Selected Posts

Comment: Growth & jobs and why we’re where we are.

Mosler: Unemployment is the evidence the deficit is too small, by identity.


Mosler: The full employment response to unspent income by any sector is lower taxes or higher public spending!


Comment: Take another look at the decelerating German export and income growth.

Mosler: Trade def= foreign savers. Allows you to have/enjoy lower taxes/higher spndng/higher bud deficit :)

Mosler: Unemployment is always and necessarily the evidence the budget deficit is too low with any trade balance.


Comment: Looking forward to my interview with President Obama tomorrow @ 5 pm EST on CNBC on all things economic.

Mosler: Q: How can Gov be "out of money" when operationally it has to spend first, then collect tax or borrower its own money back?


Comment: "Rising import competition from China reduced US employment growth by between 2.0 & 2.4 mln jobs between 1999 & 2011”.

Mosler: A good thing! But wrong policy response! Taxes can be lower and/or spending higher to sustain full employment!


Mosler: Gov. 0 rate policy euthanizes rentiers AND creates fiscal space for more public spending and/or lower taxes!


Comment: If business is funding its own activities, then credit usage becomes less important, yes?

Mosler: Less credit means we can enjoy a larger fed deficit, but congress doesn't understand that, so instead the economy gets worse.


Mosler: Remind the new Congress that if they cut spending they need to cut taxes even more, as the problem is the deficit is too small.

Mosler: If the tax wasn't cutting spending it had no reason to be there so keep adjusting fiscal until output gap closes.


Comment: Lots of liquidity entered the economy. Where did it go?

Mosler: The deficit spending added exactly that much to global $ net financial assets aka net nominal $ savings.


Comment: “Might a higher minimum wage lead to replacement of workers by machines?" Absolutely.

Mosler: Which is a good thing that begs lower taxes or more public spending to keep demand at full employment levels.


Comment: What? Income is axiomatically someone else's spending.

Mosler: Yes, hence unspent income not offset by deficit spending (private or public)= unsold inventory. AKA 'under consumption theory'.


Comment: Yeah I see the point and agree. But if unemployment results only because currency is saved rather than used to pay taxes, there's an argument for saying the savers caused it.

Mosler: A tax liability with no gov spending = unemployment. That is "not spending" is the cause in either case. ;)


Comment: Taxing always has to be looked at as the final step in the process. Never view it as taxing as the precursor to spending. Interest payments to wealthy and big corporations is a political choice, not a functional necessity. It is not efficient monetary policy.

Mosler: However, tax liabilities do come first, which creates sellers of goods and services that can then be purchased by the state. Actual tax payments follow state spending or lending.


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: 3The 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: What about inflation?' The funds to pay taxes come only from gov or its agents, so gov is necessarily 'price setter', and the price level is a function of prices paid by gov when it spends. And don't confuse a relative value story with an inflation story thanks!.

Mosler: Thought exercise- if all prices go up and the gov doesn't pay those higher prices, gov spending goes to 0 and the price level deflates until gov spending is sufficient for tax payments due. Not that it's 'good policy' to do that, but to reveal the source of the price level!

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 it's otherwise worthless currency.


Mosler: What is called 'inflation' exists even with unemployment and excess capacity, as evidenced in most of the world. And MMT alone recognizes the price level is a function of prices paid by government when it spends, and not the quantity of government spending.


Comment: We don’t need the tax money from rich men & women...we just need them not to have so much power and ‘stuff’.

Mosler: And note that a tax that does not reduce private spending does not 'make room for' public spending and therefore functions only in regard to 'social equity'.


Comment: No one has produced a careful analysis to work out how much of the net, new spending might need to be offset: Democratic presidential hopefuls are floundering a bit over Medicare for All. Let's hope they get clear about it, in particular the reality that completely going to single-payer would require a LOT of revenue.

Mosler: Too much net spending = only a one time increase in prices that can readily be reversed, without a drop in employment or output. It does not 'trigger hyperinflation' or anything of the sort. But too little = unemployment and lost output. So what are we waiting for??? ;)


Mosler: No, there is no nominal limit to deficit spending under current institutional structure.


Comment: Disney CEO explains how profits from merger w/ Fox will come from massive layoffs. As usual, layoffs' costs to workers, their families, & communities does not matter to capitalist. Private profits are far less than social costs but the profiteers decide.

Mosler: Jobs are real economic costs of production, not benefits. The crime against humanity is the state not supporting aggregate demand (total spending) at levels high enough to ensure business profits from providing well paid employment to displaced workers, etc.


Comment: How do we characterise the sum that remains owing on the loan, the loan remaining necessarily unserviceable because real contractions in the economy mean that there exists no longer the wealth to service the principle nor interest.

Mosler:You are alluding to what's called an 'unspent income' problem, which includes unspent interest income. It can only be resolved by some agent spending more than his income, called deficit spending, which can be public or private.


Mosler: President Trump and his team seem to have no idea that the trade deficit creates fiscal space for the likes of his tax cuts. Nor do the media, business professionals, main stream economists, etc. seem to get it???


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: Interpreting #MMT saying "money is a unit of measurement for resources" as if it also means that "production and actual resources are meaningless" is like Interpreting a parent saying, "I love my older son" as if they also mean, "I don't love my younger son."Compartmentalize!

Mosler: The dollar is simply a tax credit, and the gov (and its agents) are single supplier= the 'price level' is a function of prices paid by gov when it spends and collateral demanded when it lends. And only MMT seems to understand that?.


Comment: The Case for a Guaranteed Job by Robert Skidelsky - Project Syndicate.

Mosler: ??? The govt. created unemployment, by design, by imposing tax liabilities, for the further purpose of provisioning itself by spending it's otherwise worthless currency. Residual unemployment is the evidence that the tax liabilities created more unemployed than the gov hired.


Comment: How is inflation measured under MMT? In the early 1980s, the measurement of inflation included energy and food. Now it doesn't. The measurement of inflation has never included house price inflation. Should it? What else should be included or excluded?

Mosler: It's a political question. The definition is meant to serve to further public purpose. Not to forget the 'price level' is a function of prices paid by gov when it spends, so inflation is the continuous increases in price paid by gov, etc.


Comment: The explanation of how the federal government does not need taxes in order to spend. Those who claim otherwise must provide their explanation.

Mosler: It's about needing to impose tax liabilities, rather than needing to get the $ to spend....


Comment: Same 100% crowding out (of Investment) if you assume G is a perfect substitute for private I.But you get crowding *in* (and even bigger multipliers) if instead you assume G is a *complement* for private C or I. It all depends. It's tricky. Macros sweep this under the rug.

Mosler: Said another way, for a govt. with a floating fx policy that necessarily spends first, thus providing the funds that can be used to pay taxes and (voluntarily) buy govt. securities, said crowding out is inapplicable... ;)


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: First of all, thank you very much for your reply. Without an increase in the interest rate and with a lot of Argentinean 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 fx.


Comment: 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, as state revenue, levied in nominal terms, failed to keep in step with its spending, and these hyper-enlarged deficits supported the hyperinflation of the price level.

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: Serious question Brian: Would it be better if we just started saying the fed gov doesn’t borrow money? This seems to be a sticking point with all these people because the idea that “you have to pay back what you borrow” is so DEEPLY ingrained into all of our psyches.

Mosler: Tell it like it is- the Fed Govt. necessarily spends first, and then taxes are paid or bonds paid for. That is, it borrows AFTER it has already spent the $, and not to get the $ to spend. That's because those $s come only from the gov and its agents, or else they are counterfeit.


Comment: 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.


Comment: An MMT critique from the man who bailed out the banks. Others have already shares strong words about this.

Mosler: MMT teaches sequence- tax liabilities, spending, tax payment/bond purchase- thereby eliminating solvency consideration, and the source of the price level is prices paid by gov. And they have the rate thing backwards. No new tools, just a new (for them) understanding of the tools.


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: Health Care bill looks to make a problematic system worse. Tax now and don't spend until 2014 is a 3 year drag on the economy.


Mosler: Spoke at an event in DC this morning on how to properly spend the 700 billion dollar stimulus package.


Mosler: Mike Norman Brilliant and scathing criticism of the Deficit Commission by economist James K. Galbraith.


Mosler: Between credit conditions, Fed's 0 rate policy and QE, the deficit probably remains too small for anything more than muddling through.


Mosler: Total US deficit spending now too low for global growth?


Mosler: Spending more than income offsets spending less than income.


Mosler: Reps want the additional sequester cuts for Jan 15th to happen, Dems don't. And both say gov spending only what it takes is a good thing.


Mosler: No mention, Unemployment is always + necessarily the evidence the deficit is too small for financial conditions?


Mosler: No mention unemployment is the evidence the deficit is too small :(


Comment: Growth & jobs and why we’re where we are.

Mosler: Unemployment is the evidence the deficit is too small, by identity.


Comment: How can lower than projected deficits be explained by an improving economy when growth has been worse than projected?

Mosler: It's the slower growth that's explained by the pro active deficit reduction measures.


Mosler: Still not enough private credit growth to offset lower fed deficit.


Mosler: The full employment response to unspent income by any sector is lower taxes or higher public spending!


Mosler: Point of fact: Company's "borrowing to spend" via equity sales offsets demand leakages/supports GDP growth.


Comment: Take another look at the decelerating German export and income growth.

Mosler: Trade def= foreign savers. Allows you to have/enjoy lower taxes/higher spndng/higher bud deficit :)

Mosler: Unemployment is always and necessarily the evidence the budget deficit is too low with any trade balance.


Mosler: Analysts see deficit reduction as fiscal drag which fades, rather than as removal of support that leaves less support.


Comment: Dismal Scientists: after 3.6% GDP report, Morgan Stanley cuts 4q est to 1% from 1.5. Stephen Stanley says 0. All inventory related.

Mosler: Yes and recession risk elevated with deficit spending this low and relatively tight financial conditions.


Comment: Second post on Germany - attempting to find a reason for poor private sector investment. It's banks, of course.

Mosler: More likely low aggregate demand=the deficit is too small.


Comment: While we had Deficits shrinking at the fastest pace, we had Corporate profits rising to record highs.

Mosler: Growth of profits slows as deficit comes down. profits up vs gdp as austerity crushes labor.


Comment: Yes, the personal savings rate is down to 4.2% in the US now but isn’t this what policy makers want? The key is wages.

Mosler: Interesting how savings rates tend to fall with the federal deficit falling ;).


Comment: Question #10 for 2014: Downside Risks.

Mosler: Biggest downside risk- the federal deficit is too small, given the credit growth needed to offset the demand leakages


Comment: Because no one collects, 70% is ours, nice little system for unlimited capacity: Minsky (1959): "As the gov't has the sovereign right to issue fiat money, gov't debt is safe from danger of default."

Mosler: Currency issuers must spend first; then collect/borrow back own money.


Mosler: So the question is, if your sales/income/profits were down because of the harsh weather, do rush out and spend as the weather clears?


Comment: What kind of south? Italy was the 5th world economic power and fixed exchange is killing us ! damn it.

Mosler: The problem is italy is a good saver which requires a larger deficit. It's being punished for being a good saver. :(


Mosler: The too small US deficit is a macro constraint putting an ever lower lid on gdp growth.


Comment: Looking forward to my interview with President Obama tomorrow @ 5 pm EST on CNBC on all things economic.

Mosler: Q: How can Gov be "out of money" when operationally it has to spend first, then collect tax or borrower its own money back?


Mosler: Unemployment is necessarily the evidence the deficit is too small.


Mosler: And all due to the deficit being too small :(


Comment: Today @YvonneARoberts looks at what it means to create a dynamic creative 'good state'.

Mosler: Not to forget the deficit needs to be large enough to offset unspent income/sustain full employment!.


Comment: Demand our government replace FEDERAL RESERVE NOTES with GOLD BACKED TREASURY NOTES!!

Mosler: The output gap is even much larger than shown= the deficit is way too small.


Comment: "Rising import competition from China reduced US employment growth by between 2.0 & 2.4 mln jobs between 1999 & 2011”.

Mosler: A good thing! But wrong policy response! Taxes can be lower and/or spending higher to sustain full employment!


Comment: It's time to dethrone the dollar & bring back the jobs.

Mosler: Imports are real benefits and exports are real costs-so cut taxes and/or hike spending to boost jobs instead of dethroning $US!


Comment: NYT still can't get basic economics straight. Everything bad about deflation is also bad about low inflation.

Mosler: The bad thing is unemployment and that's because the deficit is too small. Get with the program Dean!


Mosler: Gov year end rush to spend by end of sep pushes updata.


Comment: Huh? Soft skils is tripe as explanation for joblessness or low wages.

Mosler: Unemployment as defined is necessarily a macro problem= insufficient deficit spending.


Mosler: And the big truth is the deficit is too small. Remember 'Taxed Enough Already? Taxes need to be a lot lower than spending!


Comment: This, straight up: If Obama and liberalism worked for African-Americans, black unemployment wouldn't be rising.

Mosler: And deficit reduction doesn't work for anyone except maybe exporters and bankruptcy lawyers!


Comment: In World War II, we actually did use the Fed to invest in the real economy.

Mosler: All gov spending is via crediting a member bank's fed account.


Comment: Europe learns from 1930s! No recovery till long run debts reduced w Marshall plan level of (mass) public investment.

Mosler: Recovery when agents spending more their income make up for those who don't.


Comment: Jared Bernstein lays out the problem of elites who hate inflation and jobs.

Mosler: Worse is progressive elites who concede there is a long term deficit problem when the Fed's long term inflation forecast is 2%.

Comment: These two guys both need to read and get in touch with @MazzucatoM who knows where earlier innovation actually came from.

Mosler: But unemployment necessarily/only comes from unspent income/deficit too small.


Mosler: Gov. 0 rate policy euthanizes rentiers AND creates fiscal space for more public spending and/or lower taxes!


Comment: Unemployment is correlated with high minimum wages, high long term govt unemployment benefits.

Mosler: If so, given that institutional structure, unemployment is the evidence the deficit is too small.


Mosler: The deficit was 2.8%, about the same as the EU, which should yield a similar macro economic outcome.


Comment: That's monetizing the deficit. As said, the last hope for heterodox econ.: spending creating its own income.

Mosler: All gov spending is printing $, all taxing is unprinting $, and $ are just tax credits.


Comment: So, what pays nominal spending if there is a 10% budget deficit?

Mosler: Treasury spends by instructing the fed to credit a member bank's account.


Comment: If business is funding its own activities, then credit usage becomes less important, yes?

Mosler: Less credit means we can enjoy a larger fed deficit, but congress doesn't understand that, so instead the economy gets worse.


Comment: OBAMA:15 Million Jobs, 52 Months of Job Growth, Deficit: Down, GDP: UP, DOW: UP, Bin Laden: Dead, Obamacare: Law.

Mosler: The lower deficit is the big ugly negative keeping a lid on the economy.


Mosler: Remind the new Congress that if they cut spending they need to cut taxes even more, as the problem is the deficit is too small.

Mosler: If the tax wasn't cutting spending it had no reason to be there so keep adjusting fiscal until output gap closes.


Comment: Fed's Mester to @steveliesman: Jobs report 'solid,' consistent with what we've been seeing.

Mosler: Adopted the term 'deficit owl' from Stephanie Kelton and mmt ;)


Comment: I argue that because Eurozone lacks a single fiscal authority it behaves like a rigidly pegged exchange rate system.

Mosler: But UK and US Def spending too low as well even with single fiscal authority.


Comment: This is my complaint. You cannot separate monetary and fiscal authorities like that. Does not work..

Mosler: If congress didn't deficit spend states would be in same dilemma as national Governments.


Comment: Do you think US unemployment in Great Depression was due to "legal-inst barriers to employment"?

Mosler: No, deficit was too small to offset unspent income.


Comment: European Parliament cannot tax anyone directly. Deficit spending has to be done by national governments, not EP.

Mosler: Yes but problem is not '18 locked currencies' per se but too low net spending.


Comment: My point-you are comparing apples & pears. EP is not a sovereign parl with tax-raising powers.

Mosler: I never said it was. I said it spends without deficits.


Comment: Non-Euro EU members contribute to the EP's budget. Rather a lot, in some cases.

Mosler: Point is if the ECB suddenly ran a 5% of GDP deficit, unemployment would fall, same for Congress.


Comment: : I repeat, the EP has no tax raising powers. Its budget comes from the national governments.

Mosler: Completely understood and a different level distinction from my point re deficit spending.


Comment: @wbmosler so says the MMT, but how did depressions cured before even FED in place?.

Mosler: Deficit spending 'including' new gold discoveries.


Comment: Eurozone does not have its own single fiscal authority. It has 18 fiscal authorities.

Mosler: US states have fiscal authority/spend.


Comment: The EP runs wider than the Eurozone, remember. It cannot be sovereign over some but not others..

Mosler: EP and Congress spend on behalf of their union.


Comment: ECB has ccy creating powers, but no EU institution has tax collecting powers.

Mosler: Agreed but to what point? My point-both EP and Cong spend but Cong runs deficits.


Comment: Japan unemployment rate 3.6%. Eurozone 11.5%.

Mosler: Different propensities to not spend income for a variety of reasons.


Mosler: Moody's cuts Japan's credit rating over the deficit- history won't be kind to Moody's...


Comment: Tea Party to GOP members: If you ran against amnesty, you must urgently defund it.

Mosler: Right, provided that for any given level of gov spending you keep taxes low enough for full employment ;)


Mosler: The constructive policy response to capex cuts is lower taxes or higher spending.


Mosler: Looks like the modest growth we've had with the too small deficit was from high priced oil capex/credit expansion which is now fading fast.


Comment: But you are right about interest rates. The high interest rates are both futile and damaging.

Mosler: Rate hikes increase gov def spending, etc


Mosler: The deficit is 'paid for' by all those spending less than their incomes ;)


Comment: But if governments spent and borrowed more, they could lift aggregate demand is what I mean

Mosler: Yes, spending/tax cuts add to demand, irrespective of 'bonds' etc. ;)


Comment: You should take a look at this. The Mosler Plan for Greece by @wbmosler.

Mosler: It was meant only to restore solvency, not output and employment which needs a much higher deficit.


Comment: If Japan can sell govt bonds at .25%, where’s the need for financial discipline, asks @deanbaker13Via @Janusz_Oldag.

Mosler: That's an unrelated question. Bonds don't constrain spending operationally.


Mosler: And so the same people who want the govt to spend don't want anyone to have those dollars after they are spent... ;)


Mosler: Def spending always adds that much income and savings to the econ.


Comment: Is requiring investors to realize losses on excess debt a fiscal adjustment?

Mosler: Probably not. Investor spending prob more sensitive to real time mkt value


Comment: Monetary Policy for the Next Recession.

Mosler: Monetary policy=rates and financial asset shuffling, fiscal= taxing/spending, regardless of the agency that does.


Mosler: Deficit limits are limits on total net savings of that currency.


Comment: The euro, like the gold standard is doomed to fail.

Mosler: Making the deficit limit a policy tool, raising it to 8%, and an ECB debt guarantee ends the economic crisis.


Comment: My latest on China's big bang and its implications on Fed policy and stock markets.

Mosler: China doesn't want to spend any more $ reserves to defend a peg.


Comment: Kansas jobs plummet in latest disaster for Sam Brownback’s tax-cut strategy.

Mosler: Yes, spending cuts and tax hikes in general slow sales and employment.


Comment: Re Paddy, you missed that PQE injects pvt sector INCOME when it adds money. BoE counter is asset swap; doesn't drain INCOME.

Mosler: Right, just like 'normal' deficit spending... ;)


Comment: Are you thinking PQE is ‘helicopter money’? It is not: far from it.

Mosler: I'm thinking PQE is functionally nothing more than 'normal' deficit spending as per Bill Mitchell etc.


Comment: Corbynomics: four weeks on.

Mosler: Which is, functionally 'normal' deficit spending.


Comment: 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: Latest nonfarm payroll numbers are under forecasts, but August revisions have been upward over the past few years.

Mosler: The same reason normal deficit spending isn't being used- insufficient political will.


Mosler: New post: Mtg purchase applications, UK industrial production, Saudi visit, US budget deficit.


Mosler: Employment as a % of population remains depressed from low demand- tax cut or spending hike needed to remove that drag.


Comment: I still have to say that means nothing to me.

Mosler: So it means the neo classic answer to unemployment is the state spending more than it taxes ;)

Mosler: Taxation introduces imperfect competition to their models, radically altering the outcomes ;)

Mosler: Enforced taxation renders inapplicable the neo classic model that assumes money neutrality.


Comment: What could Warren? The war on tax abuse?

Mosler: New sources of revenue (taxes) used to facilitate deficit reduction reduce aggregate demand.


Comment: Trabajo garantizado, nacionalización de las eléctricas y República federal en prime time televisivo. #AlbertoGarzónUTN.

Mosler: State spending employs those its tax caused to be unemployed. If it doesn't want to employ them at least cut the tax!


Comment: Must-read paper by @ProfessorWernerA lost century in economics...We are slaves to fraud: "The money was not withdrawn by the bank from other uses. It was not diverted or transferred from any other part of the economy. Most of all, although it is shown as a deposit, it was not actually deposited by anyone. The bank simply created the money by writing the figures into its books and the customer's account book. In effect, the bank pretends that its borrower has made a deposit that was not actually made. Unlike the textbook representation, we see that each individual bank can thus create money when it extends a loan. Showing this truth in textbooks would not only be more memorable, but it would also teach students about what banks really do: they create money out of nothing. The bank just pretends it has the ſloan amounts), credits someone's books with them, and nobody knows the difference" (p. 178).

Mosler: Accounting is record keeping. The borrower gets to spend his funds. Who is defrauded or gets hurt?


Mosler: The constructive policy response to capex cuts is lower taxes or higher spending.


Comment: More stimulative because stability bonds, if well designed, will boost potential growth & lower cost of capital.

Mosler: If so then because of the spending on real goods and services, not the means of 'finance'.


Comment: "Something's pulling us down...it appears to be coming from within."

Mosler: But it's the too small deficit. We need large tax cuts or spending increases to remove that fiscal restriction.


Comment: How the Labor Cost Competitiveness Myth is Making the Eurozone Crisis Worse: A new article makes a devastating.

Mosler: Unemployment is always an unspent income story. Just hike the deficit limit to 8% of GDP and the crisis is over.


Mosler: Sander's tax hike proposal unfortunately means he also agrees that deficit spending is 'bad' :(


Comment: Warren, would you pls mind laying out ur logic on how higher rates are expansionary, but you think Fed shouldn't have raised them?

Mosler: Rate hikes add interest income but I prefer a tax (like fica) cut or spending increase, and reread what I said about the Fed.


Comment: Lots of liquidity entered the economy. Where did it go?

Mosler: The deficit spending added exactly that much to global $ net financial assets aka net nominal $ savings.


Comment: “Might a higher minimum wage lead to replacement of workers by machines?" Absolutely.

Mosler: Which is a good thing that begs lower taxes or more public spending to keep demand at full employment levels.


Comment: Helicopter money' is overrated.

Mosler: Exactly! Though Fed rate hikes also hike deficit spending, so a Fed vote to hike rates is a Fed vote to hike Federal spending... ;)


Mosler: Excellent! And also shows how so called 'positive money' = 'normal' federal deficit spending + permanent 0 rate policy.


Comment: Why Declining Oil Prices Can Be Contractionary".

Mosler: Yes, oil price declines have been a big whopping negative, but it's about the related capex spending collapse, not interest rates.


Comment: Jobs are sent overseas by corporations & pay is stagnant for US workers.

Mosler: And a tax cut or spending increase then serves public purpose, not protectionism.


Comment: Yea, the @SusanSarandon phenomenon. The problem with capitalism is it works *too* well - it destroys its own demand base.

Mosler: Which can be easily offset with lower taxes or more spending, both good things!


Comment: What's the argument for thinking of fiscal stimulus in terms of private balance sheets rather than income flows?

Mosler: Unemployment evidences fiscal restriction that can be immediately removed with a tax cut or spending increase.


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: Rate hikes per se cause inflation via interest income channels, but I'd prefer tax cuts or spending hikes.


Mosler: Better still, simply increase public sector wages and let the deficit go that much higher.


Comment: In fairness: Trump right that sovereigns don't default because they can print money. Nor need it lead to hyperinflation.

Mosler: And in fact all US Gov spending is 'printing money'/crediting accts. at the Fed. 'Printing' is not a distinction!.


Comment: Growth automatically reduces deficits due to increased tax collections.

Mosler: And then the recovery ends when the deficit gets too small.


Comment: And, once, they laughed at the thought! No longer funny..."@stf18 @DanielAlpert Starting to look like an "age of oversupply," no? :)"

Mosler: Yes, from a massive shortage of agg. demand. With low private sec. deficit spending fiscal is too tight.


Comment: Krugman: "They say 'money talks'; cheap money is speaking v. clearly now & it’s telling us to invest in our future."

Mosler: No, if anything low rates are the Fed telling us they want more deficit spending, private or public.


Comment: The Tea Party is mainstream. The felonious mishandler of classified information is not. Congrats to @realDonaldTrump on Pence--a guy so mainstream he's bragged about being Tea Party before Tea Party was cool.

Mosler: Theme song? "...I've got Trump-Pence to spend and Trump-Pence to lend and Trump-Pence to bring home to my wife..." ;)


Mosler: Exports are real costs, imports real benefits. Sustain good paying jobs and real terms of trade via tax cuts or spending increases.


Comment: My (implied) critique of your business card model.

Mosler: All valid outstanding tax credits have value as long as tax liabilities exist. And gov. is price setter.


Comment: All valid outstanding tax credits have value as long as tax liabilities exist. And gov. is price setter.

Mosler: Gov spending adds tax credits, taxing debits them. Agree with your velocity needs assuming nominal GDP constant, for example.


Comment: You need the federal government's dollars injected through deficit spending to create jobs.

Mosler: Deficit spending eases that restriction on net savings, allowing more spending and employment


Comment: Problem with MMT, no matter how much they spend & fail, they just say "spend more."

Mosler: 0 spending = 0 gdp.


Mosler: Check out deficit spending, public and private?


Mosler: As we discussed 7 years ago? Rate and QE policy doesn't increase demand. The EU needs to relax the deficit limit to 8% asap


Mosler: The in paradigm answer is yes but because Gov necessarily spends first then collects tax or borrows.


Comment: Are you saying it’s impossible for the US government to have a fiscal crisis? Why?

Mosler: Because close examination shows fed gov spends first, then collects taxes or borrows back its $.


Mosler: Yes, if they don't let you cut taxes or increase spending...


Mosler: Euro area internal 'adjustment' with spending or tax cuts is via more inflation in Germany.


Comment: German budget surpluses are bad for the global economy.

Mosler: Not per se, as they allow others to cut taxes or hike spending in response.


Comment: German budget surpluses are bad for the global economy.

Mosler: Not per se, as they allow others to cut taxes or hike spending in response.


Comment: What? Income is axiomatically someone else's spending.

Mosler: Yes, hence unspent income not offset by deficit spending (private or public)= unsold inventory. AKA 'under consumption theory'.


Comment: Which is what the savings rate is. And gov->hh has indeed declined, but foreign->hh and corp->hh have more than made up for it.

Mosler: Yes, in a growth deceleration that can't shed excess inventory until deficit spending growth, public or private, increases.


Comment: No. At macro level, hh savings = net sectoral flows from gov + corp + foreign sectors. All income = spending.

Mosler: Income = Spending where 'spending' includes 'unsold inventory', total spending < income = unsold output etc


Comment: @DrJillStein: 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: There is, of course, no similarity between today & the Great Depression, & credit plays no significant role in macroeconomics.

Mosler: It's always an unspent income story. Deficit spending, public or private, functions to offset savings desires.


Mosler: Which 'theories' might that be? Spending=GDP? ;)


Comment: Our latest estimate of 10-year expected inflation is 1.93 percent.

Mosler: And if there's not a long term inflation problem, then there's not a long term federal deficit problem either.


Comment: What would look "good" to you?

Mosler: With a 'stagnant' federal deficit, increased private deficit spending growth is all that's left to support GDP growth.


Mosler: And gov. spending and lending finances the tax payer and the gov. securities buyer. ;)


Comment: If Puerto Rico follows the trajectory in its fiscal plan, the fall in real output will be on the par with Greece.

Mosler: PR does not proactively get a pro rata share of federal deficit spending as the states do.


Mosler: Personal income and spending, Consumer sentiment, Atlanta Fed.


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.


Mosler: It's always an unspent income story as deficit spending, public or private, must off set unspent income (savings) for the output to be sold


Comment: I'd appreciate your input re the following: when a CB buys foreign currency by issuing the local currency, does it increase GDP?

Mosler: I've called it off balance sheet deficit spending. It's not counted as gdp per se but can trigger more gdp via exports usually with a lag.


Comment: We would suggest that more interest profit go to savers tax free to compensate their money stock value declining.

Mosler: You do understand that saving provides no macro benefit and in fact implies that much offsetting deficit spending, all as a point of logic?


Mosler: State Taxes and Spending.


Mosler: The post's narrative of a smaller deficit due to growth implies the smaller deficit per se is a beneficial outcome of that growth. :(


Comment: The whole "cost to taxpayers" meme, while rhetorically enticing, has no *economic* meaning when applied to spending of the US government.

Mosler: That spending is supported by about/maybe $100 million of our tax liabilities.


Comment: L'idea divampa.

Mosler: Anything that reduces taxes or increases public spending is a move in the right direction for the macro economy.


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.


Mosler: The Trump tax plan cuts state/local tax deductions which then cuts spending/corp revenue/profits, to reduce the corp income tax rate???


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. :(


Mosler: PR only keeps its own income taxes to spend, while DC spending in the states=income taxes paid + federal deficit spending=big advantage.


Comment: Here's my econ thought of the day: does inequality flatten the Phillips curve ? I.e. Lessen relationship of unemp to inflation?

Mosler: Yes, if it increases unspent income and private + public deficit spending isn't sufficient to sustain high enough aggregate demand.


Comment: The nat 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.


Mosler: Worth a reread thanks: "There is No Long Term Deficit Problem".


Comment: That too is another important point. Particularly for monetarily sovereign govs, and particularly the US gov the way the current system is arranged: there is no chance of gov being "unable" to rollover debt.

Mosler: Yes. In fact close analysis shows the 'state' spends or lends first, after which payments for taxes and securities take place.


Comment: I'm not an economist, but I believe MMT economists agree budget surplus can help fight inflation. But I believe at least one MMTer, @wbmosler, questions whether Volcker's big rate hikes really tamed late-70s inflation.

Mosler: If the cause of inflation is excessive aggregate demand, a tax hike or spending cut can cool it down, but not so for a cost push inflation.


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.

Mosler: But reserves are also required to pay taxes, making the price level necessarily a function of prices paid by the state when it spends.


Comment: So what would you call what economists call tax financed spending, bond financed spending and money financed spending?

Mosler: I call it spending which creates reserves followed by selling Treasury securities that function as interest rate support and not funding.


Comment: But the government does borrow. Equally governments can raise taxes to finance spending. That is what they think they are doing and are in fact doing. You do not avoid inappropriate parallels by changing language which is completely appropriate.

Mosler: Examination of CB accts shows govt. necessarily spends or lends first and then 'borrows' and so is not operationally revenue constrained.


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: Hyperinflations happen when domestic and/or foreign governments, whether by accident or deliberation, destroy.

Mosler: Not to forget the price level is necessarily a function of prices paid by govt. when it spends or collateral demanded when it lends.


Comment: Look: Fact: The sovereign (Fed+Treasury) does not need to borrow or tax in order to spend. Why: They can simply issue currency. Why don't they: Because need to change FRA (or Coin interpretation). Until then: taxes, borrowings fund spending. Otherwise need to shut down govt.

Mosler: Spending must be authorized by Congress, including mechanics of how it's done, all of which are political constraints.


Comment: Taxes are, in fact, “demand drains” and so reduce the capacity of the non-government sector to spend. Taxpayers do not fund anything. They just lose or gain purchasing power as the national government manipulates the policy parameters.

Mosler: Tax liabilities precede spending.


Comment: I think you may have that the wrong way around. Bars under the line are deficits/debt accumulation e.g. Bund during crisis. German private sector and Bund are now running surplus.

Mosler: Yes, foreign sector running a deficit with Germany thanks!.


Mosler: I generally say it this way: spending is constrained by whatever is offered for sale in exchange for that currency.


Comment: Germany’s budget is an accident waiting to happen https://ft.com/content/bbd9bf52-4ef2-11e8-9471-a083af05aea7… "most important policy rule in the Maastricht treaty: that member states treat economic policy as a matter of common concern. The German budget is as un-European as Greece’s excessive fiscal deficits were."

Mosler: For me the better option is to raise the deficit limits for all by, say 5% of GDP, and thank Germany for the treat....


Comment: The German government DECIDES to run budget surpluses based on erroneous beliefs about money being a hard thing, latent anti-inflation hysteria, commitment to industry/export-driven growth. Their hard-money beliefs have led to DE grinding EZ trading partners into poverty /2

Mosler: I have proposed the 3% deficit limit be increased to 5% for all members. ;)


Comment: Yeah I see the point and agree. But if unemployment results only because currency is saved rather than used to pay taxes, there's an argument for saying the savers caused it.

Mosler: A tax liability with no gov spending = unemployment. That is "not spending" is the cause in either case. ;)


Comment: Please find me a single place where an MMT economist has “argued that countries should push for trade deficits.” I’d be shocked if such a thing exists. Our views on trade have been very nuanced.

Mosler: From 'Full Employment AND Price Stability' 1997, where I explained how a trade deficit provides for beneficial policy options: 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.


Mosler: It's been the impact of the EU failing to sufficiently increase the 3% deficit limit that caused those problems.


Comment: This is the US/Canada trade data for 2017, according to the US government. It shows the US with a modest $2.76b surplus. We have a very large dairy surplus with Canada as well, suggesting, by the president's own criteria, we are unfair to them. But I don't think that's the case.

Mosler: Not to forget imports are real benefits and exports real costs, it's better to pay less than more, and a trade deficit gives that nation more fiscal space. ;)


Comment: Budget Deficits first spent tax credits into existence Budget Surpluses destroy tax credits out of existence. Therefore taxes without budget surpluses cannot be destroyed. Thus "Taxes for REVENUE ARE OBSOLETE" only applies in PUREMMT world!

Mosler: "Deficit" and "surplus" are residual accounting information.


Comment: Taxing always has to be looked at as the final step in the process. Never view it as taxing as the precursor to spending. Interest payments to wealthy and big corporations is a political choice, not a functional necessity. It is not efficient monetary policy.

Mosler: However, tax liabilities do come first, which creates sellers of goods and services that can then be purchased by the state. Actual tax payments follow state spending or lending.


Comment: Yet you agree that Treasury could mint a high value platinum coin, thus avoiding “borrowing” from the CB. And what did Eccles say about how the CB actually funds Treasury? "If Congress appropriates more money than" Congress levies taxes to pay, then, there is naturally a deficit, and the Treasury is obligated to borrow. The fact that they cannot go directly to the Federal Reserve bank to borrow does not mean that they cannot go indirectly to the Federal Reserve bank, for the very reason that there is no limit to the amount that the Federal Reserve System can buy in the market. That is the way the war was financed... the Reserve System creates the condition in the money market to enable the borrowing to be done, so that, in effect, the Reserve System indirectly finances the Treasury through the money market...So it is an illusion to think that to eliminate or to restrict the direct borrowing privilege reduces the amount of deficit financing. Or that the market controls the interest rate. Neither is true."Marriner Eccles, Chair of the Federal Reserve, 1947.

Mosler: Yes, the tsy could mint the coin and sell it to the Fed. But either the Fed or Tsy has to pay interest on net spending if it wants a policy rate higher than 0%, so for all practical purposes nothing has changed?


Comment: A parallel currency for Italy is possible: Rome can regain control of its monetary policy without breaking the rules of the eurozone.

Mosler: I spoke to officials at the Italian Treasury about this several years ago. They confirmed with Brussels that said net spending would 'count' for purposes of deficit limits.


Comment: Serious lack of aggregate demand this cycle.

Mosler: Yes, 'savings desires' grow and compound and need to be continually 'offset' by deficit spending- public or private- to sustain demand. See attached bank credit growth chart as a rough proxy for private sector deficit spending.


Mosler: 'The MMT community' was the only support for the President when he first stated the US can't run out of money, and later scolded the 'headline left' for criticizing Republicans for increasing the deficit per se.


Comment: What prevents economic growth? The latest cross-country research shows unnecessary protectionism, government misallocation, corruption, and financial instability keep countries down.

Mosler: And a too low budget deficit.


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: @wbmosler is of the opinion that jacking rates prolonged the inflation of the 70s and deregulating natural gas was thing that broke it. Sounds right to me.

Mosler: The deregulation played a role but looking back at the charts it may have taken longer than It seemed to me at that time to kick in. The recession from real deficit reduction did the initial damage to demand.


Comment: Cullen, where does the money come from to "net save" or pay taxes?

Mosler: Unspent income (“savings”) is “created” by private or public deficit spending.


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 stabilize, the economy decelerate and unemployment go up and they would converge with the rest of the EU.


Comment: “The Fed will clear any payment authorized by Congress.”If there’s a more straightforward answer to the question, “How will you pay for it?”, I’m all ears.

Mosler: Yes, all federal spending is ultimately a matter of the Treasury instructing the Fed to credit an account on the Fed's ledger.


Comment: 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: Zen of Helicopter Money koan for the not yet awakened: Student--"Does an interest rate of 0 have helicopter nature or not?"@wbmosler--"Mu!".

Mosler: And my now very old pun: Helicopter money is deficit spending in "disguise" (the skies)... ;)


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: The Euro: a mindless idea: @AshokaMody on the arrogant delusion of the architects of the EU.

Mosler: If they raised the deficit limit to 8% and then used it like a thermostat and left rates permanently at 0% they'd be dancing in the streets... ;)


Mosler: Right, taxing the rich (particularly with low propensities to spend) is about social equity concerns, not funding expenditures.


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: 3The 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: What about inflation?' The funds to pay taxes come only from gov or its agents, so gov is necessarily 'price setter', and the price level is a function of prices paid by gov when it spends. And don't confuse a relative value story with an inflation story thanks!.

Mosler: Thought exercise- if all prices go up and the gov doesn't pay those higher prices, gov spending goes to 0 and the price level deflates until gov spending is sufficient for tax payments due. Not that it's 'good policy' to do that, but to reveal the source of the price level!

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 it's otherwise worthless currency.


Mosler: What is called 'inflation' exists even with unemployment and excess capacity, as evidenced in most of the world. And MMT alone recognizes the price level is a function of prices paid by government when it spends, and not the quantity of government spending.


Comment: We don’t need the tax money from rich men & women...we just need them not to have so much power and ‘stuff’.

Mosler: And note that a tax that does not reduce private spending does not 'make room for' public spending and therefore functions only in regard to 'social equity'.


Mosler: For every agent, private or public, that spent less than its income another must have spent more than his income or the output wouldn't have been sold. Borrowing to spend offsets savings desires and when borrowing slows so does income, etc.


Comment: Willingness to hold government liabilities, interaction between bond market and other financial markets, effects of changes in exchange rate, determinants of inflation, among others.

Mosler: Willingness to hold gov liabilities is expressed in prices the gov. has to pay. That is, deficit spending equals savings desires. No?


Comment: Professor, what did you tell the journalists? Pray tell. #MMT cc: @FadhelKaboub @netbacker @wbmosler

Mosler: Not to forget the risk that Agent Orange gets China to spend its $ and use up our fiscal space. :(


Comment: Yes. It's terribly unfortunate. Spending is a tax.

Mosler: Yes, the real tax is collected at the point of public spending. It's all in my book.


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: Leveraged loans get all the attention, but it is in the underbelly of American corporate debt where the wild things are. Private Debt market has more than doubled in under decade.

Mosler: Looks like a material source of the credit expansion- private sector deficit spending- that drove the economy last year.


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: So, for example, spending to build the Panama Canal is a deflationary event, while the same amount spent to blow it up would be an inflationary event... ;)


Comment: So stuck in our IS/LM ways. Only escape from crowding-out is via horizontal LM. Once you're no longer in a liquidity trap, deficits have all of the usual, negative effects. Sound familiar?

Mosler: Once understood that govt. spends first, and then borrows, the crowding out thing is immediately inapplicable.


Comment: No one has produced a careful analysis to work out how much of the net, new spending might need to be offset: Democratic presidential hopefuls are floundering a bit over Medicare for All. Let's hope they get clear about it, in particular the reality that completely going to single-payer would require a LOT of revenue.

Mosler: Too much net spending = only a one time increase in prices that can readily be reversed, without a drop in employment or output. It does not 'trigger hyperinflation' or anything of the sort. But too little = unemployment and lost output. So what are we waiting for??? ;)


Comment: I would prefer to say the effects of an interest rate change are many and contradictory. The interest paid by gov pushes on the gas, the rate charged borrowers pushes on the brake. The increased cost of production can push up prices, while change in demand could affect bargaining.

Mosler: For every (non gov) borrower paying interest, there is a lender receiving interest and it all nets to 0. That leaves govt as a net payer of interest to the economy. What's left to analyze are the differing propensities to spend regarding interest income and interest expense.


Comment: TBH I struggle with this point. I understand the maths, but an increase in interest rates should depress the enthusiasm of the doers in the economy and reward the savers, who are the least likely to go out and invest in a start up. Can you expand on that please.

Mosler: Those agents called savers that earn interest income directly and indirectly, with some living off of it, in fact spend quite a lot of that income.


Comment: This is playing with words. Interest payments are profits not income. The vast majority are saved not spent. Ever hear of an institution, run out and spend, "interest income"? How about higher service costs to service debt by the 99%? Not a drain in consumption? Its backwards.

Mosler: Fed staffers tell me propensities to spend between borrowers and lenders from interest is about the same. And any difference would have to be extreme to not be dwarfed by gov interest payments on $22+ trillion. (And Krugman says same when arguing against deficits).


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.


Mosler: No, there is no nominal limit to deficit spending under current institutional structure.


Comment: Here is the real and correct depiction of US employment situation. your so called PhDs will never be able to explain why emp took so much time to get back to pre crisis level! And your reply clearly shows that you too hav solution for these 16mn.

Mosler: Unemployment, as defined as people seeking paid work who can't find it, is necessarily the evidence that state spending is insufficient to cover the need to pay taxes and the desire to save. And all as a simple point of logic... ;)


Comment: Was this the "Government must spend first" operation that allowed the private sector to buy Treasury securities before 2008 (when excess reserves were scarce)?

Mosler: It's in there somewhere! And QE is a form of 'spending or lending first' as well. ;)


Comment: The belief that government debt "crowds out" private investment seems like a clear case where the mainstream and MMT disagree, contrary to what the "MMT doesn't say anything new" crowd asserts.

Mosler: Close examination shows that in fact, from inception, the govt and its agents spend first and then 'borrow back their own money'. Seems crowding out can't apply?


Comment: "Kalecki’s Marxian analysis survives in Modern Monetary Theory,a once-fringe flavor of economics for which liberal Democratic politicians such as Senator Bernie Sanders of Vermont and Representative @AOC of New York have developed a taste".

Mosler: It's that the Fed has the interest rate thing backwards, and as rates go lower a larger fiscal deficit is needed to sustain demand. Fortunately lower taxes or more public services are 'good things.' Unfortunately Congress doesn't get it... ;)


Comment: Negative interest rates -- a Kaleckian perspective

Mosler: It's that the Fed has the interest rate thing backwards, and as rates go lower a larger fiscal deficit is needed to sustain demand. Fortunately lower taxes or more public services are 'good things.' Unfortunately Congress doesn't get it... ;)


Comment: Disney CEO explains how profits from merger w/ Fox will come from massive layoffs. As usual, layoffs' costs to workers, their families, & communities does not matter to capitalist. Private profits are far less than social costs but the profiteers decide.

Mosler: Jobs are real economic costs of production, not benefits. The crime against humanity is the state not supporting aggregate demand (total spending) at levels high enough to ensure business profits from providing well paid employment to displaced workers, etc.


Comment: How does the government do federal spending. Say it wants to purchase a plane. Does it spend from a reserve account? If yes, they could theoretically run out of money. Does it finance that account by selling new bonds - as the video claims?

Mosler: Can Taxes and Bonds Finance Government Spending.


Comment: Dear MMTers. I'm trying to understand the details of how government financing works. I've been stuck on something for more than a week now. I need your help understanding it. According to this detailed explanation here https://youtu.be/LiE_-KpRCqM the treasury spends from a deposit account at the central bank and that it *first* has to sell treasury securities ("borrow" money) and then use that money to fund government programs. This seems to contradict the MMT framework: that government spends money into existence and that spending is not operationally dependent on tax collection or selling bonds and that it *first* spends and *then* sells bonds to make up for its deficit (spending minus taxes). So is the explanation in the video wrong? What happens to the money that banks pay to buy bonds from the treasury? Does that money go somewhere or does it disappear from the system the same way you claim that collected taxes disappear? Any article or blog that explains this?

Mosler: Operationally the Fed does the 'spending first' part. With QE, the Fed bought and paid for tsy secs, and those funds are then 'used' to buy new tsy secs.


Comment: How do we characterise the sum that remains owing on the loan, the loan remaining necessarily unserviceable because real contractions in the economy mean that there exists no longer the wealth to service the principle nor interest.

Mosler:


Comment: What I'm saying is that the fact that the money is bank deposits does not tell you that it all came from bank lending. There could (hypothetically) be zero bank loans, but still be bank deposits.

Mosler: Bank deposits are created by bank spending. (When a bank makes a loan to you they buy your signed note).


Comment: It would be truly great if someone in the Trump White House could learn a bit of economics. Trade deficits are the flip side of international borrowing; we run deficits because we are net borrowers; trade surplus countries are net lenders.

Mosler: A trade/current account deficit is a consequence of non-residents desires to net save $US financial assets.


Comment: Let's try this: Borrower borrows 200k @ 6%, in a 30 year amortized loan. The bank lends $200k & expects $431,700 in return over 30 years. Where does the additional 231k come from, Professor Mosler?

Mosler: Simplel!! Whatever agents that earns the interest spends it. It's always assumed as a base case that all income is spent. That's why unemployment and recession are always unspent income stories. Can't believe you didn't know that???


Mosler: President Trump and his team seem to have no idea that the trade deficit creates fiscal space for the likes of his tax cuts. Nor do the media, business professionals, main stream economists, etc. seem to get it???


Comment: It’s not the tax cuts which made the deficit surge but welfare programs like Medicaid, Medicare... take a look into the budget.

Mosler: The deficit in real terms necessarily reflects the desire to net save financial assets.


Comment: Yourself: "I mean, sure deficit monetisation can work -- just look at the example of, er, Nazi Germany".

Mosler: Functionally the same as "normal" deficit spending.


Comment: @wbmosler does your model for the US Govt being a net interest payer includes Freddie Fannie exim, farm lending etc? How much do these programs mitigate the effect you are describing (I understand a lot of what they do is clip a spread that is unrelated to rates but they do lend).

Mosler: Hi Matt, trust all good by you! They lend rather than spend, so it's just about what happens to their net cash flow. And call me directly any time!


Comment: Fascinating historical background to the Italian mini-BOTs proposal here.

Mosler: Functionally it's just 'normal' deficit spending.


Comment: Hard to believe with deficit running at 4.7% GDP, spending up almost 250bln, yoy, we would enter recession. Psychology of believing in recession is strong. Dark, sad gloomy times for many.

Mosler: Yes, and it's always an unspent income story, with combined public and private deficit spending offsetting 'savings desires.' AKA 'under consumption theory'.


Comment: Inflation expectations now anchored at levels below 2%.

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: Imagine a debate that would let Republicans, Democrats and independents hear @realDonaldTrump explain his failures on immigration, the deficit and ... being President. Republicans believe in competition. I look forward to having that debate with you.

Mosler: Except you are wrong on the deficit part. :(


Mosler: Trade deficit might go down some?


Mosler: And indicates a reduction in borrowing to spend.


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: The Turkish lira is 2.1 percent weaker against the dollar after President Tayyip Erdogan dismissed the central bank governor, laying bare differences between them over the timing of interest rate cuts to revive the recession-hit economy.

Mosler: I agree that rate cuts will lower inflation, but they will not help the economy unless state spending on interest is "replaced" with other fiscal expansion.


Comment: A few thoughts on mini-bots, trying to avoid duplicating stuff elsewhere ( see some nice threads by @FabioGhironi & @SMerler and by @Bruegel_org.1 a very important use would be in a debt crunch where sharply rising government interest costs threaten fiscal sustainability.

Mosler: No different than "normal" deficit spending, with implied interest at the policy rate + any risk adjustment?


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: From whomever we are running a trade imbalance with. They send us products. We send them dollars. They lend the dollars back.

Mosler: As they say at the Fed, you can't do a reserve drain without a prior add. (Gov spends or lends first, then borrows it's own $ back).


Comment: Larry Fink wants the ECB to buy stocks. The ECB will probably buy stocks. The BOJ already buys stocks.Someday the Fed will buy stocks.The year is 2029. CBs across the world buy land, buildings, public and private businesses, debt, and all other assets. What's the endgame?

Mosler: Sufficient deficit spending, public or private, on goods and services to "offset" unspent income. Accounting identity, by the way. Aka "Under-consumption Theory", and over 400 years old...


Comment: Interpreting #MMT saying "money is a unit of measurement for resources" as if it also means that "production and actual resources are meaningless" is like Interpreting a parent saying, "I love my older son" as if they also mean, "I don't love my younger son."Compartmentalize!

Mosler: The dollar is simply a tax credit, and the gov (and its agents) are single supplier= the 'price level' is a function of prices paid by gov when it spends and collateral demanded when it lends. And only MMT seems to understand that?.


Comment: The Case for a Guaranteed Job by Robert Skidelsky - Project Syndicate.

Mosler: ??? The govt. created unemployment, by design, by imposing tax liabilities, for the further purpose of provisioning itself by spending it's otherwise worthless currency. Residual unemployment is the evidence that the tax liabilities created more unemployed than the gov hired.


Comment: WATCH: Bernie Sanders on Israel’s decision to deny entrance to two elected U.S. officials: “If Israel doesn’t want members of the United States Congress to visit their country…maybe they can respectfully decline the billions of dollars that we give to Israel.”

Mosler: Presumably members of Congress understand that Congressional spending is about serving US public purpose... :(.


Comment: Have you seen this white paper from BlackRock and BR's Philipp Hildebrand on the news? They're calling for greater coordination between fiscal and monetary policy, fiscal stimulus and helicopter money in the Eurozone.

Mosler: Yes, it's in fact just about 'normal' deficit spending. Someone let Larry Fink know so he can straighten them out. Hard to find good help nowadays... ;)


Comment: If you believe that Congress is largely under the influence of big money, then you are naive to think that you're going to get the tax increases you "need" to save the planet in time. I'm just showing that there's another way to get at least part of the way there.

Mosler: Yes, and note that at 'full employment' real govt. spending 'crowds out' private sector real spending, via 'one time' increases in prices, etc.


Comment: They just defaulted on local currency debt. Have a history of high inflation and deposit freezes. There is no functioning domestic currency market. And it’s not like they haven’t issued tons of local currency in the past.

Mosler: It's just a reserve drain. Close examination shows they necessarily spend first and then offer securities for sale. Please read my 7dif book thanks.


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! Up next--is that Bernie Sanders guy one of them damn socialists??? Tune in to find out.

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: On John Kenneth Galbraith's "Economics of Innocent Fraud" (2004): #8- The illusion that the Federal Reserve, by raising or lowering interest rates, has any effect whatsoever on spurring growth or preventing inflation. (Wikipedia).

Mosler: "This Galbraith calls 'our most prestigious form of fraud, our most elegant escape from reality' (p. 43). According to him, 'only in innocence does it [the Fed] control general consumer and business spending' (p. 47)."


Comment: MMT clearly is printing money. In a world where increased efficiency should cause prices to go down any printing pushes inflation up. Even from negative to zero the direction is up i.e. inflationary.

Mosler: Gov. spending is the awarding of tax credits. If you call that 'printing money' then taxing is 'unprinting money' as it is the redemption of those tax credits. So if you're looking for redemption, pay your taxes... ;)


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: when we talk about exports and imports, we need to ask what is being exported and imported, what is the nature of those trade relationships and the kinds of economies they are creating.

Mosler: Meanwhile the 5th Deadly Innocent Fraud has already showed global output by 1% and counting. And there's more public support for the trade war than for deficit reduction :(


Comment: Your periodic reminder increase in government debt since financial crisis began in 2007 is a clear indicator governments are spending. Central bankers and PhD Economists getting closer to point where they have to admit their policies didn't end, but made financial crisis worse.

Mosler: It's about sufficient deficit spending- public + private- to offset desires to not spend income.


Comment: Why does the US Treasury have US$314.189bn on deposit in the Treasury General Account at the Fed? It seems to tax and borrow in advance of spending. When that account and any amounts held with commercial banks hits zero, it stops spending. By law.

Mosler: It's about the govt. or its designated agents, like the Fed, from inception, have to spend or lend first, before taxes can be paid or bonds purchased.


Comment: Since the 2007 Financial Crisis began, debt service on the private debt borrowers can never repay has acted as a giant black hole swallowing fiscal and monetary stimulus.

Mosler: It's income for the lenders, and if they don't want to spend it it's an unspent income situation.


Comment: How is inflation measured under MMT? In the early 1980s, the measurement of inflation included energy and food. Now it doesn't. The measurement of inflation has never included house price inflation. Should it? What else should be included or excluded?

Mosler: It's a political question. The definition is meant to serve to further public purpose. Not to forget the 'price level' is a function of prices paid by gov when it spends, so inflation is the continuous increases in price paid by gov, etc.


Comment: Let's ask someone with experience in that industry. @wbmosler would you explain? :why does the US Treasury have US$314.189bn on deposit in the Treasury General Account at the Fed? It seems to tax and borrow in advance of spending. When that account and any amounts held with commercial banks hits zero, it stops spending. By law. federalreserve.gov/releases/h41/C

Mosler: It's about the govt. or its designated agents, like the Fed, from inception, have to spend or lend first, before taxes can be paid or bonds purchased.


Mosler: The Treasury is required by policy to keep a positive balance in its Fed account. Therefore it requires prior 'funding' to be able to spend. That means another govt. agent, in this case the Fed, does the prior spending or lending.


Comment: The explanation of how the federal government does not need taxes in order to spend. Those who claim otherwise must provide their explanation.

Mosler: It's about needing to impose tax liabilities, rather than needing to get the $ to spend....


Comment: Should we get more economic growth back per $ of deficit? Sure, but we can always say that. It is not helping anyone's understanding if the claim is that a quantity is unsustainable without a specification of the binding constraint. Does more to confuse imho.

Mosler: 'Econ growth per $ of deficit?' doesn't compute, sorry...


Comment: Same 100% crowding out (of Investment) if you assume G is a perfect substitute for private I.But you get crowding *in* (and even bigger multipliers) if instead you assume G is a *complement* for private C or I. It all depends. It's tricky. Macros sweep this under the rug.

Mosler: Said another way, for a govt. with a floating fx policy that necessarily spends first, thus providing the funds that can be used to pay taxes and (voluntarily) buy govt. securities, said crowding out is inapplicable... ;)


Comment: The capacity to borrow at a reasonable interest rates (or seignorage when printing money) is a very valuable strategic sovereign asset. It should not be squandered away by one generation to benefit its members, or with some non-productive investments.

Mosler: Close examination shows the gov spends first and then booties at its politically determined interest rate.


Comment: There is no unlimited money pot and we have already borrowed more than will wipe off all the austerity gains we made in the last decade. Baking bread is important. Alternative dance is not. I'm just being pragmatic.

Mosler: Your gov is the source of the pounds needed to pay taxes and pay for gov bonds. So gov necessarily spends first and then can taxes be paid and gov bonds be sold. And every senior staffer at the BOE and everything other central bank knows it.


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: Animal spirits is about private sector def spending/changes in savings desires. Asset support attempts to support private def spending but the (unlimited) option of public def spending can always eliminate unemployment for example by offering a job to anyone.

Mosler: 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.


Comment: How do you reckon that the central government has a "constitutional responsibility" to assist states with their revenues? Does the constitutional division of state and central roles have no sanctity in your narrative?

Mosler: More a point of logic than a responsibility. The 'money supply'= liabilities from by public or private deficit spending, and states created the federal gov via the constitution that de facto limited state def spending= state dependence on equitable federal deficit spending.


Comment:

Mosler:


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: MMTers say rates go to zero but CB's actively prevent this because they like to use interest rates as a policy tool. So implies we cant use interest rates in this way anymore, no? Which is also what they recommend... "anything but interest rates" seems to be the approach.

Mosler: It's about the consequences of rate hikes being inflationary via increasing deficit spending to pay interest to people who already have money, and at the same time imbedding a continuous increase in the term structure of forward prices, aka, inflation as academically defined.


Comment: Hike'em

Mosler: :) Extreme trickle down economics- deficit spend to pay interest to people who already have money... President Trump might go for it!


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: 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: I don’t think anyone would argue that increased government purchases or transfers, paid for by printing money, would not expand employment. The argument is whether the policy would be inflationary and possibly lead to an uncontrollable increase in inflationary expectations.

Mosler: I say it this way: net spending of gov (and its agents) leaves residual liabilities ($US deposits, cash, etc.) and the residual price level is a function of prices paid by gov/agents.


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: Wow, this is was great episode. Michael Hudson and Steve on point and on fire.

Mosler: He's describing an 'unspent income' story that reduces aggregate demand which applies to any unspent income. Unemployment is always an unspent income story, which can only be offset by public or private deficit spending.


Comment: Spot on. Also a perfect illustration of how silly the MMT critique "that the Fed might lose its independence" is. The Fed is begging (rightfully) for more fiscal support, the GOP wants to be "independent" to do nothing and let the economy drown.

Mosler: The Fed's 0 rate policy is helping to keep inflation and aggregate demand down, opening the door to a fiscal adjustment- increased gov spending/lower taxes.


Comment: I'm so sick of "jobs jobs jobs!" The stark reality is we live in a world where there are fewer & fewer jobs. There will never be enough for all unemployed. We need the rich to pay more tax and a universal basic income.

Mosler: Wrong!!! There is always a lot more to do than there are people to do it. Unemployment is necessarily a monetary phenomena. It's the evidence that gov spending is insufficient to cover the need to pay taxes and the desire to net save.


Comment: Wait, are you saying that some households chose to save a one-off windfall in the face of one of the most uncertain outlooks since the GFC? Shocking ...no one could have seen this coming.: Americans did not use the coronavirus payments quite as Uncle Sam had hoped.

Mosler: If the point was/is to increase consumer spending, just means they can do more of same.


Comment: Wouldn't have to worry about "properly functioning treasury market" if Fed operated a standing repo facility.

Mosler: The Tsy can, for all practical purposes, under current institutional arrangements, sell, for example, 3 mo (short term) bills without limit at approximately the policy rate without Fed intervention in response to any legislated spending initiatives.


Comment: First of all, thank you very much for your reply. Without an increase in the interest rate and with a lot of Argentinean 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 fx.


Comment: Because saying “MMT recognises the constraints of reality itself” is kind of not saying very much tbh. As in, let’s take reality as actually existing and then see what the various different theories say....

Mosler: You meant there is no financial limit to gov spending.


Comment: It means this: Should not say #MMT = spending without limit. Should say #MMT has much better idea of what the true limits are v populist household budget model. Sometimes there is no practical difference but it's very, very important to understand when this is not a constraint.

Mosler: Could say spending without nominal limit. Or spending not revenue constrained.


Comment: The problem, Katie, is that you guys aren't thinking the resource constraint - or, therefore, debt or sovereignty - fully through. The resource constraint is, globally speaking, also a sovereignty and debt constraint. Monetary sovereignty diminishes as import needs rise.

Mosler: Real deficit spending is constrained by the desire to save/not spend income.


Comment: Better: The deficit reality is if our productivity (our ‘gdp’) isn’t keeping up with our outstanding float of $$$ (our ‘debt’), then we’re getting closer to when nobody accepts those $$$ (to what Minsky meant by ‘everyone can create money but the problem is getting it accepted’).

Mosler: It's more about deficit spending-public and private- vs savings desires.


Comment: "Without major institutional reform, the euro will not become a dominant currency". Interesting piece on the global currency status of the €uro by @gregclaeys and @GuntramWolff.

Mosler: Trade deficit helps a lot... ;)


Comment: 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, as state revenue, levied in nominal terms, failed to keep in step with its spending, and these hyper-enlarged deficits supported the hyperinflation of the price level.

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: This is also demonstrated in the current hyperinflation of Venezuela, where Minimum wage is being doubled by Maduro every few months, trying to keep up with prices.

Mosler: But is it their spending that is driving up market prices? Or, for example, are there unrelated factors driving fx prices/costs of imports, etc. leading? Bank lending bolivar to insiders (via state owned enterprises?), sold for fx corruption?


Comment: As usual, spot on. Automation concentrates income in those (the asset owners) with resulting high surplus and low marginal propensity to consume. There are solutions to this (as you have noted), but they often create conditions that lead to corruption.

Mosler: Unspent income 'funds' tax cuts or increased deficit spending for public services. ;)


Comment: See, I said Twitter wasn't the place for this discussion! Portfolio effect meant to change corporate incentives, and has done so: higher asset prices incentivized bond issuance, IPOs and buybacks. I doubt that boosts real economy much, but is important - and main Fed case for QE.

Mosler: Yes, to reduce long term rates, which only works if that induces more spending on goods and services (GDP) Vs financial assets. The Federal Open Market Committee has recently attempted to stimulate economic growth using unconventional methods. Prominent among these is quantitative easing (QE)—the purchase of a large quantity of longer-term debt on the assumption that it will reduce long-term yields through the portfolio balance channel. Former Federal Reserve Chairman Ben Bernanke and others suggest that QE works through the portfolio balance channel, which implies a strong, statistically significant positive relationship between the public's holding of long-term Treasury debt and long-term Treasury yields. The author uses the econometric approach of Gagnon et al. (2011) and others to investigate the relationship between a variety of measures of the public's debt holding and various yield measures in the literature. The empirical results provide virtually no support for the portfolio balance channel. (JEL E52, E58, E43, E44) Federal Reserve Bank of St. Louis Review, First Quarter 2014, 96(1), pp. 55-72.


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: Really? the depreciation of the mark generated inflation because the government decided to buy gold at that depreciated exchange rate?

Mosler: Mainly foreign exchange and goods and services, but yes, in that if they hadn't agreed to the higher prices there would have been no gov spending which would have brought (mark) prices down. Not that it would be 'good policy' to do that, etc.


Comment: “In the short term, it would be very positive for the housing market," says Lawrence Yun, the National Association of Realtors chief economist. He says his group's surveys show that student debt has people delaying homeownership by five to seven years.

Comment: Am I missing something? could this work?

Mosler: Understood though I'd first spend our fiscal space on (green) infrastructure, free education, free m4all (creates fiscal space short term), etc.


Comment: Biden's platform calls for big changes to Social Security. Here's what could be on the table.

Mosler: Please read my short, free online, non technical 7DIF book- get up to speed on MMT, deficit spending, Social Security, and inflation. You'll be glad you did! ;)


Comment: In my mind if we care about fiscal space we make sure the dollars we already printed are being spent thru the economy.

Mosler: That's what deficit spending does.


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.


Comment: ?

Mosler: Central Bank of Venezuela apparently buying as well, which adds to their Bolivar inflation. Same with gold buying. Price is as high as it is due to central bank buying, which they do 'off balance sheet' as it doesn't count as gov spending, but as a CB asset purchase.


Comment: Serious question Brian: Would it be better if we just started saying the fed gov doesn’t borrow money? This seems to be a sticking point with all these people because the idea that “you have to pay back what you borrow” is so DEEPLY ingrained into all of our psyches.

Mosler: Tell it like it is- the Fed Govt. necessarily spends first, and then taxes are paid or bonds paid for. That is, it borrows AFTER it has already spent the $, and not to get the $ to spend. That's because those $s come only from the gov and its agents, or else they are counterfeit.


Comment: 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.


Comment: How bad is the US debt and deficit situation? A Serious Question for Twitter by @ProfJAParker MIT and NBER Abstract: Debt and deficits are huge and the Fed is hiding funding costs. Is the US already unable to finance itself?

Mosler: Not applicable for floating fx policy where the gov and its designated agents necessarily spend first and only then are the funds available to pay taxes and buy gov securities.


Comment: Spending = Income = Sales = GDP. Only way the price level can go up is if spending goes up first…

Mosler: The price level is a function of prices paid by gov when it spends.


Comment: We obviously have enormous GDP losses now that cannot be fixed by deficits, & tremendous need for taxes & transfers to support GDP in future. But after squandering it for years, we may have little fiscal capacity. So we have to be very efficient w/ tax & transfer programs

Mosler: With floating fx 'fiscal capacity' is inapplicable. Gov spending is via the crediting of member bank reserve accounts, a process not constrained by revenues.


Comment: Except its not ‘external’ real income. Functionally it gives some people extra fines against other people-so it’s opening an additional ‘channel’ of private trade, but it’s not a net addition of anything (other than it doesn’t take resources away for its ‘addition’ of currency)

Mosler: Fiscal/interest rate channel- gov is a net payer of interest to the economy, so rate hikes increase gov spending on interest earned by non gov sector, etc. Also forward pricing channel: contango changes as a function of rates


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: 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: An MMT critique from the man who bailed out the banks. Others have already shares strong words about this.

Mosler: MMT teaches sequence- tax liabilities, spending, tax payment/bond purchase- thereby eliminating solvency consideration, and the source of the price level is prices paid by gov. And they have the rate thing backwards. No new tools, just a new (for them) understanding of the tools.


Comment: By 'be mindful' I mean, return the favour of not abusing the accumulated reputation for not abusing the privilege of being able to raise money cheaply, and respect therefore the fiscal limits, a long way off and uncertain though they may be.

Mosler: Gov (and its agents), single supplier of that which it demands for tax payment, necessarily spends first, and then taxes are paid and gilts paid for. It also sets the interest rate. (And it currently has the rate thing backwards, unfortunately).


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: $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 Stephanie Kelton would say that affordability is never an issue. She can correct me if I’m wrong on that. The second appears to be ... 1/n

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: Credit to Jim Bullard for reviving this view under the Neo-Fisherian argument. Also credit to Jim Bullard for failing to advance anything controversial: Prof Perelman on high rates causing inflation, 1996: Fri, 12 Jan 1996 18:34:26 -0800 (PST) Michael Perelman. Here are my notes from one article on the subject showing how HIGH interest rates can add to inflation. Journal of Economics 100: 1 (February): 149-64. Rep. Wright Patman charged that high interest rates cause inflation. // Hotson articles. Traditional view: high interest => declines in inflation and interest rates in long run. Steven Seelig. 1974. "Rising Interest Rates and Cost Push Inflation. J. of Finance, 29, p. 1049-61 found that interest rates would have had to double during 1959-69 in order for interest rates to be an important determinant of prices. Today interest rates have achieved that level. I have fond memories of Wright Patman, who pushed this idea in the 1960s and before. Driskill, Robert A. and Steven M. Sheffrin. 1985. "The "Patman Effect" and Stabilization Policy." Quarterly They assume that wages and interest are prime determinants of cost and output is demand determined. With a fairly high interest cost share and a relatively interest-inelastic money demand relationship the model becomes unstable, lending some credibility to Patman. Also economies with high interest cost shares in production have worse macroeconomic tradeoffs. Michael Perelman.

Mosler: So, not that it actually matters, a prime mainstream argument about increasing net (deficit) spending to sustain full employment, for example, is 'we're ok as long as the Fed keeps rates low' which becomes moot when it's understood that raising rates in fact promotes inflation.


Comment: Yes to this, but can you explain “savings desires”? Don’t follow you there.

Mosler: A $ spent by gov- paid to voluntary sellers of goods and services- by the end of the day has been used to pay taxes or not used to pay taxes/'saved.' Without a desire to so save, evidenced by sellers seeking $ to save, (net/deficit) spending can't happen.


Mosler: Precautionary or borrowing to spend?.


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.