: Debt deflation is a good thing- means we can have more public services/lower taxes.

Comment: Yes and no. The ZLB refers to the very front-end policy rate. There is always room for policy to influence longer-term yields, which is what QE is for. And there's plenty of room for ECB asset purchases to reduce real yields for Italy and Spain, which are still too high....

Mosler: The ECB could guarantee new issues of member nation debt rather than buy it, for example.

Comment: Not really. As Japan shows, QE can be very effective at influencing long-end rates and expectations at the ZLB. That drove the Yen weaker post-2012 (lhs) & helped Japan get out of deflation (rhs). The ECB just has to follow the Kuroda QQE playbook and the Euro zone will reflate.

Mosler: More efficient to just limit the Tsy to nothing longer than 3 mo bills. Or just let the Tsy run overdrafts at the Fed and not issue any securities. Also, the yen weakness to me was more a matter of shutting down the nukes/importing energy/trade shift from surplus to deficit.

Comment: Greenspan: Our government can always pay its debts because it just prints money.

Mosler: He never did understand monetary operations, nor as his senior staff would say, 'you can't do a reserve drain without a prior add'- that is, gov spending precedes tax payment and Tsy security purchases; the $ to pay taxes/buy Tsy securities comes only from gov and its agents.

Comment: Totally absurd! #Spain's 50y yields on course to All-Time low on global yield hunt. Investors dismiss massive political and economic chaos in the country driven by the pandemic.

Mosler: Don't forget to adjust for convexity vs shorter bonds.

Comment: Well, I think that even if one tried to let debt "get out of line" with income, it's not likely to happen. Debt/GDP ratio would, if anything, decline (b/c inflation lowers the real rate of return on debt). Question is whether we want to respect a ceiling on inflation rate.

Mosler: The public debt is the net money supply/net financial assets/equity that supports the credit structure of the economy, and a growing economy goes hand in hand with that growing money supply.

Comment: By issuing its own certificates of deposit, the European Central Bank @ecb could significantly increase the supply of euro safe assets to the market & help to internationalise the currency, @voxeu proposal.

Mosler: We pointed that out in 1996. :( Another option is to explicitly guarantee member nation public debt.

Comment: Unless it works, it won't work, you mean? *:)

Mosler: The presumed portfolio effect is a shift to higher risk in search of yield. But that can't happen unless both corps issue more high yield debt and portfolios expand. But that doesn't happen and in any case that isn't called the portfolio effect.

Comment: Absolutely worth watching. HOWEVER, I disagree w/almost everything. @hendry_hugh appears to believe the cudgel of massively negative rates is the same as the carrot that encouraged innovation in gold leaching. Beatings shall continue until morale improves.

Mosler: In any case unspent income and lack of borrowing is a good thing in my book. It means, for example, that for a given level of public spending tax liabilities can be that much lower. Or, alternatively, for a given level of tax liabilities, public spending can be that much higher.

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 it's own currency, though it would both be a lesser drag and diminish over time.

Comment: By the way, CBO projects that in 2050, the 8.1% of GDP spent on interest will be the largest federal expenditure, and consume 44% of all tax revenues. The budget deficit will be 12.6% of GDP (4.5% primary + 8.1% interest) and growing fast. Does anyone consider that sustainable?.

Mosler: Yes, operationally. Please read my short, free online 7dif book, thanks. The public debt=the economies net financial assets= $ spent by gov that haven't yet been used to pay taxes, etc. Just an accounting residual.

Comment: Finally, should we have a fiscal target and if so, what should it be? For this we need a view on g - r. About two thirds of the last 150 years it has been positive, meaning you can run a primary deficit (deficit excluding interest) and still have stable debt.

Mosler: The public debt is just the $ spent by gov that haven't yet been used to pay taxes, resting as cash+reserves+Tsy secs=economy's net financial assets=net money supply. It's an accounting residual. Would you like a briefing?

Comment: Andrew Neil says on Good Morning Britain today that if 25% of UK national debt is owned by the government why are we obsessing about repaying it? Piers Morgan agreed. It's actually 40% but at last the penny is beginning to drop.

Mosler: The debt already is "the money"- pound balances in securities accounts at the BOE. At maturity the BOE shifts those balances back to reserve accounts- no tax payers or grandchildren are involved.

Comment: I did a talk in the excellent @MarkusEconomist Academy series yesterday on “Do Debt and Deficits Matter Anymore.” You can watch the video, see the slides, or read this longish thread for a summary.

Comment: Short version my points: 1. Don’t worry re debt in current emergency. But do ask whether scarce resources meet a cost-benefit test. 2. Best metric is real net interest/GDP, look ahead ~one decade. 3. Target 1% of GDP in real net interest/GDP, which is 150-200% of GDP in debt.

Comment: Long-term decline in rates should change how we think about fiscal issues. Many of the traditional arguments for debt concern are less operative now (& may not have been operative before). If worried about low rates causing financial instability that is an argument for more debt.

Comment: There is broad agreement among economists and policymakers that *now* is not the time to worry about debt. There is less agreement about *when*, if ever, to worry. Fair to say many economists getting less worried but still no agreement.

Comment: We all are very used to looking at debt/GDP as a fiscal metric, I’ve looked at it myself and shown it thousands of times. But that doesn’t make it right, and it suffers from several severe defects that make it misleading as a primary guide to fiscal space and the fiscal situation.

Comment: Issue 1: Debt is a stock (a total you have at one time) and GDP is a flow (the total over a period of time). Better to compare stocks to stocks (or flows to flows). Not hard to pay off $20T of debt when US GDP totals about $4 quadrillion going forward.

Comment: Issue 2: Interest rates have fallen. As a result, while the debt is rising over the next several years interest payments on the debt are actually falling (in nominal dollars)..

Comment: Issue 3: Debt is backward looking, it is the total cumulative deficits from 1789 to the present (give or take). Doesn’t reflect what is happening in the future.

Comment: Issues #1 and #2 can be solved by shifting to focus on interest/GDP as a metric. This shows debt currently very manageable. In fact, a better metric is real interest/GDP which subtracts the portion of the debt that is inflated away. Even more affordable.

Comment: Issue #3 says be forward looking. One way to do that is the fiscal gap. But an issue is that forecasts of the future are very uncertain. 30 years ago we thought debt/GDP would be nearly 200% in 2020. Better not to make large policy changes today based on a very uncertain future.

Mosler: That debt already is the money- $ in cash+ reserves+ securities accounts, all Fed liabilities (functionally) = net financial assets of the economy= equity that supports the entire private credit structure=net money supply.

Comment: Please do not concede on the notion that public debt is a “burden on future generations”. It is not. The kids won’t have to pay any interest. Comparing public debt to private debt is never a good idea.

Mosler: The public debt is simply the net money supply. It's the money spent by the gov that hasn't yet been used to pay taxes, and stays in the economy until it's used to pay taxes. This money supply isn't a burden and the idea of paying it back isn't applicable.

Comment: After a decade of maligning MMT, the grand poobahs of neoclassical macro reinvent it and pretend they presided over a new paradigm - without mentioning previous critiques.

Mosler: It still implies the debt to gdp ratio matters. :( And doesn't assert the policy rate should be permanently at 0. :(

Comment: Around $5bn per year in ext debt coming due over the next 4 years with few options to refinance except IMF or perhaps more loans from China. A 9% fiscal deficit, 100% debt/GDP and large trade deficit even with import restrictions. How will "riding MMT" solve their debt problems?.

Mosler: What's the collateral behind the external debt?

Comment: That's Debatable: Stop Worrying About National Deficits.

Mosler: More simply when it's realized gov necessarily spends first and only then can taxes be paid or gov bonds purchased, and that rate hikes cause inflation, notions of gov solvency, debt burdens, etc, become entirely inapplicable.MMT White Paper - The Center of the Universe.

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: Even at zero interest rates, could we pay this down with surpluses? The structural deficit is huge. Last year's deficit, at full-employment deficit was equivalent to: + 60% of Federal income tax revenue collected or + $3,000 per person or + $8,300 per household.

Mosler: The public debt= net financial assets in the economy= equity that supports the credit structure. Not wrong to call it the net money supply. It already is 'the money'/$ in accounts at the Fed, etc. so what would the point of reducing it be?.

Comment: 1. The fact that the Fed owns 20% of GDP of US Treasury debt funded by bank deposits is a red flag. 2. But there is a lot of funding that the Fed can continue to tap to buy Treasury debt as long as people believe past returns are a good guide to future performance.

Mosler: The Fed debits securities accounts and credits reserve accounts on its books when it purchases Tsy secs. That shifts outstanding $ balances in the non gov sectors from tsy secs to reserves.

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: Sorry Dick, but that is wrong. The government does borrow. Legally and factually it has loans outstanding. MMT should not deny the truth. And yes, I agree that is just an asset swap and does not fund government. But it’s still borrowing. What MMT actually says is that’s choice.

Mosler: When asked, I just say 'the gov sells securities, and, importantly, after it spends. You can call it anything you want, but that's what it does' etc. No need to debate the word 'borrowing' at all.

Comment: Suppose U.S. govt paid 4 everything using currency. Is this "borrowing?" Suppose currency yielded interest. Now is it "borrowing?" What if that interest is negative? Is it still "borrowing?" What if it was the Treasury instead of the Fed issued the security? Now borrowing? Why?.

Mosler: The issuance and sale of securities is borrowing, by convention. So I just say the Treasury sells securities, for example.

Comment: Now here is a central bank that gets MMT. What do you think, @wbmosler? Inflation target: 4.00% Inflation: November 2020: 4.40% Key rate: from 27/07/2020: 4.25%.

Mosler: Then again they would have a 0 rate policy rather than paying all that interest on the public debt which is nothing more than basic income to people who already have money.

Comment: Can you elaborate, Warren?

Mosler: The public debt is the $ spent by gov that haven't yet been used to pay taxes, evidencing 'savings desires', and remain outstanding as cash+reserves+tsy sec until used to pay taxes. Regardless of ongoing tax receipts.

Comment: After reading another terrible newspaper article, a gentle reminder: high public debt is primarily a legacy from increasing interest payments in 1980s. The Italian state ran primary surpluses from early 1990s with negative growth effects, which increased public-debt-to-GDP.

Mosler: Public debt is driven by nominal savings desires. It's an unspent income story.

Comment: Would it be to inaccurate to say the public debt / "debt clock" is ROUGHLY keeping count of the number of U.S. dollars in world? And in any case what could be said to add to that for a deeper understanding? "Net" simply isn't used by the average person + is mighty ambiguous.

Mosler: Casually, there are loans and there are deposits. Deposits are higher by the amount of the public debt.

Comment: $27.4 trillion in savings! US can always afford compassion

Mosler: Tax advantaged savings created by Congress-pension income/contributions, corporate reserves, etc.- drive the 'need' for net spending/public sector debt. It starts with the 'we need savings to have money for investment' myth, etc.

Comment: There are three sentences here. The first is, at the very least, neutral with respect to MMT. I presume @StephanieKelton would say that affordability is never an issue. She can correct me if I’m wrong on that. The second appears to be a statement of fact. I don’t see how a statement of fact can be inconsistent with MMT. The third sentence has two clauses. The first is again, a statement of fact. For the second clause, see my comment on the first sentence. I think we are down to the statement that government debt can never create a burden on an economy that issues a sovereign currency. Is that a radical departure from mainstream Keynesianism? I think that depends on how we interpret “mainstream”. My guess is that the Keynes of the GT would have drawn a distinction between what government can do by borrowing and spending when unemployment is high, from what is feasible when the economy is at full employment. Surely there is some common ground here?

Mosler: Think sequence- spending from single supplier of that which is required for tax payment adds the $ that subsequently pay taxes/buy tsy secs, so (nominal) 'affordability' and 'debt burden' inapplicable.

Comment: You are correct that both the Debt and the GDP are intellectual constructs that are not "real."But they are useful ideas for tracking the economics. When we got out of WW2, our debt was huge. But we grew so fast that, by 1979, we have reached a very low Debt to GSP ratio.

Mosler: For the gov, 'paying off the debt' is like making change. Like to promise to give you five $1 bills for a $5 bill, gov promises, at maturity, to debit your securities account and credit your reserve account, all at the Fed.

Comment: You can't bankrupt the federal government. Period. End of sentence.

Mosler: The gov's 'debt' already is 'the money'- $ in 'bank accounts' at the Fed called cash, reserves, and securities.