In this riveting episode, the ReSolve team converses with Warren Mosler, a prominent economist and theorist in the field of Modern Monetary Theory (MMT). The conversation is enriched by the presence of Richard Latterman, a portfolio manager at Resolve, who is keen on gaining insights on policy and economics. The discussion dives deep into the evolution of economics, the departure of MMT from classical economics, the impact of interest rates on inflation, and the intricacies of the banking system.

Topics Discussed

• Warren Mosler provides an introduction to Modern Monetary Theory and how it deviates from classical economics

• The discussion delves into the order of operations in economics, with a focus on the concept of 'spend before taxing and borrowing'

• Exploration of the role of the U.S. government in the creation of dollars and the implications of this process

• Discussion on the fear of removing the scarcity constraint or the scarcity mindset in economics

• Analysis of the impact of interest rates on inflation, challenging conventional economic wisdom

• Understanding the concept of continuous change in the price level under floating exchange rates

• The conversation delves into the complexities of the banking system and the role of regulations and compliance

• Warren Mosler shares his views on the potential impact of certain policy suggestions on the current economic system.

• The discussion concludes with Warren Mosler sharing his non-consensus views on investment and asset allocation.

This episode is a treasure trove of insights for anyone interested in understanding the nuances of Modern Monetary Theory, the impact of interest rates on inflation, and the intricacies of the banking system. Warren Mosler's insightful views challenge conventional economic wisdom and provide a fresh perspective on the evolution of economics and economic policy.

So the question is, what's the bid for duration of it?

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And the biggest surprise, one of my

biggest surprises that I look at, cause

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I never know how large the duration

bid is, is how large that bid is.

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Over the years, I've seen

all these panic situations.

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The Fed's going to do QT, sell long

bonds, this is going to happen now.

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The long bond sells off and

then it's like, this is, you

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know, going to get up to 10%.

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They're not going to be able to sell them.

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They're going to have failed auctions.

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And all of a sudden it rallies

like a hundred basis points.

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And it's like lower than it was before

because of that bid for duration.

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So where is that

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coming from?

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Adam Butler: Welcome everyone.

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Today, I'm thrilled to introduce Warren

Mosler, an economist and financial

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professional, widely recognized as the

originator of modern monetary theory, MMT.

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In 1982, he founded the investment

company, Illinois Income Investors,

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which held the top global ranking

through 1997 for fixed income managers.

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And drawing on decades of market

experience, Warren developed

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MMT in the early 1990s.

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Offering groundbreaking insights into how

modern monetary systems truly function.

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Now based in St.

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Croix in the U.

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S.

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Virgin Islands, he runs

Valence Company Inc.

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and continues to shape

economic policy debates.

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He's best known for Mosler's Law, which

holds that no financial crisis is too

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deep for a sufficient fiscal response.

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His notable book, The Seven Deadly

Innocent Frauds of Economic Policy, has

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it translated into multiple languages.

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And his contributions earned him

an honorary doctorate from Franklin

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University, Switzerland, Warren.

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Thank you so much for coming on the show.

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Richard Laterman: Welcome.

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Warren Mosler: Good to be here.

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Thank you for that introduction.

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Adam Butler: It it's great.

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Actually.

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I was remembering when the idea

for having you come on the show

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first took hold, I was sitting at.

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A table with PJ Pierre here in Cayman at

an event and Jason Bach mentioned that PJ

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had studied under you for some time and

I completely commandeered his evening, I

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think, just pounding him with questions

and so hopefully he had some fun.

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We spent quite a bit more

time together after that.

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Discussing similar topics.

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But anyways, that's how this came about.

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Warren Mosler: Okay.

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Very good.

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Yep.

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Yeah.

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Adam Butler: I also wanted to

say Richard Latterman, portfolio

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manager at Resolve is, is also on.

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He requested to be on as he

often does with, with guests

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who are offering insights on

policy or economics, et cetera.

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So, let's get into it, Warren.

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for those who have not been studying

the evolution of economics and economic

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policy over the last decade or so.

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Maybe, can you provide ground zero

on what modern monetary theory is?

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Maybe how it departs from, what many

would think of as classical economics?

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I'm

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Warren Mosler: Okay.

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So what I find is that much of classical

economics is, in the context of a gold

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standard for some fixed exchange rate

policy, which we don't have today.

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So you might look at it like this.

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Translation of economics from fixed

exchange rates, floating exchange

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rates, or from my own point of

view, a ground up study of floating

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exchange rate context for economics,

as opposed to a fixed exchange rates.

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Okay.

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So you are all have traded

some foreign exchange.

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So you know that if you take a

currency, you like the Hong Kong

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dollar, which is fixed exchange

fixed to the dollar, and you sell the

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forwards in size, the spot is fixed.

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Okay.

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As the forwards drop,

that's the 90 day rate.

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It's the same thing.

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And you're actually

driving up interest rates.

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And that was the old trade when I

first started up, a really equity

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hedge fund would get short stocks in

the Hong Kong market and then sell

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forwards in the currency to drive

up interest rates, which would spook

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the stock market, it would go down.

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They'd cover the short, make a little

money and then hope that it was a bet

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covering their position in the Hong Kong

dollar and it worked very successfully.

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There was good leverage between those

two in terms of the percentages,

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they have to move to make it work.

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Okay.

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Now if you try to do the same thing

with the yen, which is free exchange

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rate versus a dollar, you sell forward,

you can drive the currency down, but

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the rate is going to stay at zero.

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If that's where the Japanese is,

you know, rate is fixed and the spot

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forward are going to stay the same.

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So there's something very different

going on with those two currencies.

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And that's.

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We've seen like fixed exchange rate

currencies blow up all the time.

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I remember the Mexican peso in 1994,

the ruble in 1998 and the ERM system

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that blew up with the pound, you know,

so, but you'd never see that with

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floating exchange rates, so that there's

something very different going on.

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You'll see the currencies go up and down.

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We saw the Euro depreciate 50

percent and nobody really noticed.

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We saw the Australian dollar

depreciate 50%, nobody noticed.

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And we've seen them go up

the same amount, sort of make

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second page or third page news.

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So it's, it's very different.

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And so I think that distinction is

something that modern monetary theory

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that I recognized back in the early

1990s, And before it was called Modern

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Monetary Theory and it later came

to be called Modern Monetary Theory

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because most of today's currencies

are now floating exchange rates.

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Adam Butler: Okay, so, I

actually didn't know that.

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I didn't realize that the root

motivation for rethinking economics

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was that it's sort of implicit in

neoclassical theory, for example.

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Most of the classic neoclassical

theory I'm hearing from you, is,

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is generally under the assumption

of a fixed exchange rate regime

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Warren Mosler: Yeah.

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Yeah.

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I want to tell you how bad it is.

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Okay.

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You've seen all the talk now about

the neutral rate, the Fed just

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trying to figure out where it is and

whatnot, but where'd they get that

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idea that there is a neutral rate?

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Okay.

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They didn't get it from

floating exchange rates.

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That's an echo from fixed exchange rates.

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Under fixed exchange rates,

like I just talked about the

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Hong Kong dollar, for example.

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The, uh, forwards are set by the market

to reflect an interest rate, which is

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the indifference level between where

somebody is willing to hold Hong Kong

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dollars versus cash them in and get U.

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S.

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dollars at the monetary authority.

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Right.

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And I don't, you know, a simple gold

standard where you have convertible

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currency and the government wants to

deficit spend, it's adding gold dollars.

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Right.

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it has to then borrow those, When it does

that, You know, why is it doing that?

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Okay.

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So what it doesn't want is people with

the gold certificates to cash in the

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gold and deplete the gold reserves.

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And there's an interest rate at which

the, uh, investors in the, or, you

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know, whoever's holding the, uh, whether

they're convertible reserve balances

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or actual convertible currency Is it

different between holding that currency

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and cashing it in for gold and you

get a positive yield curve because

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the longer the maturity you buy, the

longer you have to wait before you

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can get your gold and the more odds

are something's going to go wrong.

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So, if you looked at the Russian ruble,

I don't know if you were around for that

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crisis in 98, but, You know, Russia, it

was convertible to dollars at 645 to one.

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And there was some concern as to whether

if you had rubles, you could get dollars.

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It certainly, it was certainly

overvalued in terms of any other

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reason you'd want to hold them other

than eventually to convert them.

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And so, you, Okay.

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you saw that risk being expressed

as interest rates went up.

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The Russian government was selling G

Ks to, ahh, keep people from cashing

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in their rubles for dollars, and

you saw the rate go to 5%, 10%, 20%.

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40%, and then they borrowed

a few billion from the IMF.

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Okay.

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FIFA people felt that they had a

little bit of a window and go down to

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20%, and then when the IMF loans were

exhausted and cut off, it's okay, now

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it goes up to 50%, a hundred percent.

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And it was up to 200 percent and it was

still wasn't enough for anybody to hold

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that thing rather than convert to dollars.

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And interestingly, the, uh,

central bank, I think they

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didn't even turn the lights off.

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I think they just all got up

and left, parked back to their

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desks for about three months.

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And so there

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Adam Butler: ah ha ha

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Warren Mosler: yeah, but, but,

because they didn't know what to do.

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They didn't know how to flip the

currency or didn't think to do it.

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They didn't want to do it, or they're

afraid they're going to get shot.

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I don't know.

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It's a different kind of place.

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But anyway, so to the point,

which I've sort of skipped my

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mind of your original question,

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Adam Butler: Yeah, I was just, I

was just saying, I didn't realize

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that the, the motivation was fixed

versus, floating exchange rates.

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Warren Mosler: Yeah, yeah, so.

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okay.

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So anyway, so that, that was,

that was the situation and I can't

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remember what I started to say.

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Do

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Richard Laterman: Maybe we can, I'd like

to unpack this idea of the departure

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from classical economics that MMT

takes and maybe unpack this idea a

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little bit further by maybe going into

the, the order of operations, right?

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I think Stephanie Kelton in her book

put it as a stab versus tabs, right?

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Spend before taxing and borrowing, whereas

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Warren Mosler: So let's start,

let's start from the beginning.

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So the dollars to pay

taxes come from the U.

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S.

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government.

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That's, you know, that's

not in any of your models.

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You have G minus T where you have to

collect taxes to be able to spend.

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They don't put the

causation the right way.

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The formula is okay.

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But the G has to come first before

the dollars are there to pay taxes.

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And if you talk to anybody in the Fed,

they go, yeah, of course, we can't do a

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reserve ad without a prior reserve drain.

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And their job is offsetting operating

factors to make sure that, you know,

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when Treasury securities settle, There's

a, and they see Fed funds going up,

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indicating the reserve balances are short.

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They come in and do

repo, they add reserves.

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Now with QE, it's a big reserve add

in advance, so they don't have to

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do it every time there's an auction.

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But even on fixed exchange rates,

they're still spending first

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before they're collecting taxes.

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So what they do is they buy the

gold first, print, you might say,

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gold certificates or credit accounts

that are convertible accounts at the

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central bank first, and then those

dollars are there to pay taxes.

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So, it's, it's simple analogy.

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I mean, nobody thinks the football

stadium has to collect the

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ticket first and then sell it.

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Everybody knows they sell the ticket

first and then collect it because that's

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where it comes from, from the stadium.

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Now, President Obama made a statement

once that, you know, that the

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money comes from the government.

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He got shouted down.

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He said, no, real wealth

comes from the private sector.

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So what they did was they confuse

or conflate or something real

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wealth with, The money, the

dollars to pay taxes, right?

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And he agreed that real wealth

came from the private sector.

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The government takes some of it.

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And so he backed off on his

statement, but he was correct.

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The dollars to pay taxes, the nominal,

the tax credits needed to comply with

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tax liabilities come from the private

sector, and that's what Stephanie's

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talking about with the sequence.

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And every Congressman has that sequence

backwards, at least I think everyone does.

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They all think they have to get dollars

by taxing what they don't get by taxing.

225

00:12:18,440 --> 00:12:20,400

If they want to spend more than

that, they have to borrow it.

226

00:12:21,040 --> 00:12:24,670

They're borrowing it from China and,

worried about, the grant leaving

227

00:12:24,670 --> 00:12:26,770

the debt to the grandchildren

and all that kind of thing.

228

00:12:27,040 --> 00:12:29,680

And you saw the Obama

administration and they wanted

229

00:12:29,680 --> 00:12:30,940

to do that stimulus number one.

230

00:12:30,940 --> 00:12:33,120

They did half of what they

thought they needed 'cause they

231

00:12:33,120 --> 00:12:36,178

were afraid of borrowing $2

trillion instead of 1 trillion.

232

00:12:36,658 --> 00:12:41,268

Secretary Clinton flew with Obama, I

believe, to China to talk to our bankers

233

00:12:41,268 --> 00:12:44,236

to make sure they would buy our bonds so

that we could make sure our healthcare

234

00:12:44,236 --> 00:12:45,766

system wouldn't fail or whatever it was.

235

00:12:46,346 --> 00:12:49,165

And Paul Ryan was there saying,

we're going to be the next Greece.

236

00:12:49,606 --> 00:12:52,945

He was a head of the Republican

Party, you know, Speaker of the House.

237

00:12:53,663 --> 00:12:56,773

if we'd be on our knees at the

IMF, you know, if we ever put,

238

00:12:57,013 --> 00:12:58,423

tried to borrow this much money.

239

00:12:59,013 --> 00:13:02,355

And, I think Paul Krugman had a big

document in front of the president

240

00:13:02,355 --> 00:13:03,725

about how interest rates would go up.

241

00:13:04,345 --> 00:13:07,245

If it wasn't Paul, it was somebody

else like that, another New Keynesian.

242

00:13:08,025 --> 00:13:11,829

And now we look eight years

later and, we have a COVID.

243

00:13:12,464 --> 00:13:15,634

Maybe total deficit

spending, maybe 5 trillion.

244

00:13:15,634 --> 00:13:15,934

I don't know.

245

00:13:16,366 --> 00:13:18,596

Not a word of Greece.

246

00:13:19,079 --> 00:13:20,489

Nobody was worried about China.

247

00:13:20,519 --> 00:13:21,459

Nobody worried about rates.

248

00:13:22,567 --> 00:13:25,347

All they worried about was whether

it or not it would cause inflation.

249

00:13:25,871 --> 00:13:26,881

Now, where did that come from?

250

00:13:26,881 --> 00:13:28,091

What changed in those eight years?

251

00:13:28,131 --> 00:13:31,611

And I think that was, you know, the poster

child was Stephanie Kelton when she got

252

00:13:31,611 --> 00:13:33,860

the job at the Senate Budget Committee.

253

00:13:34,220 --> 00:13:35,390

People started looking into it.

254

00:13:35,390 --> 00:13:36,630

She started talking about it.

255

00:13:36,930 --> 00:13:37,880

They started reading on it.

256

00:13:38,581 --> 00:13:42,237

Suddenly the, that suddenly,

but over those eight years, it

257

00:13:42,237 --> 00:13:44,807

became understood that government

checks weren't going to bounce.

258

00:13:44,997 --> 00:13:48,027

They might not have exactly

understood the whole thing, but they

259

00:13:48,027 --> 00:13:49,227

knew the checks wouldn't bounce.

260

00:13:49,557 --> 00:13:52,107

Rates wouldn't spike unless the

Federal Reserve voted higher

261

00:13:52,107 --> 00:13:56,361

rates and that, the issue would be

inflation, whether they were spending

262

00:13:56,361 --> 00:13:57,731

too much and driving up prices.

263

00:13:57,921 --> 00:14:00,541

And they're still arguing about

whether they spent too much

264

00:14:00,541 --> 00:14:01,561

and drove up prices or not.

265

00:14:01,601 --> 00:14:03,991

They're not, nobody's arguing

about whether or not the

266

00:14:03,991 --> 00:14:05,091

check was going to bounce.

267

00:14:05,371 --> 00:14:07,901

So I'd say MMT changed that.

268

00:14:08,433 --> 00:14:11,349

dialogue for the better, because

the argument is whether, what are

269

00:14:11,349 --> 00:14:14,679

the ramifications of the spending,

not are the checks going to bounce.

270

00:14:14,679 --> 00:14:17,519

The government spends first

and then securities are sold.

271

00:14:18,029 --> 00:14:20,279

They don't have to worry about whether

or not the securities will be sold.

272

00:14:21,109 --> 00:14:21,869

And, uh,

273

00:14:22,034 --> 00:14:29,674

Adam Butler: what do you think causes

the consternation and or cognitive

274

00:14:29,684 --> 00:14:35,054

dissonance that seems to be so prevalent

among, you know, as you mentioned,

275

00:14:35,054 --> 00:14:39,244

Congressmen, but you also mentioned a

variety of fairly well known mainstream

276

00:14:39,244 --> 00:14:41,064

economists, policymakers, et cetera.

277

00:14:41,414 --> 00:14:45,264

Why do you think this is so difficult

to comprehend or to internalize?

278

00:14:46,190 --> 00:14:48,210

Warren Mosler: You know

that's a good question.

279

00:14:48,880 --> 00:14:52,070

You know I was hoping you could

help I find always simple that any

280

00:14:52,070 --> 00:14:54,680

ten-year-old can understand it.,

281

00:14:54,680 --> 00:14:58,935

like Ahh I've talked with people,

and now Congress, like uhh Senator

282

00:14:58,935 --> 00:15:06,900

Blumenthal when I was running for Senate

when he was running and I didn't win.

283

00:15:06,900 --> 00:15:09,250

I got 1 percent of the vote, but

I met with him for about three

284

00:15:09,250 --> 00:15:13,060

hours and friends of mine, in the

mine's house and Darian up there.

285

00:15:13,070 --> 00:15:16,810

And he said, yeah, this is how they

taught us in Harvard back in the sixties.

286

00:15:17,593 --> 00:15:18,493

But he wouldn't go there.

287

00:15:18,963 --> 00:15:22,683

And then later I met with him once after

he got in and said, well, is there anybody

288

00:15:22,683 --> 00:15:24,513

else in Congress who understands this?

289

00:15:24,543 --> 00:15:26,243

I said, no, he says, well,

if there is, let me know.

290

00:15:26,243 --> 00:15:28,313

And then, you know, I'll

start talking about it too.

291

00:15:28,823 --> 00:15:29,793

So I know him.

292

00:15:30,103 --> 00:15:31,973

He personally just didn't

want to take the first step.

293

00:15:32,813 --> 00:15:38,663

I can't say too much about the others,

because I don't have the personal contact.

294

00:15:38,663 --> 00:15:42,177

There's Van Hollings, is

that his name, in Virginia?

295

00:15:42,769 --> 00:15:43,389

Congressman.

296

00:15:43,929 --> 00:15:48,686

He understood that I was up there with

a friend of mine and had my book, he'd

297

00:15:48,686 --> 00:15:50,616

read it, went through it, and same thing.

298

00:15:50,616 --> 00:15:51,786

He was waiting for somebody else.

299

00:15:51,796 --> 00:15:56,646

So, I guess at that, I guess it's a

level of intellectual dishonesty at

300

00:15:56,646 --> 00:16:02,450

that point, but at the same time,

it's a lack of political will to go

301

00:16:02,450 --> 00:16:06,843

there and path of least resistance is

to get reelected, to get funded, is

302

00:16:06,843 --> 00:16:08,083

to keep saying what they're saying.

303

00:16:08,863 --> 00:16:13,317

so it's just tough for me to give you

a definitive answer for that question.

304

00:16:13,347 --> 00:16:19,426

Adam Butler: that, do you think that once

you open the door on a conversation about

305

00:16:19,426 --> 00:16:25,596

the fact that government spending is not

constrained by, by income taxes, or by the

306

00:16:25,596 --> 00:16:32,507

ability of the government to exogenously

fund itself that it that people fear

307

00:16:32,507 --> 00:16:38,872

that it will remove the scarcity

constraint or the scarcity mindset.

308

00:16:39,252 --> 00:16:39,462

like.

309

00:16:39,502 --> 00:16:39,952

Warren Mosler: Yes.

310

00:16:41,092 --> 00:16:41,382

Yeah, definitely.

311

00:16:42,212 --> 00:16:42,962

And, uh.

312

00:16:43,192 --> 00:16:45,826

There's a couple of things on that,

you know, and I, you know, I'd

313

00:16:45,826 --> 00:16:48,386

say, look, either you believe in an

informed electorate or you don't.

314

00:16:49,292 --> 00:16:49,842

And they don't.

315

00:16:50,238 --> 00:16:52,728

They think that if people knew

this, they'd go crazy and spend.

316

00:16:52,728 --> 00:16:57,368

And my thoughts are, the evidence

tells me exactly the opposite, that

317

00:16:57,368 --> 00:17:00,890

people would rather have 10 percent

unemployment than 3 percent inflation.

318

00:17:01,569 --> 00:17:01,919

Okay.

319

00:17:01,919 --> 00:17:03,844

And they go overboard the other way.

320

00:17:04,223 --> 00:17:08,555

And I think there's a tendency

to people to like having

321

00:17:09,125 --> 00:17:10,744

elevated rates of unemployment.

322

00:17:11,005 --> 00:17:12,625

Five, six, 7%.

323

00:17:12,984 --> 00:17:17,185

93% who are employed can hire a

plumber who come running out to do

324

00:17:17,185 --> 00:17:19,194

things because it's tough out there.

325

00:17:19,645 --> 00:17:21,025

You know, they can get

someone to mow the lawn.

326

00:17:21,055 --> 00:17:24,704

They can, oh yeah, I got here

and I got my lawn mow for $20.

327

00:17:24,734 --> 00:17:25,185

Oh really?

328

00:17:25,185 --> 00:17:25,815

I paid 30.

329

00:17:25,815 --> 00:17:26,474

Who'd you get it from you?

330

00:17:26,474 --> 00:17:29,595

So I think that, and there's a lot

of people who are very secure in

331

00:17:29,595 --> 00:17:31,420

their incomes and, and in their.

332

00:17:32,905 --> 00:17:37,765

And they don't like to see inflation

and they do like to see people

333

00:17:38,075 --> 00:17:42,015

coming to them for money, puts them

in a position of power and it's,

334

00:17:42,075 --> 00:17:43,455

you know, it's 5 percent inflation.

335

00:17:43,455 --> 00:17:46,535

That's, I mean, unemployment, that's

95 percent of the people are on the

336

00:17:46,535 --> 00:17:50,465

other side of that trade and that's

human nature for them to like.

337

00:17:50,825 --> 00:17:55,725

So you look at now where, you know, the

President gets, presidency gets turned

338

00:17:55,725 --> 00:17:57,585

over and over 3 percent inflation.

339

00:17:58,395 --> 00:17:58,965

Where did that come from?

340

00:17:58,965 --> 00:18:02,689

It had nothing to do with people

not wanting stuff for free

341

00:18:02,699 --> 00:18:05,149

or whatever, not wanting more

government spending or services.

342

00:18:05,689 --> 00:18:08,551

They'd rather have, you know, the

inflation is what turned it over.

343

00:18:08,551 --> 00:18:11,921

Even with a strong economy and

low, record low unemployment, we

344

00:18:11,921 --> 00:18:13,201

saw a turnover in administration.

345

00:18:13,981 --> 00:18:15,301

So I think that tells us something.

346

00:18:15,301 --> 00:18:18,051

Now, it might not always be that

way, but it sure is there right now.

347

00:18:18,858 --> 00:18:22,331

Richard Laterman: But the, I want to

try and understand how MMT distinguishes

348

00:18:22,341 --> 00:18:26,171

between, different kinds of government

spending, because I think one of the

349

00:18:26,171 --> 00:18:29,591

things that made MMT prominent over

the last several years, and correct

350

00:18:29,591 --> 00:18:33,111

me if I'm wrong, is that, people were

afraid that quantitative easing, that

351

00:18:33,111 --> 00:18:39,681

began in 2009 would create inflation

and, I think it was Milton Friedman

352

00:18:39,681 --> 00:18:43,301

that coined, the, the difference here

between high powered money, which is

353

00:18:43,301 --> 00:18:47,311

money in our pockets, and it's, it's,

it's actual money that a fiscal spending

354

00:18:47,361 --> 00:18:50,921

would, would spend into the economy

versus financial money, which is the

355

00:18:50,921 --> 00:18:55,874

money that quantitative easing, spent,

quote unquote into the system to, to

356

00:18:55,884 --> 00:18:58,024

salvage the, uh, the health of the bank.

357

00:18:58,024 --> 00:19:03,144

So, how does MMT account between the

two and, and do you see the high powered

358

00:19:03,144 --> 00:19:08,311

money, the, the, the more fiscal, aspects

of, of, of money being the, the drivers

359

00:19:08,311 --> 00:19:12,721

of inflation versus, monetary policy

operations like quantitative easing,

360

00:19:13,701 --> 00:19:15,371

Warren Mosler: Let me first

say high powered money is a

361

00:19:15,371 --> 00:19:16,811

throwback to fixed exchange rate.

362

00:19:16,861 --> 00:19:19,511

That was dollars that

were convertible to gold.

363

00:19:20,221 --> 00:19:22,671

That was the convertible currency

was a high powered stuff.

364

00:19:23,001 --> 00:19:23,991

And banks needed it.

365

00:19:24,401 --> 00:19:27,251

They couldn't, because if people

took their money out, they had to

366

00:19:27,281 --> 00:19:28,561

give them convertible currency.

367

00:19:28,631 --> 00:19:33,441

So the whole system was constrained by

the quantity of convertible currency,

368

00:19:33,441 --> 00:19:34,921

which came from the gold reserves.

369

00:19:35,541 --> 00:19:37,601

And, you know, and doing that.

370

00:19:37,611 --> 00:19:37,921

So.

371

00:19:38,862 --> 00:19:42,222

So, in that light, if we look

at quantitative easing, it's the

372

00:19:42,222 --> 00:19:43,962

government's buying government securities.

373

00:19:44,479 --> 00:19:48,439

And government securities are just dollars

in savings, but are functionally savings

374

00:19:48,809 --> 00:19:50,009

accounts of the Federal Reserve Bank.

375

00:19:50,589 --> 00:19:54,289

So, that's like if Bank of America

or JP Morgan went to all their

376

00:19:54,289 --> 00:19:56,889

savings depositors and said, Look,

we'd rather have you in checking

377

00:19:56,889 --> 00:19:58,079

accounts than savings accounts.

378

00:19:58,499 --> 00:20:01,539

We're going to give you a premium

of half a percent or something to,

379

00:20:02,156 --> 00:20:04,816

if you'll, you know, I want to go

in and buy your savings account.

380

00:20:05,366 --> 00:20:07,816

Will you sell me your savings

account and I'll credit your checking

381

00:20:07,816 --> 00:20:09,986

account with the money, we'll

shift it from savings to checking.

382

00:20:10,286 --> 00:20:13,169

And you have a certain number of

people with maybe a billion dollars

383

00:20:13,169 --> 00:20:14,389

who said, okay, yeah, I'll do that.

384

00:20:15,139 --> 00:20:17,999

And so they had savings checking

accounts instead of savings accounts.

385

00:20:18,389 --> 00:20:20,769

Would anybody have gone around

saying, oh, that's inflationary?

386

00:20:21,659 --> 00:20:21,929

Okay.

387

00:20:21,939 --> 00:20:27,212

So, you know, the treasury 36 trillion

in one amount to a savings accounts at

388

00:20:27,212 --> 00:20:30,802

the Federal Reserve Bank, it's a bank,

just like any other bank, it's a ledger.

389

00:20:31,482 --> 00:20:35,812

When the government spends, they

instruct their bank to credit the account

390

00:20:35,812 --> 00:20:38,622

of your bank, okay, at their bank.

391

00:20:39,082 --> 00:20:41,082

So the Federal Reserve credits J.

392

00:20:41,082 --> 00:20:41,262

P.

393

00:20:41,262 --> 00:20:42,872

Morgan's account at the Fed.

394

00:20:42,922 --> 00:20:43,942

It's called a reserve account.

395

00:20:44,032 --> 00:20:45,092

It's a Federal Reserve Bank.

396

00:20:45,102 --> 00:20:45,952

It's a checking account.

397

00:20:45,962 --> 00:20:46,652

It's a transaction account.

398

00:20:47,109 --> 00:20:47,539

It's overnight.

399

00:20:47,909 --> 00:20:48,899

And those funds are there.

400

00:20:49,039 --> 00:20:52,479

And they can't go anywhere except

to somebody else's reserve account.

401

00:20:53,152 --> 00:20:55,562

And when they sell treasury

securities and you buy them,

402

00:20:55,999 --> 00:20:57,719

they shift those dollars from J.

403

00:20:57,719 --> 00:20:57,759

P.

404

00:20:57,799 --> 00:21:00,499

Morgan's reserve account to

your securities account, which

405

00:21:00,499 --> 00:21:02,329

is another account at the Fed.

406

00:21:02,866 --> 00:21:05,596

And it's still, you still have the money.

407

00:21:05,616 --> 00:21:07,242

You had dollars in a J.

408

00:21:07,242 --> 00:21:07,382

P.

409

00:21:07,392 --> 00:21:07,952

Morgan account.

410

00:21:08,522 --> 00:21:10,692

You now have dollars in the

savings account at the Fed.

411

00:21:10,692 --> 00:21:11,792

Your wealth hasn't changed.

412

00:21:11,802 --> 00:21:12,732

Nothing's changed.

413

00:21:13,412 --> 00:21:16,572

Uh, you do it at market levels

where you could do it anyway.

414

00:21:17,142 --> 00:21:19,522

You really don't care who is

selling you those securities.

415

00:21:19,522 --> 00:21:21,322

You can buy securities anytime you want.

416

00:21:21,322 --> 00:21:24,652

But the price goes up a basis

point, you know, the basis point,

417

00:21:24,662 --> 00:21:26,922

lowering yields, and suddenly

people want to buy that thing.

418

00:21:27,752 --> 00:21:28,612

That's what the Fed does.

419

00:21:28,642 --> 00:21:29,782

It's an auction process.

420

00:21:30,342 --> 00:21:32,982

And so they've just changed the

indifference levels of holding it.

421

00:21:33,282 --> 00:21:36,292

And that's the difference between at

the margin, the economy's desire to hold

422

00:21:36,382 --> 00:21:38,572

cash, you know, direct, to hold duration.

423

00:21:38,847 --> 00:21:41,927

they give you a basis point lower

and you're less likely to hold

424

00:21:41,927 --> 00:21:43,307

duration at the macro level.

425

00:21:43,307 --> 00:21:46,367

And so people are holding reserves

instead of securities accounts.

426

00:21:46,897 --> 00:21:48,467

It's not more than a basis point or two.

427

00:21:48,467 --> 00:21:49,597

It's not a whole lot at the margin.

428

00:21:50,371 --> 00:21:52,321

and so, um, why would

that change anything?

429

00:21:52,851 --> 00:21:55,841

So I had this conversation with a

guy at the Bank of England, Andrew

430

00:21:55,851 --> 00:22:00,371

Crockett, I was over there, maybe

25 years ago, and we were there

431

00:22:00,371 --> 00:22:01,841

with someone from the Bank of Japan.

432

00:22:02,111 --> 00:22:03,681

They had just announced

quantitative easing.

433

00:22:04,346 --> 00:22:06,676

We're having a friendly,

just three of us chatting.

434

00:22:07,516 --> 00:22:11,192

I said to the officer of the bank in

Japan, I said, like, why would you

435

00:22:11,202 --> 00:22:14,832

think it's going to matter if you go

out and buy JGBs, you know, with your,

436

00:22:15,109 --> 00:22:18,449

you know, you buy them from the bank,

you credit their reserve account.

437

00:22:18,449 --> 00:22:20,869

So the bank has fewer

JGBs and more reserve.

438

00:22:21,499 --> 00:22:24,639

So it's not like there's a line

of credit worthy borrowers just

439

00:22:24,639 --> 00:22:26,509

waiting for you to have loans.

440

00:22:26,519 --> 00:22:27,369

The loans create deposits.

441

00:22:27,559 --> 00:22:29,539

It's got nothing to do with

the lending side of the bank.

442

00:22:30,199 --> 00:22:31,989

Why, why would you expect

this to do anything?

443

00:22:31,989 --> 00:22:33,449

And, Crockett looks at him and goes.

444

00:22:34,009 --> 00:22:34,319

Yeah.

445

00:22:34,319 --> 00:22:35,179

What do you say to that?

446

00:22:36,239 --> 00:22:38,459

So he knew it wasn't a surprise to him.

447

00:22:38,889 --> 00:22:41,499

And the guy says, well, you

know, that's our policy.

448

00:22:41,499 --> 00:22:42,939

We'll just have to wait

and see what happens.

449

00:22:42,939 --> 00:22:48,646

Well, after 30 years of buying every

JGB out there and shifting on maybe

450

00:22:48,646 --> 00:22:52,656

the entire duration of Japanese, what's

called public debt to zero duration,

451

00:22:52,656 --> 00:22:54,166

it didn't make any difference, right?

452

00:22:54,776 --> 00:22:55,906

Like, why would it?

453

00:22:55,906 --> 00:22:57,946

The burden of proof to me

is on somebody to explain.

454

00:22:58,546 --> 00:22:59,506

Why do you think it would do it?

455

00:22:59,506 --> 00:23:01,456

Not me to explain it,

why it won't do anything

456

00:23:02,191 --> 00:23:05,041

Richard Laterman: well, it may, it

made a difference in the sense that the

457

00:23:05,051 --> 00:23:09,511

Japanese government bond market ceased

to exist essentially for a while, right?

458

00:23:09,551 --> 00:23:14,541

You went sometimes for days without any

trading in Japanese government bonds.

459

00:23:14,541 --> 00:23:14,671

And

460

00:23:14,866 --> 00:23:15,526

Warren Mosler: but, but so what?

461

00:23:15,996 --> 00:23:18,066

It's not like somebody wanted

to trade and couldn't do it.

462

00:23:18,516 --> 00:23:19,446

Nobody wanted to trade.

463

00:23:19,506 --> 00:23:21,456

It doesn't exist overnight

when people are sleeping,

464

00:23:22,204 --> 00:23:23,424

Richard Laterman: well,

people didn't want to,

465

00:23:23,639 --> 00:23:24,899

Warren Mosler: if you

wake 'em up, it'll trade.

466

00:23:25,744 --> 00:23:30,384

Richard Laterman: well, do you, do you

think that, a well functioning sovereign

467

00:23:30,394 --> 00:23:35,282

bond market is an essential component

for, for any country to function well?

468

00:23:36,002 --> 00:23:36,992

Is that a, is that a

469

00:23:37,012 --> 00:23:39,352

Warren Mosler: It only, I

guess you could define it.

470

00:23:39,827 --> 00:23:42,077

Well functioning economy that

way, but I sure wouldn't.

471

00:23:42,537 --> 00:23:44,757

I remember when there were no

government bonds, like who cares?

472

00:23:44,757 --> 00:23:48,577

We use Tel 7 days or something as

a benchmark and it doesn't matter.

473

00:23:48,577 --> 00:23:49,607

It's just a reference point.

474

00:23:50,207 --> 00:23:52,137

You don't need a government

bond market for anything.

475

00:23:52,634 --> 00:23:55,814

And I think Japan proves that it doesn't

have any effect on the macro economy

476

00:23:55,814 --> 00:23:58,174

if nobody trades JGBs, who cares?

477

00:23:58,896 --> 00:24:02,586

Richard Laterman: So what do you think

would happen if, if the Fed were to

478

00:24:02,586 --> 00:24:08,566

buy so much or such a large percentage

of outstanding treasuries that the

479

00:24:08,566 --> 00:24:12,866

treasury market, as it stands today,

ceased to function, ceased to have the

480

00:24:12,866 --> 00:24:17,356

liquidity that it has without having any

implications for the U S economy, for U S

481

00:24:17,356 --> 00:24:18,866

markets, for the, for the U S government.

482

00:24:19,766 --> 00:24:20,496

Warren Mosler: I don't see it.

483

00:24:20,496 --> 00:24:23,006

I go one step further, suppose

the treasury just shifted to all

484

00:24:23,006 --> 00:24:27,402

three month bills and then there

weren't any bonds, so who cares?

485

00:24:28,002 --> 00:24:29,502

You know, save that step in between.

486

00:24:29,642 --> 00:24:31,472

Why does the treasury have

to issue them in the Fed bio?

487

00:24:31,872 --> 00:24:35,209

It's kind of a waste of human endeavor

with a broker or two in between.

488

00:24:35,449 --> 00:24:39,629

So just have the, So, so I met

with Chairman Bernanke when he

489

00:24:39,639 --> 00:24:43,296

was in between being vice chair

for four years and then chairman.

490

00:24:43,746 --> 00:24:46,106

He was head of the Council of

Economic Advisors, I think.

491

00:24:46,136 --> 00:24:47,596

There were just four of us.

492

00:24:47,606 --> 00:24:50,126

And I wasn't here to talk about

modern monetary theory because I

493

00:24:50,126 --> 00:24:51,656

wanted to get invited back, of course.

494

00:24:52,146 --> 00:24:54,628

But, he made this, I asked a question.

495

00:24:54,658 --> 00:24:57,118

He had just been talking about

unconventional monetary policy.

496

00:24:57,118 --> 00:25:00,738

And he had written some with Vince

Reinhardt, who was head of, monetary

497

00:25:00,738 --> 00:25:03,168

affairs for Greenspan and then Bernanke.

498

00:25:03,818 --> 00:25:06,938

Who helped me write some of my

speeches, by the way, when you talk

499

00:25:06,938 --> 00:25:10,188

to these operations guys at the Fed,

they know exactly what I'm saying.

500

00:25:10,688 --> 00:25:11,658

That's their language.

501

00:25:11,898 --> 00:25:13,648

And you don't have to,

you never discuss it.

502

00:25:13,798 --> 00:25:15,438

It's just, it's always the starting point.

503

00:25:15,828 --> 00:25:16,728

It's just assumed.

504

00:25:17,195 --> 00:25:22,420

but anyway, so, and I said to him, I

said, uh, I guess he wasn't chairman.

505

00:25:22,570 --> 00:25:25,610

Yeah, he was chairman of the

Council of Economic Advisors.

506

00:25:26,080 --> 00:25:30,360

I said, you know, you've been writing

about unconventional monetary policy where

507

00:25:30,360 --> 00:25:32,310

the Fed might buy Treasury securities.

508

00:25:32,470 --> 00:25:37,733

I said, since buying, the Treasury buying

securities from the Fed is functionally

509

00:25:37,733 --> 00:25:40,783

the same for the private sector, it's the

Treasury never issuing them to begin with.

510

00:25:41,076 --> 00:25:41,406

Okay.

511

00:25:41,636 --> 00:25:45,266

And so rather than issuing them and

selling to the Fed, having the Fed credit

512

00:25:45,266 --> 00:25:49,021

the accounts, have you ever just thought

about, you know, Coordinating between

513

00:25:49,021 --> 00:25:51,731

the Fed and the Treasury and just have

the Treasury stop issuing those bonds.

514

00:25:52,981 --> 00:25:54,301

And he said, well, no, it is different.

515

00:25:54,351 --> 00:25:58,361

When we buy from the Treasury, we add

reserves to the system that has in effect.

516

00:25:58,411 --> 00:26:01,411

So it's like, okay, I didn't want

to answer the question, but clearly

517

00:26:01,411 --> 00:26:06,221

he didn't understand reserve account

because it was just a nonsensical answer.

518

00:26:07,096 --> 00:26:12,276

And, and he had, he was a nice guy and

smart guy, but, you know, he's like a B

519

00:26:12,286 --> 00:26:16,516

student who'd studied real hard and got an

A's and he was a professor from, Princeton

520

00:26:16,833 --> 00:26:20,793

and his specialty was the gold standard

to depression in 1930 and what caused it

521

00:26:21,223 --> 00:26:22,853

and everything he says is exactly right.

522

00:26:23,103 --> 00:26:28,053

And everything he did to my original

point was, Echoing these gold standard

523

00:26:28,573 --> 00:26:33,063

things, like that was, that adds more

convertible currency under gold standard.

524

00:26:33,743 --> 00:26:33,893

Okay.

525

00:26:33,893 --> 00:26:36,453

But it doesn't do that under

floating exchange rates.

526

00:26:36,916 --> 00:26:40,650

You know, reserves, the holder of

reserves has one option or two options.

527

00:26:40,650 --> 00:26:41,850

Do nothing, hold reserves.

528

00:26:42,580 --> 00:26:43,510

I guess he could spend them.

529

00:26:43,530 --> 00:26:47,390

Somebody else holds the reserves, or

he can buy treasury security and shift

530

00:26:47,400 --> 00:26:48,570

to a different account at the Fed.

531

00:26:48,810 --> 00:26:50,450

On the gold standard,

he has another option.

532

00:26:50,460 --> 00:26:51,540

He can take gold.

533

00:26:52,026 --> 00:26:52,946

That option's gone.

534

00:26:53,086 --> 00:26:56,086

And when you're not competing with

that option, the entire dynamics of

535

00:26:56,096 --> 00:26:57,706

the monetary system is different.

536

00:26:58,356 --> 00:27:00,956

It's like you're watching a different

channel on the television set.

537

00:27:00,956 --> 00:27:02,776

One program doesn't relate to the other.

538

00:27:03,126 --> 00:27:05,456

You can carry the language over,

but it's a different program.

539

00:27:05,646 --> 00:27:07,826

They're different people

doing different things.

540

00:27:08,531 --> 00:27:13,178

Adam Butler: So, just to sort of pull

a little bit further into the reserve

541

00:27:13,178 --> 00:27:22,095

accounting, so in QE, effectively, the Fed

moves money from the securities account

542

00:27:22,095 --> 00:27:24,895

and the checking account or the checking

account into the securities account

543

00:27:25,270 --> 00:27:25,580

Warren Mosler: Okay.

544

00:27:25,580 --> 00:27:26,650

So they go out and buy

545

00:27:26,815 --> 00:27:27,175

Adam Butler: account.

546

00:27:27,395 --> 00:27:27,575

Yeah,

547

00:27:28,358 --> 00:27:29,218

Warren Mosler: They don't go directly.

548

00:27:29,228 --> 00:27:32,395

They go through one of the primary

dealers and somebody sells that

549

00:27:32,415 --> 00:27:33,845

primary dealer securities, right?

550

00:27:34,745 --> 00:27:35,605

Let's say I sell them.

551

00:27:36,165 --> 00:27:36,685

Like, I don't know.

552

00:27:36,685 --> 00:27:40,375

It's the Fed buying, might be Bank of

America buying to add to their portfolio.

553

00:27:41,081 --> 00:27:43,311

It makes no, makes no

difference to the economy.

554

00:27:43,311 --> 00:27:45,901

If Citibank went out and bought all

these bonds, would it change anything?

555

00:27:46,241 --> 00:27:46,481

No.

556

00:27:46,661 --> 00:27:49,741

So anyway, the Fed goes out

and buys these things from me.

557

00:27:49,921 --> 00:27:53,861

I happen to have, you know, uh,

let's say, let's say I am JP Morgan.

558

00:27:53,861 --> 00:27:55,951

I have a securities, I

own treasury securities.

559

00:27:55,951 --> 00:27:57,251

They don't own a lot of

them, but they own a few.

560

00:27:57,996 --> 00:27:59,126

And I sell it to the Fed.

561

00:27:59,710 --> 00:28:01,750

And so I had dollars in

my securities account.

562

00:28:02,350 --> 00:28:06,026

The Fed pays me by crediting

my reserve account and the Fed

563

00:28:06,046 --> 00:28:07,446

debits my securities account.

564

00:28:07,476 --> 00:28:09,666

So they debit the securities

account, credit the reserve account.

565

00:28:10,216 --> 00:28:10,706

That's it.

566

00:28:11,123 --> 00:28:12,903

Debit 10 billion, credit 10 billion.

567

00:28:13,653 --> 00:28:13,923

Adam Butler: right.

568

00:28:13,923 --> 00:28:21,526

So I guess my question is, under Basel

two or bank capitalization regulations,

569

00:28:21,986 --> 00:28:27,213

is there a difference to the bank in

terms of its capital flexibility or,

570

00:28:27,550 --> 00:28:32,830

you know, ability to loan or what

have you between having a billion

571

00:28:32,830 --> 00:28:35,090

dollars in the securities account or a

billion dollars in the reserve account?

572

00:28:35,930 --> 00:28:37,670

Warren Mosler: Yeah,

because the longer trip,

573

00:28:37,790 --> 00:28:39,190

If it's a three month bill, no.

574

00:28:39,810 --> 00:28:43,500

'Cause the Treasury holds zero

risk weight and so are Reserves,

575

00:28:43,500 --> 00:28:43,881

so there's no difference there.

576

00:28:43,881 --> 00:28:44,179

If you, if you're in a long

duration, umm as a commercial

577

00:28:44,179 --> 00:28:44,310

bank under CAMELS regulation

578

00:28:46,540 --> 00:28:47,050

t

579

00:28:50,010 --> 00:28:51,160

CAMELS,

580

00:28:53,530 --> 00:28:57,860

capital assets, management, earnings, L

is liquidity and S is interest sensitivity

581

00:29:00,510 --> 00:29:04,570

So you are not allowed to have

interest rate sensitivity.

582

00:29:05,170 --> 00:29:06,500

They run you through tests.

583

00:29:06,500 --> 00:29:09,950

If rates go up, go down, you want

to make sure your capital, for all

584

00:29:09,950 --> 00:29:11,420

practical purposes, does change.

585

00:29:11,430 --> 00:29:13,080

And if it does, you're

supposed to make adjustments.

586

00:29:13,100 --> 00:29:16,310

So you're, you're duration

neutral, you know, is it basically

587

00:29:16,880 --> 00:29:17,780

supposed to be zero duration.

588

00:29:18,550 --> 00:29:21,060

So if you have long securities

and you go to short securities,

589

00:29:21,060 --> 00:29:22,200

you've changed your duration.

590

00:29:22,780 --> 00:29:24,080

And that may throw off your balance.

591

00:29:24,713 --> 00:29:27,243

you know, and if that's the case,

you have to make that adjustment.

592

00:29:27,243 --> 00:29:27,483

So.

593

00:29:28,483 --> 00:29:30,573

But otherwise the securities

are zero risk weight.

594

00:29:30,683 --> 00:29:32,423

So it all depends on that.

595

00:29:32,433 --> 00:29:37,633

You also have like leverage ratios and

it might affect your leverage ratios.

596

00:29:38,063 --> 00:29:40,453

And that's your total

assets versus your capital.

597

00:29:40,473 --> 00:29:42,703

But that doesn't change your total assets.

598

00:29:43,403 --> 00:29:46,693

So I would say that particular thing

only changes your interest rate

599

00:29:46,693 --> 00:29:49,250

sensitivity, your duration of your bank.

600

00:29:49,550 --> 00:29:51,523

For an individual, it doesn't change,

601

00:29:51,618 --> 00:29:52,638

Adam Butler: I guess my point is that

602

00:29:52,653 --> 00:29:52,683

Warren Mosler: but

603

00:29:52,738 --> 00:29:57,878

Adam Butler: if you're If you're the bank

and you've got a target, duration, right.

604

00:29:57,878 --> 00:30:00,348

You want to hold a target

duration for your portfolio.

605

00:30:01,118 --> 00:30:04,638

the Fed has just absorbed

some of your duration.

606

00:30:05,168 --> 00:30:06,508

Will the bank then not

607

00:30:06,623 --> 00:30:10,133

Warren Mosler: yeah, yes and no, because

you don't have to sell to the Fed.

608

00:30:10,906 --> 00:30:13,826

They can just, if they don't get

anything, they'll pay a half a basis

609

00:30:13,826 --> 00:30:15,476

point more and get it from somebody else,

610

00:30:16,101 --> 00:30:16,621

Adam Butler: right,

611

00:30:16,836 --> 00:30:18,316

Warren Mosler: basis points

more, whatever it is.

612

00:30:18,836 --> 00:30:20,746

And they can affect the curve on that.

613

00:30:20,896 --> 00:30:24,056

I mean, if you buy enough at any point

in the curve, the further out you

614

00:30:24,056 --> 00:30:28,471

go, the more likely you are to, the

value of what we used to call a pop.

615

00:30:28,471 --> 00:30:29,271

I don't know if you call it now.

616

00:30:29,481 --> 00:30:31,971

There's a lot, the value of it

in 01 is a lot larger, a lot

617

00:30:31,971 --> 00:30:33,741

more bonds as you go further out.

618

00:30:34,351 --> 00:30:39,185

And so, the Fed buying, 20 billion

long bonds has more effect than

619

00:30:39,185 --> 00:30:40,705

buying 20 billion 3 month bills.

620

00:30:41,158 --> 00:30:41,508

Adam Butler: right.

621

00:30:42,298 --> 00:30:43,338

Warren Mosler: Okay, and so, um.

622

00:30:44,158 --> 00:30:46,978

they go out the curve and buy long

bonds, they can move that market four

623

00:30:46,978 --> 00:30:50,868

or five, maybe 10 basis points if they

bought enough, maybe a half a percent.

624

00:30:50,888 --> 00:30:53,938

But in the scheme of things, if you

talk to the guy in the street about

625

00:30:53,938 --> 00:30:57,138

major problems in the U S and you say,

well, you know, 30 year interest rates

626

00:30:57,138 --> 00:31:00,438

have gone from, you know, 425 to 475.

627

00:31:00,438 --> 00:31:03,728

They'll look at you like, what we

got, that's our biggest problem.

628

00:31:04,018 --> 00:31:04,728

It's like, who cares?

629

00:31:04,728 --> 00:31:04,928

Right.

630

00:31:05,288 --> 00:31:08,988

Half a percent of it is, but if you're in

the middle of training, it's a big deal.

631

00:31:09,478 --> 00:31:12,783

So I'm not, you know, it depends on who

you're looking at, but that's, that's I

632

00:31:12,803 --> 00:31:18,143

think when they started issuing 20 years,

which were a lot at the time, they put a

633

00:31:18,533 --> 00:31:22,856

dent in the yield curve of maybe 15 basis

points initially before it's sorted out.

634

00:31:22,886 --> 00:31:23,996

Now that falls under what?

635

00:31:24,731 --> 00:31:29,361

Under fixed exchange rates, they used

to call liquidity preference, which says

636

00:31:29,361 --> 00:31:34,118

there's always enough money to buy the log

in it, but there aren't necessarily enough

637

00:31:34,118 --> 00:31:36,348

people who want to pay that duration.

638

00:31:36,668 --> 00:31:39,178

So the question is, what's

the bid for duration of it?

639

00:31:39,688 --> 00:31:43,745

And the biggest surprise, one of my

biggest surprises that I look at, cause

640

00:31:43,815 --> 00:31:47,265

I never know how large the duration

bid is, is how large that bid is.

641

00:31:47,875 --> 00:31:50,925

Over the years, I've seen

all these panic situations.

642

00:31:50,935 --> 00:31:53,725

The Fed's going to do QT, sell long

bonds, this is going to happen now.

643

00:31:54,145 --> 00:31:56,985

The long bond sells off and

then it's like, this is, you

644

00:31:56,985 --> 00:31:58,185

know, going to get up to 10%.

645

00:31:58,185 --> 00:31:59,085

They're not going to be able to sell them.

646

00:31:59,085 --> 00:32:00,305

They're going to have failed auctions.

647

00:32:01,055 --> 00:32:03,265

And all of a sudden it rallies

like a hundred basis points.

648

00:32:03,265 --> 00:32:06,915

And it's like lower than it was before

because of that bid for duration.

649

00:32:07,565 --> 00:32:08,845

So where is that coming from?

650

00:32:09,570 --> 00:32:13,020

Well, I can only look at the

data and guess, but you've got

651

00:32:13,020 --> 00:32:16,220

pension funds who buy long bonds

because it's Tuesday, right?

652

00:32:16,640 --> 00:32:20,760

They look at the balances and on Tuesday,

whenever it came in, they buy it because

653

00:32:20,760 --> 00:32:23,200

they've got a 60, 40 mix or some nonsense.

654

00:32:23,260 --> 00:32:27,440

And you know, that money just comes

flooding in because every teacher puts

655

00:32:27,440 --> 00:32:32,050

40 a week into her pension fund and the

teacher's retirement fund buys long bonds.

656

00:32:32,660 --> 00:32:36,730

You know, and so, uh, and somebody

needs duration out there and I

657

00:32:36,730 --> 00:32:37,930

can't tell you where it all is.

658

00:32:38,380 --> 00:32:41,480

But the bid is, how does

the long get negative?

659

00:32:42,240 --> 00:32:44,210

How long have we seen this long the curve?

660

00:32:44,220 --> 00:32:47,170

Now, how does that happen

without a huge bid for duration?

661

00:32:47,170 --> 00:32:47,440

Right?

662

00:32:48,373 --> 00:32:51,413

So there's, there's a massive bid

for duration out there and it's

663

00:32:51,433 --> 00:32:52,903

part of the institutional structure.

664

00:32:53,653 --> 00:32:54,583

Somebody's buying it.

665

00:32:54,593 --> 00:32:57,813

Insurance companies have to

buy it to match something.

666

00:32:58,133 --> 00:33:00,493

Somebody's buying it to

match long term liabilities.

667

00:33:00,573 --> 00:33:04,023

There's a lot more long term

liability out there than we, than

668

00:33:04,023 --> 00:33:05,603

we estimate and that I estimate.

669

00:33:05,603 --> 00:33:07,483

It always like, wow, where?

670

00:33:07,938 --> 00:33:09,728

Well, I could rally it

a hundred faces for you.

671

00:33:10,358 --> 00:33:10,728

Nobody

672

00:33:10,763 --> 00:33:11,583

Richard Laterman: But we've seen in the,

673

00:33:11,878 --> 00:33:11,958

Warren Mosler: behind it.

674

00:33:12,548 --> 00:33:12,988

Yeah.

675

00:33:13,513 --> 00:33:16,593

Richard Laterman: we've seen in the

last several months now, this, this

676

00:33:16,603 --> 00:33:18,673

conversation shifting about the U.

677

00:33:18,673 --> 00:33:18,823

S.

678

00:33:18,823 --> 00:33:23,473

government solvency and

a possible debt crisis.

679

00:33:23,733 --> 00:33:27,173

And the fact that the propensity to own U.

680

00:33:27,173 --> 00:33:27,313

S.

681

00:33:27,313 --> 00:33:30,463

government bonds would decrease as

inflation expectations would rise,

682

00:33:30,693 --> 00:33:35,153

not to mention the weaponization

of the dollar and the appetite for

683

00:33:35,153 --> 00:33:37,063

central, foreign central banks to hold.

684

00:33:37,483 --> 00:33:40,138

You, you don't seem to be

concerned with, with that.

685

00:33:40,438 --> 00:33:43,908

Any of those factors i'm

trying to understand what

686

00:33:44,198 --> 00:33:47,008

Warren Mosler: was in charge, if I was

in charge, I'd be even less concerned

687

00:33:47,368 --> 00:33:48,858

because I'd only issue three month bills.

688

00:33:49,268 --> 00:33:52,378

I'd have the Fed set the rate at zero

like we had for 10 years, permanently.

689

00:33:52,768 --> 00:33:54,878

They didn't have to worry

about any of that, okay?

690

00:33:54,988 --> 00:33:59,233

But, yes, right now, They worry

about their own problems they created

691

00:33:59,233 --> 00:34:03,753

and feel they have to continue to

create, but even then, where's the

692

00:34:03,753 --> 00:34:05,543

10 year now, like 460 or something.

693

00:34:06,413 --> 00:34:06,723

Okay.

694

00:34:06,723 --> 00:34:09,033

That's like, just that's

at the fed funds, right?

695

00:34:09,083 --> 00:34:10,053

That's a flat yield curve.

696

00:34:10,873 --> 00:34:15,963

How bad can it be if it's 10

years flat, it's like, it's

697

00:34:15,963 --> 00:34:17,033

not like it's even positive.

698

00:34:18,128 --> 00:34:18,987

Okay, it's positive

699

00:34:19,138 --> 00:34:21,838

Richard Laterman: now Is is

now closer to three and a half.

700

00:34:21,838 --> 00:34:23,570

So granted it's it's

701

00:34:23,630 --> 00:34:23,880

Warren Mosler: no, no.

702

00:34:23,880 --> 00:34:25,860

It's like four and a quarter,

four and a half, right?

703

00:34:27,289 --> 00:34:29,489

What have we got, three, three

cuts from five and a quarter?

704

00:34:30,699 --> 00:34:31,259

Three or four.

705

00:34:32,089 --> 00:34:34,309

Adam Butler: yeah, it's slightly,

slightly positive now, but either

706

00:34:34,309 --> 00:34:36,349

way, it's not, it's basically

707

00:34:36,518 --> 00:34:37,539

Warren Mosler: ten, ten basis points.

708

00:34:37,938 --> 00:34:38,849

Where's the 30 year?

709

00:34:39,429 --> 00:34:43,418

Now, the other thing is, you know, you get

positive convexity as you go further out.

710

00:34:44,458 --> 00:34:48,259

And so the convexity adjusted

spread in the 30 year is wider than

711

00:34:48,649 --> 00:34:51,149

the nominal yield by quite a bit.

712

00:34:51,938 --> 00:34:55,059

And, you know, I used to do very well

when people would sell off the long

713

00:34:55,059 --> 00:34:58,459

end and not, not pay any attention

to the convexity or the people

714

00:34:58,459 --> 00:35:00,109

doing it aren't sensitive to it.

715

00:35:00,109 --> 00:35:04,969

And the people who are sensitive to

convexity are, are a minority as we were.

716

00:35:05,519 --> 00:35:08,269

And you'd have these wonderful

opportunities to buy things against the

717

00:35:08,269 --> 00:35:13,679

long end, have huge, positively convex

portfolios and make a lot of relative

718

00:35:13,679 --> 00:35:15,849

value, you know, out of alpha over time.

719

00:35:16,699 --> 00:35:20,389

And so that's another place where the

bidder duration comes in because of all

720

00:35:20,389 --> 00:35:21,879

the positive convexity at the login.

721

00:35:22,389 --> 00:35:26,939

That is not something the average

person who reads the Wall Street

722

00:35:26,939 --> 00:35:31,939

Journal or the watches the news

thinks about, or even the average

723

00:35:31,959 --> 00:35:32,549

Adam Butler: We think about that a lot.

724

00:35:33,019 --> 00:35:33,349

For sure.

725

00:35:33,899 --> 00:35:34,269

Warren Mosler: Yeah.

726

00:35:34,269 --> 00:35:34,579

Yeah.

727

00:35:34,709 --> 00:35:34,869

Yeah.

728

00:35:35,314 --> 00:35:35,554

Yeah.

729

00:35:35,554 --> 00:35:36,614

So what's, what's it worth?

730

00:35:36,614 --> 00:35:39,334

30 basis points of positive

convexity to long now.

731

00:35:39,384 --> 00:35:40,484

So what's a zero

732

00:35:40,569 --> 00:35:43,529

Richard Laterman: are the practical

limitations for the government?

733

00:35:43,899 --> 00:35:47,289

forget that the zeitgeist

hasn't gotten quite there yet.

734

00:35:47,349 --> 00:35:50,979

Uh, and the Overton window, the,

the, these ideas haven't quite fully

735

00:35:50,979 --> 00:35:52,689

been established in the Overton.

736

00:35:52,809 --> 00:35:53,919

What are the practical limitations?

737

00:35:53,979 --> 00:35:56,469

Is there an upper limit to debt to

738

00:35:56,594 --> 00:35:57,464

Warren Mosler: So there's two things.

739

00:35:58,174 --> 00:35:58,814

There's two things.

740

00:35:58,814 --> 00:36:02,044

The limit to what can be spent

is what is offered for sale.

741

00:36:02,644 --> 00:36:04,084

And what is offered

for sale is a function.

742

00:36:04,694 --> 00:36:04,924

Yeah.

743

00:36:04,924 --> 00:36:06,584

It's a function of tax liabilities.

744

00:36:07,074 --> 00:36:09,194

So you can't buy anything now

with Confederate dollars because

745

00:36:09,194 --> 00:36:10,424

there's nothing offered for sale.

746

00:36:11,134 --> 00:36:14,034

But if somebody put in a tax

payable in Confederate dollars,

747

00:36:14,054 --> 00:36:15,244

now there'd be things for sale.

748

00:36:15,594 --> 00:36:17,074

People need the dollars to pay the tax.

749

00:36:17,074 --> 00:36:17,209

Yeah.

750

00:36:17,609 --> 00:36:19,479

And it's a simple case of a monopoly.

751

00:36:19,479 --> 00:36:22,983

They've got what you, they set the

price and they tell you what it's worth.

752

00:36:23,453 --> 00:36:27,193

So, so the limit is what the

tax liability, the need to

753

00:36:27,193 --> 00:36:29,703

create, that's the nominal limit

created by the tax liability.

754

00:36:30,323 --> 00:36:34,559

if you just give people money, like

social security, and now they become

755

00:36:34,559 --> 00:36:39,119

agents of the government, and so the

limit to what they can buy, you have to

756

00:36:39,159 --> 00:36:42,089

consider not just the government, but

plus it's agents who are getting money.

757

00:36:43,329 --> 00:36:43,639

Money.

758

00:36:43,639 --> 00:36:45,389

They're not selling

anything to the government.

759

00:36:45,389 --> 00:36:46,989

You're just getting dollars.

760

00:36:47,379 --> 00:36:50,844

you know, if you exceed what is

available for them to buy and

761

00:36:50,844 --> 00:36:52,344

they start paying higher prices.

762

00:36:52,594 --> 00:36:55,914

They are redefining the currency

downward by paying those higher prices.

763

00:36:55,954 --> 00:36:57,854

And we call that inflation.

764

00:36:57,854 --> 00:37:00,354

I call it one time adjustments

in the price level.

765

00:37:00,734 --> 00:37:03,464

You get a, it's always a

series of one time adjustments.

766

00:37:04,054 --> 00:37:04,801

It's like, quantum.

767

00:37:04,801 --> 00:37:08,096

It's not, time doesn't move smoothly.

768

00:37:08,136 --> 00:37:09,786

It moves in quantum measure.

769

00:37:09,786 --> 00:37:12,716

So Yeah so it's the same thing here.

770

00:37:13,156 --> 00:37:14,786

It's, it's one purchase at a time.

771

00:37:14,786 --> 00:37:16,866

It's moving, it's redefining the currency.

772

00:37:17,316 --> 00:37:19,936

Now there's a lot of it, so it

looks continuous, but it's not.

773

00:37:20,623 --> 00:37:24,963

That's, you know, what inflation would

be and properly academically defined, if

774

00:37:24,963 --> 00:37:28,863

the definition were followed according to

how it's academically defined, would be

775

00:37:28,863 --> 00:37:30,243

something else and it wouldn't be that.

776

00:37:30,953 --> 00:37:34,806

Now, what we call inflation, you know,

fine, but that's a different matter.

777

00:37:35,506 --> 00:37:39,216

so not to get off the point, so

the limits are a couple of things.

778

00:37:39,436 --> 00:37:40,943

What's for sale, right?

779

00:37:41,423 --> 00:37:44,033

And that's evidenced by prices.

780

00:37:44,053 --> 00:37:45,913

What's, we can look around

and see what's for sale.

781

00:37:46,563 --> 00:37:49,523

And if those prices are going up, it

means government and its agents are

782

00:37:50,193 --> 00:37:54,013

paying more than what's offered for sale

at term prices and so prices are going up.

783

00:37:54,473 --> 00:37:58,256

And a lot of that depends on institutional

structure, sort of builds a lot of

784

00:37:58,256 --> 00:38:04,401

the stuffing and some of it's based on

you can casually call excess demand.

785

00:38:05,058 --> 00:38:08,688

But if you spend on a price rule,

if I say, I'm going to go down the

786

00:38:08,688 --> 00:38:12,088

street, and I tell you to buy every

house on that street, but don't

787

00:38:12,088 --> 00:38:13,838

pay more than 500, 000 dollars.

788

00:38:14,463 --> 00:38:18,473

And they're all for sale at about

between 4 50 and 5 50, you're going

789

00:38:18,473 --> 00:38:20,553

to buy some of them, but you're

not going to drive up prices.

790

00:38:21,483 --> 00:38:23,883

If I tell you buy them all and I

don't really care what it costs,

791

00:38:23,903 --> 00:38:25,463

then you're going to drive prices.

792

00:38:25,563 --> 00:38:28,693

So if you're spending on a quantity

rule instead of a price rule,

793

00:38:29,233 --> 00:38:30,693

you get very different outcomes.

794

00:38:31,053 --> 00:38:35,689

So the government spending policy is

critical in determining the outcomes.

795

00:38:36,158 --> 00:38:38,468

It's not easy to follow, but if

you don't understand it, you're

796

00:38:38,468 --> 00:38:39,528

never going to get it right, okay?

797

00:38:40,138 --> 00:38:43,028

If you do understand it, you at least

understand the problem, and you can

798

00:38:43,238 --> 00:38:47,848

qualify your answer based on your

understanding, which they can't even do.

799

00:38:48,633 --> 00:38:51,973

Adam Butler: Well, is there a difference

between what someone might call, you

800

00:38:51,973 --> 00:38:56,363

know, direct transfers, for example,

what happened during COVID, and what

801

00:38:56,373 --> 00:38:59,953

some might call investment where the

government is, is, going out to tender

802

00:38:59,993 --> 00:39:04,733

to companies who are going to build

roads and bridges and, and set up, you

803

00:39:04,733 --> 00:39:06,443

know, childcare services, et cetera.

804

00:39:06,966 --> 00:39:07,356

Warren Mosler: right.

805

00:39:07,736 --> 00:39:12,866

So one is the, spending power of

government is being transferred

806

00:39:12,866 --> 00:39:15,893

to somebody else and you got to

hope they do the right thing.

807

00:39:15,893 --> 00:39:18,493

Otherwise, if you give them too

much money and there's not enough

808

00:39:18,493 --> 00:39:20,033

for sale, they can cause prices.

809

00:39:20,543 --> 00:39:23,203

The government, when it spends,

goes through contracting and

810

00:39:23,203 --> 00:39:25,663

if they think the price is too

high, they don't have to pay it.

811

00:39:26,373 --> 00:39:29,323

Now, if they need it, like the military,

they just go to the highest bidder.

812

00:39:29,588 --> 00:39:31,618

The lowest bidder and they

go ahead and buy it anyway.

813

00:39:31,628 --> 00:39:35,918

And they can, they will also drive

prices up for buying oil from Saudi

814

00:39:35,918 --> 00:39:39,651

Arabia at the margin, we have to pay

the price or turn the lights off.

815

00:39:39,701 --> 00:39:44,274

So don't forget at the start of this

whole thing, Ukraine thing broke out.

816

00:39:45,134 --> 00:39:48,864

Saudis raised their prices up to like 120

before it turned around and came down,

817

00:39:49,494 --> 00:39:55,318

and that is highly influential in what we

call the inflation indicators, which is

818

00:39:55,348 --> 00:40:00,178

CPI, which is not, it's our politically

determined inflation indicator.

819

00:40:00,218 --> 00:40:02,528

And I'm not arguing whether it's

good or bad, right or wrong,

820

00:40:02,538 --> 00:40:04,348

but it's not the price level.

821

00:40:04,348 --> 00:40:04,708

Okay.

822

00:40:05,458 --> 00:40:06,668

And so that.

823

00:40:06,988 --> 00:40:08,988

Oil is a big factor in that.

824

00:40:09,098 --> 00:40:13,364

Most things, prices are derived from

that and, uh, right down to your

825

00:40:13,364 --> 00:40:14,634

food supply and everything else.

826

00:40:14,684 --> 00:40:17,584

And we had all those, supply

constraints at the same time.

827

00:40:18,234 --> 00:40:23,531

And we saw the same pattern of prices

rising into the peak of oil and then

828

00:40:23,551 --> 00:40:27,691

oil coming down after president Biden

cut that deal with Saudi Arabia, not to

829

00:40:27,691 --> 00:40:32,951

prosecute the journalists, they killed

Khashoggi and to, make them a deal to

830

00:40:32,951 --> 00:40:38,096

get us weapons and get them back from

Russia, they Left us to go to Russia

831

00:40:38,656 --> 00:40:40,146

for weaponry and things like that.

832

00:40:40,156 --> 00:40:44,446

After President Trump had threatened

them with those kinds of sanctions.

833

00:40:44,446 --> 00:40:49,626

If they didn't raise the price of oil

during COVID because cut production

834

00:40:49,626 --> 00:40:52,646

by 2 million barrels a day, which

they eventually did with Russia.

835

00:40:52,646 --> 00:40:55,206

They got Russia to participate

and they raised the price.

836

00:40:55,206 --> 00:40:58,139

But he was the one who insisted,

you know, when the price was

837

00:40:58,139 --> 00:40:59,332

negative on the foreign trade.

838

00:40:59,332 --> 00:41:01,956

But I think the physical

price was about 30 or 40.

839

00:41:02,315 --> 00:41:04,935

That needed to be higher because

it was ruining our oil industry.

840

00:41:04,945 --> 00:41:10,045

So this whole thing about how to get

more US oil output is simplistically

841

00:41:10,045 --> 00:41:12,935

based on higher prices, you

know, we're going to get higher.

842

00:41:13,195 --> 00:41:16,845

That's their method of more

production is to get prices up.

843

00:41:16,845 --> 00:41:19,085

So now there's an incentive

to produce this capitalism.

844

00:41:19,665 --> 00:41:25,085

So I would, I interpret the idea that we

want more drilling to mean we want higher

845

00:41:25,085 --> 00:41:26,865

prices, so more drilling makes sense.

846

00:41:27,370 --> 00:41:31,950

I don't know any other way they have

in mind of getting more production.

847

00:41:31,950 --> 00:41:35,130

Maybe they've got something I

don't know about, but some subsidy

848

00:41:35,130 --> 00:41:36,420

or something, but I think it

849

00:41:36,420 --> 00:41:38,660

meets higher pressures because that's

what they did last time around.

850

00:41:39,250 --> 00:41:39,640

Yeah.

851

00:41:40,232 --> 00:41:44,002

Adam Butler: so that would be,

um, an example of, in a technical

852

00:41:44,002 --> 00:41:46,122

sense, industrial policy, right?

853

00:41:46,122 --> 00:41:46,892

The, the government

854

00:41:46,957 --> 00:41:47,217

Warren Mosler: Yes.

855

00:41:47,217 --> 00:41:47,517

Yes.

856

00:41:48,012 --> 00:41:48,372

Adam Butler: Okay.

857

00:41:48,652 --> 00:41:48,922

Okay.

858

00:41:49,537 --> 00:41:49,777

Warren Mosler: Yeah.

859

00:41:49,837 --> 00:41:51,737

And every, it's all

industrial policy, right?

860

00:41:51,737 --> 00:41:54,787

Once you have coercive taxation,

that's a command economy.

861

00:41:55,440 --> 00:41:58,010

Now, whatever the government wants,

you have to sell it or we can't

862

00:41:58,010 --> 00:42:01,120

get the money to pay the tax and

it will price whatever it wants.

863

00:42:01,865 --> 00:42:05,025

So the relative value is high enough so

that we sell that stuff to the government.

864

00:42:05,295 --> 00:42:07,655

So we'll sell them, sell

them planes and tanks.

865

00:42:07,675 --> 00:42:11,395

Cause you know, the economy can get

money doing that easier than making

866

00:42:11,545 --> 00:42:16,025

cars and buses and fertilizer or

whatever, you know, so they will outbid

867

00:42:16,025 --> 00:42:19,465

everybody for what they want and it

becomes, it is a command economy.

868

00:42:19,735 --> 00:42:21,275

The rest of it's a market economy.

869

00:42:22,095 --> 00:42:24,485

Adam Butler: the economy that

the government, where the

870

00:42:24,485 --> 00:42:25,585

government is spending directly

871

00:42:25,825 --> 00:42:26,255

Warren Mosler: Yeah.

872

00:42:26,285 --> 00:42:26,615

Yeah.

873

00:42:26,615 --> 00:42:26,925

Yeah.

874

00:42:26,995 --> 00:42:27,275

Yeah.

875

00:42:27,275 --> 00:42:27,745

Yeah.

876

00:42:27,745 --> 00:42:27,965

Yeah.

877

00:42:28,575 --> 00:42:30,815

Cause you've never heard them

not get what they want, right?

878

00:42:30,905 --> 00:42:31,685

They get what they want.

879

00:42:32,990 --> 00:42:36,813

Adam Butler: going back to, I guess,

sort of related to quantitative

880

00:42:36,813 --> 00:42:42,203

easing, but, Secretary Yellen has

been slowly but steadily reducing the

881

00:42:42,233 --> 00:42:46,223

duration of, debt issuance, right?

882

00:42:46,813 --> 00:42:54,643

do you, do you think this is motivated

or informed by, her in general, or, or

883

00:42:55,183 --> 00:43:03,077

her policy, Associates starting to sort

of embrace the view that you've been

884

00:43:03,077 --> 00:43:05,657

articulating over the last few decades and

885

00:43:06,117 --> 00:43:10,940

Warren Mosler: well, if they, yeah, so

the thing is, do they have some kind of

886

00:43:11,550 --> 00:43:14,050

master plan to go to a zero rate policy?

887

00:43:14,580 --> 00:43:16,380

So they don't want to get

stuck with those duration.

888

00:43:16,950 --> 00:43:18,480

And is that what's actually.

889

00:43:19,015 --> 00:43:20,355

Chairman Powell is doing.

890

00:43:20,365 --> 00:43:24,395

Is he coming up with excuses to lower

rates because he knows that lower rates

891

00:43:24,395 --> 00:43:29,172

will lower inflation now that he's had it

backwards, but he doesn't want to say he's

892

00:43:29,182 --> 00:43:30,812

had it backwards, but by lowering rates.

893

00:43:31,445 --> 00:43:34,435

Inflation indicators come down,

so it keeps going down to zero.

894

00:43:34,992 --> 00:43:37,565

You know, do they, is

that what's behind them?

895

00:43:37,625 --> 00:43:42,372

So I guess there's an outside chance,

but just from the people I've met,

896

00:43:42,372 --> 00:43:45,182

I think we'd be giving them too

much credit to keep the secret

897

00:43:45,212 --> 00:43:47,292

like that and have a hidden agenda.

898

00:43:48,072 --> 00:43:50,062

The ones I've known, it

hasn't been a lot of them.

899

00:43:50,062 --> 00:43:52,412

I'm not saying I'm insider like that.

900

00:43:52,858 --> 00:43:55,065

It's just, I don't think so.

901

00:43:55,065 --> 00:44:00,638

I mean, for me, the level of

confidence I've run into at the

902

00:44:00,638 --> 00:44:04,518

highest levels of everything has

always been severely disappointing.

903

00:44:05,282 --> 00:44:09,828

And have you seen the Jared Bernstein

from finding the money that clip where

904

00:44:09,828 --> 00:44:12,878

they ask him why the government's

printing money and borrowing?

905

00:44:12,878 --> 00:44:16,088

And he just funnels terribly

for a minute and a half, and

906

00:44:16,088 --> 00:44:17,138

then they go to something else.

907

00:44:17,898 --> 00:44:18,398

Have you seen that?

908

00:44:19,413 --> 00:44:19,733

Adam Butler: haven't, I

909

00:44:19,908 --> 00:44:21,798

Warren Mosler: it's embarrassing,

but that's how they are.

910

00:44:21,798 --> 00:44:22,728

They just don't know.

911

00:44:23,058 --> 00:44:27,138

So I, you know, you can, that's why

I called the book Innocent Frauds.

912

00:44:27,138 --> 00:44:29,562

You know, you can, you know,

are they innocent or are they

913

00:44:29,582 --> 00:44:30,932

trying to perpetuate a fraud?

914

00:44:31,632 --> 00:44:34,232

It's almost like it's more

insulting to say it's innocent.

915

00:44:34,252 --> 00:44:35,352

They don't understand it.

916

00:44:36,132 --> 00:44:39,707

But, and there might be some of

them like that, but I, I mean,

917

00:44:39,747 --> 00:44:41,440

I've, I don't think they do.

918

00:44:42,120 --> 00:44:43,480

I, you know, again, I can be wrong.

919

00:44:43,500 --> 00:44:44,170

Maybe they do.

920

00:44:44,890 --> 00:44:48,240

And they've read my book and

they, yeah, I don't know.

921

00:44:48,340 --> 00:44:48,780

I don't know.

922

00:44:49,590 --> 00:44:51,515

Richard Laterman: Remi, I would be

remiss if we didn't circle back.

923

00:44:52,465 --> 00:44:55,385

Something you just said a moment

ago, which is the idea that if

924

00:44:55,685 --> 00:44:59,925

we reduce interest rates, we

would help reduce inflation.

925

00:44:59,925 --> 00:45:02,995

I mean, that, that, that flies in

the face of, I guess, everything I

926

00:45:02,995 --> 00:45:07,215

learned in university, which maybe

was all wrong, but I, I love it.

927

00:45:07,285 --> 00:45:10,055

I love if you could explain that

notion, to me, because I think

928

00:45:10,055 --> 00:45:13,025

that's one of the more controversial

things I've heard, so far.

929

00:45:13,025 --> 00:45:15,825

And I am trying, I am trying to

keep an open mind, but that is

930

00:45:15,865 --> 00:45:18,115

definitely something that doesn't,

doesn't really square for me.

931

00:45:18,800 --> 00:45:21,730

Warren Mosler: So my partner and

I were talking about this not too

932

00:45:21,730 --> 00:45:25,580

long ago, you know, like back in the

eighties when we were running fixed

933

00:45:25,580 --> 00:45:28,940

income, we were saying this, you know,

when they'd raise the fed funds rate

934

00:45:28,940 --> 00:45:30,180

or Greenspan would raise the rate.

935

00:45:30,800 --> 00:45:34,170

We'd say, okay, watch, you know, inflation

is going to start creeping up now.

936

00:45:34,170 --> 00:45:37,135

He's going to take credit for

having been a good forecaster

937

00:45:37,135 --> 00:45:38,365

when really he's causing this.

938

00:45:38,995 --> 00:45:41,982

So it's not something I've

come to most recently.

939

00:45:42,052 --> 00:45:42,292

Okay.

940

00:45:42,692 --> 00:45:44,058

This has been a long time now.

941

00:45:44,328 --> 00:45:49,975

I had a conversation with Paul Krugman

six, eight years, seven years ago, but

942

00:45:49,985 --> 00:45:54,215

he was, he and Stephanie Kelton were

on Bloomberg going back and forth.

943

00:45:54,285 --> 00:45:57,955

with written articles about

the MMT and the job guarantee.

944

00:45:58,445 --> 00:46:01,768

And I said to him, like, what's

your problem with the job

945

00:46:01,768 --> 00:46:04,098

guarantee, you know, with the

deficit and job guarantees as well.

946

00:46:04,248 --> 00:46:08,398

If deficit spending gets high enough

for the job guarantee, then the Fed

947

00:46:08,398 --> 00:46:10,128

can't raise rates to fight inflation.

948

00:46:10,158 --> 00:46:13,958

Because when you raise rates, the extra

income interest, the treasury is going

949

00:46:13,958 --> 00:46:17,748

to have to pay, we'll add to deficit

spending and that'll cause inflation.

950

00:46:18,118 --> 00:46:20,818

And so the Fed loses that tool.

951

00:46:21,445 --> 00:46:22,255

And I said, well, you know what?

952

00:46:22,255 --> 00:46:24,455

I agree with you, Paul, but

I think we're already there.

953

00:46:24,485 --> 00:46:27,325

Now our debt to GP was only

35 percent held by public,

954

00:46:27,815 --> 00:46:34,085

but I'd already started saying that since

the early 80s when I first got into this

955

00:46:34,115 --> 00:46:35,495

stuff saying that it's already happened.

956

00:46:36,155 --> 00:46:41,340

Okay, and I said and so I, I agree

with you, but I think we are there.

957

00:46:42,110 --> 00:46:44,240

And so I don't think he

says, well, I don't think so.

958

00:46:44,240 --> 00:46:47,360

I think we raised race, we still

have that tool to fight inflation.

959

00:46:48,027 --> 00:46:50,997

And we kind of ended the, we just agreed

on that and it wasn't even agreed.

960

00:46:51,267 --> 00:46:53,457

We both agreed that that's

in the new Keynesian model.

961

00:46:53,867 --> 00:46:57,743

And the question was whether or not we

thought that debt to GDP was high enough.

962

00:46:58,453 --> 00:47:02,417

Well, after COVID, the debt to GDP went

from, held by the public, went from

963

00:47:02,417 --> 00:47:06,887

35 to like 97 or so, maybe went to a

hundred and I go, okay, well, this is

964

00:47:06,887 --> 00:47:09,247

like, I've seen it, the effect at 35.

965

00:47:09,247 --> 00:47:13,057

It's, you know, I'm pretty sure

that it's three times the fiscal

966

00:47:13,057 --> 00:47:14,457

impact now than it was back then.

967

00:47:14,457 --> 00:47:17,167

And when the fed started raising

rates, I was the first one out there

968

00:47:17,167 --> 00:47:20,677

saying this is going to backfire, it

doesn't work that way, other forecasts

969

00:47:20,797 --> 00:47:23,567

of inflation, of, uh, going up.

970

00:47:24,367 --> 00:47:25,377

I said, it's wrong.

971

00:47:25,447 --> 00:47:28,187

Unemployment is going to go down,

not up, because their deficit

972

00:47:28,187 --> 00:47:29,207

spending is going to go up.

973

00:47:29,207 --> 00:47:33,287

And it went up to 5, 6%, of which

3 or 4 percent was interest rate.

974

00:47:34,067 --> 00:47:35,027

And that's what happened.

975

00:47:35,137 --> 00:47:37,407

Unemployment came down and didn't go up.

976

00:47:37,417 --> 00:47:40,057

It went up because we had big immigration.

977

00:47:41,142 --> 00:47:43,522

That number went up, but the

jobs have always been there.

978

00:47:44,122 --> 00:47:45,722

And, uh, and it's still only 4.

979

00:47:45,722 --> 00:47:46,322

2.

980

00:47:46,862 --> 00:47:48,862

And GDP, I said, it's going to be strong.

981

00:47:48,862 --> 00:47:50,522

It's been gag busters the whole time.

982

00:47:50,762 --> 00:47:51,622

Three ish percent.

983

00:47:51,952 --> 00:47:53,892

Everybody was forecasting

flat to negative.

984

00:47:53,892 --> 00:47:57,502

You look at the old Fed forecast,

they're all forecasting a zero

985

00:47:57,502 --> 00:47:59,212

propensity to spend interest.

986

00:47:59,722 --> 00:48:02,902

That has to be in their model

because it's the same new Keynesian

987

00:48:02,912 --> 00:48:07,202

model only with that, for that, You

know, assumption, would they not

988

00:48:07,202 --> 00:48:08,732

be forecasting a strong economy?

989

00:48:09,412 --> 00:48:13,462

They had a normal type of pension spend

interest income as they had for other

990

00:48:13,462 --> 00:48:18,062

kinds of spending, they would have

shown runaway GDP and, and all that.

991

00:48:18,612 --> 00:48:22,372

And inflation came down because

oil came down or inflation

992

00:48:22,372 --> 00:48:24,072

indicators came down, oil came down.

993

00:48:24,617 --> 00:48:29,387

The supply shocks the way, but if

you notice it's leveled off, core

994

00:48:29,387 --> 00:48:32,927

inflation has started going sideways,

started creeping up, approaching the

995

00:48:32,927 --> 00:48:34,587

fed funds rate, which has come down.

996

00:48:34,587 --> 00:48:37,780

So the target's a little bit low

instead of five and a quarter is

997

00:48:37,780 --> 00:48:39,070

four and a half or wherever it is.

998

00:48:39,670 --> 00:48:42,810

And if they bring it down, then it'll

level off there, you know, I think,

999

00:48:43,080 --> 00:48:44,340

but, and that's not day to day.

1000

00:48:44,340 --> 00:48:47,327

That's, you know, year to year or

whatever, that's, that's longer term.

1001

00:48:48,027 --> 00:48:48,407

And there's a

1002

00:48:48,407 --> 00:48:49,977

lot of, uh, yeah, go

1003

00:48:50,092 --> 00:48:54,042

Adam Butler: you've taken pains to, to

distinguish between, inflation indicators

1004

00:48:54,112 --> 00:48:56,252

and an inflation or an inflation

1005

00:48:56,357 --> 00:48:56,797

Warren Mosler: Yeah.

1006

00:48:56,797 --> 00:48:57,087

Yeah.

1007

00:48:57,267 --> 00:48:57,627

Yeah.

1008

00:48:57,797 --> 00:49:01,525

Adam Butler: can you measure

inflation in a way that's not

1009

00:49:01,835 --> 00:49:03,035

using an inflation indicator?

1010

00:49:03,300 --> 00:49:06,340

Warren Mosler: Well, I

can, but nobody's using it.

1011

00:49:06,350 --> 00:49:10,500

So it's kind of a waste of

time, you know, what's the

1012

00:49:10,630 --> 00:49:10,910

point?

1013

00:49:11,590 --> 00:49:12,780

I look at, right.

1014

00:49:13,180 --> 00:49:16,190

So I, I try and define it in a way.

1015

00:49:16,720 --> 00:49:21,250

So it all fits into the same, you

know, theory or explanation or model.

1016

00:49:21,300 --> 00:49:22,780

So it all fits the same model.

1017

00:49:23,380 --> 00:49:27,553

So I see, you know, the government has

the dollars that we need to pay taxes.

1018

00:49:27,553 --> 00:49:31,658

So it's price centered, just like

monopoly, you know, economics, Micro

1019

00:49:31,658 --> 00:49:33,288

one on one tells you how Monopoly works.

1020

00:49:33,288 --> 00:49:34,108

That's very simple.

1021

00:49:34,338 --> 00:49:37,058

And everything I see substantiates that.

1022

00:49:37,098 --> 00:49:40,248

It all works through an institutional

structure, which clouds it and

1023

00:49:40,248 --> 00:49:41,398

everything, but it's still there.

1024

00:49:41,598 --> 00:49:44,698

You can still see it happening and

it's still a consistent explanation.

1025

00:49:45,408 --> 00:49:49,518

And as we see the price level changing,

I see this as a series of one time

1026

00:49:49,518 --> 00:49:54,708

changes and okay, they can call that

inflation and I have to go use the

1027

00:49:54,718 --> 00:49:58,198

words or else nobody's gonna know

what I'm talking about, but, I can't

1028

00:49:58,208 --> 00:50:01,583

every time I say, oh, well, the

series of one time adjustments has now

1029

00:50:01,713 --> 00:50:04,163

compounded to like equivalent of a 3.

1030

00:50:04,253 --> 00:50:05,583

5 percent annual rate or something.

1031

00:50:05,933 --> 00:50:08,173

Yeah, I just say, okay, the

inflation indicators are going

1032

00:50:08,173 --> 00:50:09,933

up at three and a half to uh,

1033

00:50:10,543 --> 00:50:13,733

Adam Butler: So will the inflation

indicators eventually converge

1034

00:50:13,733 --> 00:50:17,973

on the actual rate of inflation,

or are they destined to forever

1035

00:50:18,523 --> 00:50:21,673

Warren Mosler: so I, now I, okay,

so to answer your question, I have

1036

00:50:21,673 --> 00:50:25,098

to decide, well, what Academically

is the rate of inflation.

1037

00:50:25,098 --> 00:50:25,788

Where did it come from?

1038

00:50:26,898 --> 00:50:29,738

So academically it's a continuous

increase in the price level.

1039

00:50:30,348 --> 00:50:35,088

So under fixed exchange rates, that would

be a continuous increase in the gold

1040

00:50:35,148 --> 00:50:40,408

supply, the reserves, because that's how

you measure the inflation as a chain.

1041

00:50:40,428 --> 00:50:43,778

The price level is measured

by your gold reserves.

1042

00:50:43,808 --> 00:50:46,958

And if you double the gold reserves,

like San Francisco gold strike,

1043

00:50:47,738 --> 00:50:53,435

government monetizes it, buys the gold,

spends it, prices, Go up, you have an

1044

00:50:53,435 --> 00:50:55,855

inflation, you have the value of gold.

1045

00:50:56,365 --> 00:51:00,975

The relative value of gold is fixed

at 35, whatever it was back then.

1046

00:51:01,075 --> 00:51:04,945

It's decreasing now to the value of

everything else because of the new supply.

1047

00:51:05,275 --> 00:51:08,425

Straight supply demand, quantity theory.

1048

00:51:08,435 --> 00:51:11,325

It fits, there's nothing wrong with

quantity theory on a gold standard.

1049

00:51:11,365 --> 00:51:13,135

It actually fits very nicely.

1050

00:51:13,575 --> 00:51:16,430

The reason everybody's proves

that it's wrong because we're

1051

00:51:16,430 --> 00:51:17,430

on a floating exchange rate.

1052

00:51:17,430 --> 00:51:19,330

Well, it's the wrong context.

1053

00:51:19,450 --> 00:51:20,100

Of course it's wrong.

1054

00:51:20,630 --> 00:51:22,610

It's got nothing that is

not supposed to be right.

1055

00:51:23,180 --> 00:51:24,790

But it is right with fixed exchange rates.

1056

00:51:24,800 --> 00:51:30,217

So inflation would have been a

continuous depreciation of currency,

1057

00:51:30,217 --> 00:51:32,117

which would be continuous new gold.

1058

00:51:32,708 --> 00:51:38,078

Supply coming online or a devaluation

where you devalue gold continuously.

1059

00:51:38,098 --> 00:51:41,608

So you get a change in relative value,

either nominally or in real terms.

1060

00:51:41,958 --> 00:51:43,988

And that would have been

inflation under the gold standard.

1061

00:51:44,828 --> 00:51:46,938

So what is it under

floating exchange rates?

1062

00:51:46,978 --> 00:51:51,208

Well, you know, what we

have in the gold standard.

1063

00:51:51,883 --> 00:51:54,483

Is an interest rate set by market forces.

1064

00:51:55,343 --> 00:51:58,833

And it's generally a positive curve

because there's risk in holding gold.

1065

00:51:59,583 --> 00:52:04,217

And, uh, the indifference levels of

people holding paper versus gold, you

1066

00:52:04,217 --> 00:52:06,657

know, they want to get an interest rate

or they just as soon hold the gold.

1067

00:52:06,927 --> 00:52:08,237

Cause that's a risk free asset.

1068

00:52:08,557 --> 00:52:10,357

That's the top of the pyramid.

1069

00:52:10,757 --> 00:52:14,827

There's no pyramid for floating exchange

rates, except government and other credit.

1070

00:52:14,827 --> 00:52:18,977

But with gold, the pyramid is how

far away are you from the gold?

1071

00:52:19,450 --> 00:52:20,880

You got the gold in your pocket.

1072

00:52:21,400 --> 00:52:22,670

You got the gold in a bank vault.

1073

00:52:22,710 --> 00:52:24,900

You got the gold certificate

from the government.

1074

00:52:24,900 --> 00:52:25,920

You're getting further away.

1075

00:52:26,260 --> 00:52:27,470

You hold a third of your bond.

1076

00:52:27,480 --> 00:52:29,440

Now you're getting pretty far

away from the gold, right?

1077

00:52:30,030 --> 00:52:33,677

And so you get this positive

yield curve and that interest

1078

00:52:33,677 --> 00:52:39,837

rate implies a continuous rate of

change of the price level because

1079

00:52:39,837 --> 00:52:41,667

it's the price of gold going up.

1080

00:52:41,667 --> 00:52:44,427

You look at the forwards, they're

going to be going higher, right?

1081

00:52:45,217 --> 00:52:46,077

Or lower, right?

1082

00:52:46,557 --> 00:52:48,817

Discount, you know,

depending on what it is.

1083

00:52:49,257 --> 00:52:53,043

Okay, so whatever gold is,

that's the price level.

1084

00:52:53,053 --> 00:52:56,463

So if you look at the forward

prices, that's the price level.

1085

00:52:57,063 --> 00:53:01,977

And so to translate the language to

floating exchange rate, what is inflation?

1086

00:53:02,447 --> 00:53:04,217

It's a continuous change

in the price level.

1087

00:53:04,217 --> 00:53:07,457

So when I look at the price level

with floating exchange rate, it's

1088

00:53:07,637 --> 00:53:08,807

different from the gold standard.

1089

00:53:08,897 --> 00:53:13,040

So for example, when we had that

gold strike, we fix the price of gold

1090

00:53:13,040 --> 00:53:14,960

at three, $5, all the prices go up.

1091

00:53:15,230 --> 00:53:16,010

That's inflation.

1092

00:53:16,550 --> 00:53:16,820

Today.

1093

00:53:16,825 --> 00:53:19,040

If we have gold strike and

the price of gold goes down.

1094

00:53:19,765 --> 00:53:21,305

That's deflation because

we're not fixing it.

1095

00:53:21,685 --> 00:53:25,005

So the exact same event, exact

same shift in relative values,

1096

00:53:25,285 --> 00:53:26,735

one's inflation, one's deflation.

1097

00:53:27,505 --> 00:53:28,735

So the different contexts.

1098

00:53:29,385 --> 00:53:33,028

So we've got to kind of, to be able

to use the same words and have it mean

1099

00:53:33,028 --> 00:53:34,108

something, we've got to turn it around.

1100

00:53:34,568 --> 00:53:37,508

So inflation is a continuous

change in price level.

1101

00:53:37,708 --> 00:53:38,698

I see that as.

1102

00:53:39,092 --> 00:53:39,902

Forward pricing.

1103

00:53:40,618 --> 00:53:46,272

So if you look at spot gold at, what

is it, 2, 600, and forward gold, and

1104

00:53:46,272 --> 00:53:50,722

you have a zero rate policy like Japan

and Yen, forward gold would be 2,

1105

00:53:50,722 --> 00:53:55,558

600, translate to Yen, whatever that

is, and the Yen, of course, forward

1106

00:53:55,558 --> 00:53:58,308

would be different from the dollar,

but that's, that's how it's equated.

1107

00:53:58,308 --> 00:53:59,498

That's how those three points meet.

1108

00:53:59,788 --> 00:54:02,563

But in the end gold prices

are flat, whatever they are.

1109

00:54:02,563 --> 00:54:07,413

I guess it's, it would be, uh, 26,

260, 000 or something times 100, 2.

1110

00:54:08,403 --> 00:54:09,833

6 million or something like that.

1111

00:54:10,413 --> 00:54:11,673

So, but it's flat all the way up.

1112

00:54:12,923 --> 00:54:13,483

Okay.

1113

00:54:13,943 --> 00:54:14,623

And in the U.

1114

00:54:14,623 --> 00:54:14,943

S.

1115

00:54:15,013 --> 00:54:18,043

gold prices are, because we have

rates of four or five percent,

1116

00:54:18,043 --> 00:54:22,383

they're going continuously higher

forward at a four or five percent

1117

00:54:22,403 --> 00:54:23,713

rate, something like that, roughly.

1118

00:54:24,463 --> 00:54:24,633

Adam Butler: So,

1119

00:54:24,713 --> 00:54:26,753

Warren Mosler: they're

functioning at the interest rate.

1120

00:54:26,763 --> 00:54:30,593

Adam Butler: a, is gold funded at a

substantially different rate forward

1121

00:54:30,603 --> 00:54:32,593

than other assets are priced forward?

1122

00:54:32,728 --> 00:54:36,458

Warren Mosler: Well, it might be, but

there's a risk on a risk adjusted basis.

1123

00:54:36,488 --> 00:54:37,178

They're all the same.

1124

00:54:37,518 --> 00:54:40,018

They're all discounted by the risk

free rate, which is the treasury rate.

1125

00:54:40,510 --> 00:54:40,890

Adam Butler: Right.

1126

00:54:40,965 --> 00:54:41,175

Warren Mosler: Okay.

1127

00:54:41,175 --> 00:54:46,055

So, so the funding rate is, is let's

say the sulfur curve, the Euro dollars

1128

00:54:46,825 --> 00:54:50,265

treasury, they're all pretty close,

plus or minus a risk adjustment.

1129

00:54:51,035 --> 00:54:51,935

You know, for, okay.

1130

00:54:52,035 --> 00:54:52,405

Okay.

1131

00:54:52,405 --> 00:54:53,990

And so our storage costs.

1132

00:54:54,520 --> 00:54:56,230

You know, if they're high

storage costs of changes.

1133

00:54:56,240 --> 00:55:00,660

So assuming no storage costs and no

risk adjustment and the yield curve.

1134

00:55:00,690 --> 00:55:05,460

So, and what that rate is, is the

price of what you would have to pay

1135

00:55:05,480 --> 00:55:09,730

for gold right now, as an agent,

you know, what today's agents have

1136

00:55:09,730 --> 00:55:11,340

to pay to buy for forward delivery.

1137

00:55:12,070 --> 00:55:14,670

So if you want to buy gold a year

from now, you have to pay a 5%.

1138

00:55:15,727 --> 00:55:19,940

And it's fair value because the seller

of gold wants a 5 percent premium.

1139

00:55:20,040 --> 00:55:22,940

Otherwise he can get the price today

and put in the bank at 5%, right?

1140

00:55:22,940 --> 00:55:24,390

So four and a half percent.

1141

00:55:24,900 --> 00:55:28,030

So it's indifference levels

are 5 percent higher.

1142

00:55:28,030 --> 00:55:31,930

So the, the term, I call that

the term structure of prices.

1143

00:55:32,773 --> 00:55:33,303

Okay.

1144

00:55:33,383 --> 00:55:37,363

And the term structure of prices are

the prices faced by today's agents.

1145

00:55:37,364 --> 00:55:40,293

It was today's flat yield

curve, 10 years at 460.

1146

00:55:40,893 --> 00:55:45,618

You could say that the term structure

of prices appreciates continuously

1147

00:55:46,212 --> 00:55:47,832

compounded at 4.5

1148

00:55:47,832 --> 00:55:52,992

percent rate for 10 years.

1149

00:55:53,022 --> 00:55:57,622

So I would say the rate of inflation over

the next ten years, academically defined

1150

00:55:57,622 --> 00:55:58,722

as the term structure prices as 4.5

1151

00:55:58,722 --> 00:55:58,972

percent.

1152

00:55:59,082 --> 00:56:02,882

Now whether that means anything or not,

that doesn't mean the spot price of gold

1153

00:56:02,882 --> 00:56:06,412

is going to go up continuously or the

price of is going to go up continuously,

1154

00:56:06,922 --> 00:56:08,692

but it also doesn't mean that it's not.

1155

00:56:09,292 --> 00:56:10,942

So here's a question for you.

1156

00:56:10,992 --> 00:56:19,157

Do the Forward prices that are much higher

now, you know, what's 5 percent compounded

1157

00:56:19,177 --> 00:56:24,197

continuously for 10 years, 70 percent

higher or something, 80 percent higher.

1158

00:56:24,587 --> 00:56:27,647

Does that influence where the

price of spot price of gold is

1159

00:56:27,647 --> 00:56:28,677

going to be 10 years from now?

1160

00:56:28,907 --> 00:56:29,717

I think it does.

1161

00:56:30,727 --> 00:56:33,447

People decided to mine

gold, know their costs.

1162

00:56:33,497 --> 00:56:34,827

They know what they'll pay for people.

1163

00:56:35,337 --> 00:56:35,647

They.

1164

00:56:36,072 --> 00:56:39,172

Any kind of forward planning

is done based on those rates.

1165

00:56:39,948 --> 00:56:43,138

It probably does, but I don't have

the hundreds of millions of dollars

1166

00:56:43,138 --> 00:56:47,248

to hire PhDs like the Fed does to do

that correlation, but you think it

1167

00:56:47,258 --> 00:56:51,058

might be useful for them since every

time they change the rate, they're

1168

00:56:51,068 --> 00:56:52,868

changing the term structure of prices.

1169

00:56:53,258 --> 00:56:56,628

They are changing the academic

definition of inflation, you

1170

00:56:56,628 --> 00:56:57,978

know, directly one to one.

1171

00:56:58,713 --> 00:57:02,133

Adam Butler: So by, in play, by

implication as as long rates or

1172

00:57:02,133 --> 00:57:07,533

whatever, as rates rise as the term

structure steepens, then the, the

1173

00:57:07,533 --> 00:57:11,733

expectation would be that, that, that

is a, in general, maybe over the long

1174

00:57:11,733 --> 00:57:17,093

term on average, an indicator of the

price, expected price, appreciation

1175

00:57:17,093 --> 00:57:18,863

of the gold over that, over that time

1176

00:57:18,878 --> 00:57:20,768

Warren Mosler: say it's,

I'd say it's an influence.

1177

00:57:21,568 --> 00:57:25,288

I don't know how strong an influence

and look, central banks own 35

1178

00:57:25,328 --> 00:57:26,388

percent of the world's gold.

1179

00:57:26,668 --> 00:57:29,258

They decide to sell it as going down

no matter what the forward price is.

1180

00:57:30,193 --> 00:57:31,733

So things can change the relative value.

1181

00:57:32,143 --> 00:57:36,403

But, so when I see the inflation

indicators gravitating towards

1182

00:57:36,403 --> 00:57:40,393

the fed funds rate over a 50 year

period of time, you know, every,

1183

00:57:40,433 --> 00:57:41,813

there are plenty of resets in there.

1184

00:57:41,863 --> 00:57:45,733

Every time there's a reset because

of oil price shock or something,

1185

00:57:45,733 --> 00:57:46,863

it starts doing it again.

1186

00:57:47,343 --> 00:57:49,903

Every time there's a break,

it starts doing it again.

1187

00:57:50,517 --> 00:57:53,737

It makes me think, you know, there might

be something there that I don't have

1188

00:57:53,737 --> 00:57:56,475

the resources to, you to affirm or deny,

1189

00:57:57,030 --> 00:57:59,880

Adam Butler: but that's kind of

the best we can get to quantify

1190

00:58:00,605 --> 00:58:01,025

Warren Mosler: right now.

1191

00:58:01,025 --> 00:58:01,315

That's

1192

00:58:01,600 --> 00:58:02,860

Adam Butler: expected inflation rate.

1193

00:58:03,275 --> 00:58:04,245

Warren Mosler: yeah,

that's kind of the wind.

1194

00:58:04,800 --> 00:58:05,620

Adam Butler: currency regime.

1195

00:58:06,305 --> 00:58:08,765

Warren Mosler: that's kind of the

gentle wind blowing behind the boat,

1196

00:58:08,935 --> 00:58:11,435

you know, that you have to sail against.

1197

00:58:12,310 --> 00:58:14,210

You know, and I've noticed

that now part of it is because

1198

00:58:14,210 --> 00:58:15,380

it's all deficit spending.

1199

00:58:16,270 --> 00:58:19,020

So when you're deficit spending for

interest, if you, that's different

1200

00:58:19,310 --> 00:58:23,643

than if they raise taxes to pay for

it, we have balanced budget, then I

1201

00:58:23,643 --> 00:58:25,213

think everything's going to collapse.

1202

00:58:25,223 --> 00:58:28,713

But when you're just deficit spending

to pay interest, isn't that like

1203

00:58:28,713 --> 00:58:30,413

a stock dividend for an equity?

1204

00:58:31,253 --> 00:58:35,523

Or split, you know, a 5 percent stock

split or something or stock dividend.

1205

00:58:35,953 --> 00:58:37,853

What does that do to

the value of the stock?

1206

00:58:39,013 --> 00:58:40,203

Adam Butler: So, would you classify

1207

00:58:40,223 --> 00:58:41,463

Warren Mosler: natural demand for it.

1208

00:58:42,383 --> 00:58:45,143

Adam Butler: would you classify the

owners of treasury securities then,

1209

00:58:45,373 --> 00:58:49,373

to the extent that they own those

securities are agents of the government?

1210

00:58:50,073 --> 00:58:53,183

Warren Mosler: I haven't done that,

but I'd say that when they start

1211

00:58:53,183 --> 00:58:59,573

spending, yeah, I'd say P, S, The

interest they get is, yeah, I guess

1212

00:58:59,573 --> 00:59:02,713

you could, I guess it depends on what

the further purpose of the analysis is.

1213

00:59:03,073 --> 00:59:06,333

I don't know if I'd make the general

case because they're not doing anything.

1214

00:59:06,353 --> 00:59:08,683

You're just sitting there with

reserve balances at the Fed.

1215

00:59:09,193 --> 00:59:11,343

So they're not acting as

agent, doing anything.

1216

00:59:11,953 --> 00:59:14,973

When they bought them, all they did

was shift their duration of their

1217

00:59:15,323 --> 00:59:16,573

federal liabilities, so they didn't

1218

00:59:17,533 --> 00:59:20,233

Adam Butler: But to the extent the

private sector is receiving income

1219

00:59:20,233 --> 00:59:22,913

from these securities that could be

1220

00:59:23,143 --> 00:59:27,823

Warren Mosler: yeah, so they are agents

in that sense, as getting dollars

1221

00:59:27,823 --> 00:59:30,003

that the Fed didn't have to give them.

1222

00:59:30,063 --> 00:59:31,773

And they're not, they're

not selling anything.

1223

00:59:31,774 --> 00:59:31,793

Okay.

1224

00:59:32,493 --> 00:59:34,843

So yeah, to that extent,

they become agents,

1225

00:59:36,163 --> 00:59:37,013

And as agents,

1226

00:59:37,113 --> 00:59:39,623

Adam Butler: as what the Fed, or

sorry, what the government did

1227

00:59:39,623 --> 00:59:43,533

when it deposited funds directly

in everybody's, accounts during

1228

00:59:43,963 --> 00:59:44,853

Warren Mosler: Yeah, yeah.

1229

00:59:44,993 --> 00:59:45,613

So it's like 1.

1230

00:59:45,613 --> 00:59:47,403

2 trillion of stimulus checks.

1231

00:59:47,923 --> 00:59:51,543

And the interesting thing is they only pay

it to people who already have money and

1232

00:59:51,543 --> 00:59:52,893

it's proportionate to how much you have.

1233

00:59:53,493 --> 00:59:58,617

So what kind of a con, what kind of

Congress would actively vote to pay 1.

1234

00:59:58,617 --> 00:59:59,627

2 trillion to the government?

1235

01:00:01,177 --> 01:00:04,727

In money to people who already have

money in proportion that they are,

1236

01:00:05,167 --> 01:00:08,717

you know, how much they already

have in order to fight inflation.

1237

01:00:08,727 --> 01:00:12,807

I mean, what kind of an obscenely

regressive, idiotic policy is that?

1238

01:00:13,217 --> 01:00:17,367

Nobody who heard it that way and

recognized it could possibly vote on,

1239

01:00:17,367 --> 01:00:21,147

I don't think, unless they somehow

thought, I don't know, it just seems

1240

01:00:21,147 --> 01:00:25,207

so far fetched that anyone who was

properly presented with it would actually

1241

01:00:25,207 --> 01:00:27,207

do it, but that's what they're doing.

1242

01:00:27,817 --> 01:00:29,487

That's what they've been

doing for a long time.

1243

01:00:30,107 --> 01:00:32,567

So you asked me, are they aware

that that's what they were doing?

1244

01:00:33,142 --> 01:00:36,272

Doing this, it couldn't

be more regressive plan.

1245

01:00:36,272 --> 01:00:40,242

I mean, if Elon Musk and Donald

Trump have a plan to help the high

1246

01:00:40,242 --> 01:00:42,912

end, why do they want to race?

1247

01:00:43,907 --> 01:00:47,647

Adam Butler: Well, yeah, so I think

this gets, gets interestingly to one

1248

01:00:47,647 --> 01:00:48,837

of the hearts of the matter, right?

1249

01:00:48,837 --> 01:00:50,867

Which is that so you've got this 1.

1250

01:00:50,867 --> 01:00:51,207

2 trillion.

1251

01:00:51,597 --> 01:00:53,313

And, you've got this 1.

1252

01:00:53,313 --> 01:00:57,773

2 trillion a year going out to

asset owners, treasury owners.

1253

01:00:57,913 --> 01:01:04,128

And, um, you could, if you were to

reset rates or have a very different

1254

01:01:04,128 --> 01:01:07,778

structure to how the government

is funded, you could take that 1.

1255

01:01:07,778 --> 01:01:14,158

2 trillion dollars and use it to

invest in, you know, bridges, nurses,

1256

01:01:14,298 --> 01:01:15,548

Warren Mosler: yeah, well, yeah.

1257

01:01:15,548 --> 01:01:18,583

The first thing you can do, first

thing you can do is stop paying, right?

1258

01:01:19,073 --> 01:01:20,123

That alone would stop.

1259

01:01:20,123 --> 01:01:22,073

Stop the distribution aspect.

1260

01:01:22,713 --> 01:01:25,563

Now, if you did that, the budget

deficit would drop to, oh, not

1261

01:01:25,563 --> 01:01:28,913

the first day, but it would drop

to one or 2% of GDP, which would

1262

01:01:28,913 --> 01:01:31,253

probably cause a lot of slack, right?

1263

01:01:31,253 --> 01:01:32,573

Fiscal unemployment.

1264

01:01:32,723 --> 01:01:37,343

Now you could redeploy those resources

into something more useful, right?

1265

01:01:38,023 --> 01:01:40,693

And, uh, probably useful

by almost anybody's.

1266

01:01:41,387 --> 01:01:46,840

You know, estimation certainly come

up with a lot better ways to deploy 1.

1267

01:01:46,880 --> 01:01:47,460

2 trillion.

1268

01:01:47,460 --> 01:01:48,850

It's not that you need that money.

1269

01:01:49,630 --> 01:01:52,720

It's, you know, it's interesting when

people talk about money moving and

1270

01:01:52,720 --> 01:01:56,717

this money could do that, you know,

all it is, is debits and credits.

1271

01:01:56,717 --> 01:01:56,947

Right.

1272

01:01:57,327 --> 01:02:01,057

So it's, and in this information

age, it's just dots going on and off,

1273

01:02:01,717 --> 01:02:05,747

you know, on some computer screen or

on the, you know, pluses and zeros

1274

01:02:05,747 --> 01:02:09,037

and ones on a computer until we get

quantum, but it's still zeros and ones.

1275

01:02:09,857 --> 01:02:10,307

And.

1276

01:02:11,107 --> 01:02:14,427

If anybody looks at their TV screen and

they watch a football game, they see

1277

01:02:14,427 --> 01:02:18,267

people moving across the screen, but

there's nothing moving on that screen.

1278

01:02:18,277 --> 01:02:19,137

You get very close.

1279

01:02:19,147 --> 01:02:20,507

It's just dots going on and off.

1280

01:02:21,157 --> 01:02:22,267

It's got the appearance of motion.

1281

01:02:22,267 --> 01:02:24,397

Well, you know, dots don't move.

1282

01:02:24,697 --> 01:02:27,387

It's just accounts going

up and accounts going down.

1283

01:02:27,497 --> 01:02:30,827

And then, you know, you don't need

the energy from one dot to light

1284

01:02:30,827 --> 01:02:33,817

up the next dot, or else the person

can't move across the screen.

1285

01:02:34,327 --> 01:02:34,417

Adam Butler: Okay.

1286

01:02:35,107 --> 01:02:35,417

Bye guys.

1287

01:02:35,787 --> 01:02:37,227

Warren Mosler: That's a scorekeeper.

1288

01:02:37,227 --> 01:02:39,787

The scorekeeper doesn't need revenue

to be able to credit your account.

1289

01:02:40,627 --> 01:02:43,917

They just credit it and debit their

own account for accounting purposes.

1290

01:02:43,917 --> 01:02:46,087

Accounting is just,

after the record keeping.

1291

01:02:46,557 --> 01:02:47,217

They account for it.

1292

01:02:47,217 --> 01:02:50,057

They keep records of it by making

an entry, but it doesn't come

1293

01:02:50,057 --> 01:02:52,247

from the account they, they debit.

1294

01:02:52,287 --> 01:02:55,097

That's just the, when they credit

your account, that's just an entry.

1295

01:02:55,737 --> 01:02:56,767

So they know what they did.

1296

01:02:56,807 --> 01:02:58,687

It's a record of what

happened during the day.

1297

01:02:59,507 --> 01:03:02,427

And so if you look at it, the

government spends 7 trillion.

1298

01:03:02,837 --> 01:03:03,327

What does it do?

1299

01:03:03,327 --> 01:03:06,317

It credits reserve accounts of

all the commercial banks, mostly

1300

01:03:06,317 --> 01:03:07,787

on behalf of their clients.

1301

01:03:08,520 --> 01:03:10,750

then debits those accounts for 5 trillion.

1302

01:03:12,740 --> 01:03:15,210

Taxes get paid, mostly client accounts.

1303

01:03:15,970 --> 01:03:22,260

The remaining 2 trillion, by and large,

decide to shift those dollars, to, from

1304

01:03:22,260 --> 01:03:24,640

reserve accounts to securities accounts.

1305

01:03:25,420 --> 01:03:25,750

Okay.

1306

01:03:25,750 --> 01:03:28,070

And so the 2 trillion winds

up in treasury securities.

1307

01:03:28,970 --> 01:03:34,288

Now, formally, formally, formally,

36 trillion is either cash

1308

01:03:34,299 --> 01:03:36,099

reserves or treasury securities.

1309

01:03:36,579 --> 01:03:42,689

They're all Fed liabilities because the

Fed controls the composition between those

1310

01:03:42,699 --> 01:03:48,509

three places and they do it reactively

generally to what the economy needs.

1311

01:03:48,509 --> 01:03:50,919

That's what they call

offsetting operating factors.

1312

01:03:51,349 --> 01:03:55,249

So that, Their interest rate targets

are met with a zero rate target.

1313

01:03:55,279 --> 01:03:57,899

They just have to keep excess

reserves and supply cash on demand.

1314

01:03:58,649 --> 01:04:01,429

So simplest thing, you don't

need interbank trading.

1315

01:04:01,429 --> 01:04:02,779

You don't need anything else.

1316

01:04:03,529 --> 01:04:05,109

You don't need any treasury securities.

1317

01:04:05,129 --> 01:04:08,429

All those people trading treasuries

can go out and cure cancer,

1318

01:04:08,429 --> 01:04:09,649

do something useful, right?

1319

01:04:10,634 --> 01:04:13,874

And if you look at that real compliance

costs for all these policies, how

1320

01:04:13,874 --> 01:04:17,594

many people are doing things that are

functionally digging a hole and filling it

1321

01:04:17,594 --> 01:04:21,800

in for massive salaries too often, right?

1322

01:04:21,930 --> 01:04:24,029

Uh, and well earned because

it's a tough thing to do, but

1323

01:04:24,029 --> 01:04:25,090

it doesn't need to happen.

1324

01:04:25,740 --> 01:04:31,230

I think we're losing 25 percent to 30

percent of GDP in real compliance costs.

1325

01:04:31,260 --> 01:04:34,690

People's time that would

be spent otherwise.

1326

01:04:35,080 --> 01:04:39,050

And if you look at that time being spent

on, I'll just say public education,

1327

01:04:39,050 --> 01:04:41,334

public health and transportation.

1328

01:04:41,954 --> 01:04:43,804

Public transportation,

just for three things.

1329

01:04:44,470 --> 01:04:48,577

that enhances the standard of living

for the lowest income earners the most.

1330

01:04:49,407 --> 01:04:51,397

People at the top already

have those three things.

1331

01:04:51,507 --> 01:04:52,817

They're not going to get enhanced.

1332

01:04:53,567 --> 01:04:56,467

And so what you've done is increased

the real standard of living of

1333

01:04:56,814 --> 01:05:00,274

that group, which might, whatever

percent it is, by maybe 50%.

1334

01:05:00,361 --> 01:05:01,823

Adam Butler: of people say, We

1335

01:05:01,854 --> 01:05:05,204

Warren Mosler: So we're sitting at

potentially increase, a 50 percent

1336

01:05:05,244 --> 01:05:07,194

increase in the real standard of living of

1337

01:05:07,302 --> 01:05:08,033

Adam Butler: to have

1338

01:05:08,304 --> 01:05:12,500

Warren Mosler: the lowest 50 percent

of income earners just by not

1339

01:05:12,570 --> 01:05:14,270

squandering real compliance costs.

1340

01:05:15,010 --> 01:05:18,430

Without taking anything from anybody, you

know, just, people who've been digging

1341

01:05:18,430 --> 01:05:21,540

holes and filling it in are suddenly

doing something useful to somebody.

1342

01:05:22,570 --> 01:05:24,470

And, it's not going to happen.

1343

01:05:24,470 --> 01:05:25,260

It's getting worse.

1344

01:05:25,300 --> 01:05:26,029

It's not getting better.

1345

01:05:26,945 --> 01:05:29,595

Adam Butler: Well, and also you've got

a, you know, the reason why there's

1346

01:05:29,595 --> 01:05:34,765

regulations and compliance is because

some subset of actors are bad actors.

1347

01:05:34,925 --> 01:05:35,925

And, um,

1348

01:05:36,290 --> 01:05:36,670

Warren Mosler: Yeah.

1349

01:05:37,395 --> 01:05:38,545

Adam Butler: you know, if you,

1350

01:05:39,320 --> 01:05:39,540

Warren Mosler: Yeah.

1351

01:05:39,620 --> 01:05:42,910

Well, you need bank regulation,

but you don't need them to

1352

01:05:42,910 --> 01:05:44,310

lend against financial assets.

1353

01:05:45,100 --> 01:05:45,529

Okay.

1354

01:05:45,855 --> 01:05:49,765

Richard Laterman: But given the way the

system is structured today, this is the

1355

01:05:49,765 --> 01:05:53,705

part where I continue to struggle given

where we are today with the system.

1356

01:05:54,365 --> 01:06:01,195

Any, I mean, if we were to take on some

of the policy, suggestions that you're.

1357

01:06:02,410 --> 01:06:03,910

The system would collapse as it

1358

01:06:03,990 --> 01:06:04,430

Warren Mosler: Well, wait a minute.

1359

01:06:04,480 --> 01:06:05,620

Let's look at the zero rate policy.

1360

01:06:06,020 --> 01:06:07,310

We've already done that for 10 years.

1361

01:06:07,350 --> 01:06:08,080

Nothing left.

1362

01:06:09,070 --> 01:06:09,890

Then we backed off.

1363

01:06:10,540 --> 01:06:13,550

That was already changing the

income distribution numbers

1364

01:06:13,550 --> 01:06:14,490

and the Gini coefficient.

1365

01:06:14,740 --> 01:06:17,100

They're already starting to

change and moderate a little

1366

01:06:17,100 --> 01:06:18,260

bit with the zero rate policy.

1367

01:06:18,760 --> 01:06:20,910

Richard Laterman: Wait, but

zero rate policy created

1368

01:06:20,920 --> 01:06:23,460

more, income inequality, not

1369

01:06:23,520 --> 01:06:24,000

Warren Mosler: No, it didn't.

1370

01:06:24,130 --> 01:06:24,580

No, it didn't.

1371

01:06:25,600 --> 01:06:26,810

No, check the numbers.

1372

01:06:27,100 --> 01:06:29,660

I mean, it's a narrative

because asset prices went up.

1373

01:06:29,670 --> 01:06:30,360

But look at Japan.

1374

01:06:30,820 --> 01:06:33,029

They didn't have any asset price

problem with 30 years of it.

1375

01:06:33,350 --> 01:06:35,029

And so those went up for other reasons.

1376

01:06:35,630 --> 01:06:37,150

So to, to, so we did

1377

01:06:37,295 --> 01:06:40,912

Adam Butler: Yeah, that is the, um,

what do you think the difference is?

1378

01:06:41,277 --> 01:06:46,157

is between how things evolved

in, most Western democracies

1379

01:06:46,157 --> 01:06:47,727

and what happened in Japan.

1380

01:06:47,727 --> 01:06:52,607

Because I'm with Richard that, you

know, most of my investing life, I

1381

01:06:52,607 --> 01:06:58,277

have been either strongly or mostly

of the opinion that that very low

1382

01:06:58,277 --> 01:07:02,202

rates accelerate asset bubbles.

1383

01:07:02,372 --> 01:07:05,302

I mean, for real estate, it seemed

clear and the IMF just published

1384

01:07:05,302 --> 01:07:10,682

a very, I think, a strong case for

the elasticity response of, of real

1385

01:07:10,682 --> 01:07:12,452

estate prices to interest rates.

1386

01:07:12,572 --> 01:07:16,462

But I think it's less clear

in other, in other dimensions.

1387

01:07:16,462 --> 01:07:18,692

But why, why haven't we seen that?

1388

01:07:18,942 --> 01:07:19,942

Did we see that in Japan?

1389

01:07:19,952 --> 01:07:21,242

We haven't seen it here.

1390

01:07:21,997 --> 01:07:24,937

Warren Mosler: So about 25 years

ago, I was talking to a guy in

1391

01:07:24,937 --> 01:07:26,647

Australia, a real estate guy.

1392

01:07:26,677 --> 01:07:29,340

I, I had been down here in, it

must have been the late nineties.

1393

01:07:29,940 --> 01:07:30,960

I was there in 87.

1394

01:07:31,200 --> 01:07:33,510

Anyway, I said, how's

the real estate market?

1395

01:07:33,720 --> 01:07:36,940

He said, well, he said, it's,

it's pretty strong right now.

1396

01:07:36,940 --> 01:07:38,830

He said, mortgage rates are 17.5%,

1397

01:07:39,300 --> 01:07:41,670

but I think if they put 'em

up to 18, it's gonna collapse.

1398

01:07:42,090 --> 01:07:43,140

I said, okay, thanks.

1399

01:07:43,835 --> 01:07:45,815

My next call, I talked

to somebody in Japan.

1400

01:07:45,825 --> 01:07:46,535

How's the real estate market?

1401

01:07:47,525 --> 01:07:48,995

Well, it's still really slow.

1402

01:07:48,995 --> 01:07:50,175

We're at three and a half percent.

1403

01:07:50,185 --> 01:07:52,935

I think if we take it down

three, it's going to get cold.

1404

01:07:52,995 --> 01:07:57,265

You know, look, we had a stronger

housing market in the late seventies

1405

01:07:57,265 --> 01:08:01,635

with 15 percent mortgage rates than we've

had here, even with three and a half.

1406

01:08:02,325 --> 01:08:05,215

You know, if you look at it,

particularly per capita, I started off

1407

01:08:05,245 --> 01:08:07,865

in, 1973, I was at the Savings Act.

1408

01:08:08,335 --> 01:08:09,235

We'd had 2.

1409

01:08:09,845 --> 01:08:12,895

6 million housing starts

with 8 percent mortgage rates

1410

01:08:13,075 --> 01:08:14,395

and only 200 million people.

1411

01:08:15,325 --> 01:08:20,515

Okay, so that's almost double the

population today, 340, and 2 million is

1412

01:08:20,515 --> 01:08:23,205

an unsustainable bubble with lower rates.

1413

01:08:23,665 --> 01:08:27,645

You know, it's not, yes, the rates

have some effect in the short term

1414

01:08:27,645 --> 01:08:31,665

at the margin, but fundamentally, I

don't think that's driving things.

1415

01:08:32,010 --> 01:08:33,740

Yeah.

1416

01:08:33,920 --> 01:08:37,090

Richard Laterman: But how do you

think about the, the price of

1417

01:08:37,090 --> 01:08:40,690

real estate versus medium income,

which makes real estate completely

1418

01:08:40,729 --> 01:08:42,930

unaffordable to the average, citizen?

1419

01:08:43,250 --> 01:08:44,250

How do you square that?

1420

01:08:45,460 --> 01:08:45,729

Warren Mosler: Okay.

1421

01:08:45,740 --> 01:08:48,040

So we had this question you were

going to ask me that you never did

1422

01:08:48,720 --> 01:08:50,740

about that started in the 1980s.

1423

01:08:50,819 --> 01:08:51,440

How, how did that happen?

1424

01:08:52,325 --> 01:08:52,694

Adam Butler: yeah.

1425

01:08:52,890 --> 01:08:56,340

Warren Mosler: So what there's an old

principle of mainstream economics,

1426

01:08:56,340 --> 01:08:59,859

just like the new Keynesians have it

in their model that rate increases

1427

01:08:59,859 --> 01:09:01,020

are going to cause inflation.

1428

01:09:01,300 --> 01:09:03,899

Now, when I asked Paul about that

a couple of years ago, I said, it

1429

01:09:04,809 --> 01:09:08,750

doesn't look like it's causing, he

said, he goes, well, I never said that.

1430

01:09:08,760 --> 01:09:09,990

No, I think rates are still going to.

1431

01:09:11,115 --> 01:09:12,684

You know, it's still going

to slow the economy down.

1432

01:09:12,995 --> 01:09:14,555

He still was forecasting a collapse.

1433

01:09:15,055 --> 01:09:17,412

Anyway, we have game theory, right?

1434

01:09:18,091 --> 01:09:21,162

So if you look at the labor

market, it's a disparity of power.

1435

01:09:21,892 --> 01:09:23,381

People have to work to eat.

1436

01:09:24,051 --> 01:09:25,662

Which they have to work

or they're in trouble.

1437

01:09:25,812 --> 01:09:28,992

Even if you're the last guy to be hired,

the fact that everybody else has a job

1438

01:09:28,992 --> 01:09:30,272

doesn't help you if you don't get one.

1439

01:09:30,812 --> 01:09:33,532

So you're not in a better bargaining

position because everybody else has a

1440

01:09:33,532 --> 01:09:35,612

job as an individual, the micro level.

1441

01:09:36,301 --> 01:09:36,591

Yeah.

1442

01:09:36,631 --> 01:09:39,922

Business only hires if they feel like

it that day, they decide to wait a week.

1443

01:09:39,922 --> 01:09:41,892

They wait, you know, nothing

bad's going to happen.

1444

01:09:42,152 --> 01:09:43,511

They have to like the return on equity.

1445

01:09:44,836 --> 01:09:47,107

So, and I'm not saying they don't

have times where they have to

1446

01:09:47,107 --> 01:09:50,367

hire people, but overall, it's

a massive disparity of power.

1447

01:09:50,367 --> 01:09:55,247

So elementary game theory will tell you

that real wages will stagnate at some kind

1448

01:09:55,247 --> 01:10:00,020

of subsistence level, which, you know,

vary from society and we have others.

1449

01:10:00,410 --> 01:10:03,940

Support unless there's some kind

of support for labor and up until

1450

01:10:03,940 --> 01:10:07,880

the early 80s, we had support

through labor unions, which were,

1451

01:10:08,547 --> 01:10:10,057

you know, pretty ugly way to do it.

1452

01:10:10,277 --> 01:10:15,157

I think, I mean, you have to support

it and a large group of people is

1453

01:10:15,157 --> 01:10:16,687

better off, but it's very uneven.

1454

01:10:16,697 --> 01:10:21,557

And for whatever reason, the corruption

of labor unions is staggering.

1455

01:10:21,847 --> 01:10:24,762

I don't know why that happens, but

there's something else in this.

1456

01:10:24,772 --> 01:10:27,322

It doesn't have to be that way, but it is.

1457

01:10:27,352 --> 01:10:29,892

And so I'm not against

labor unions per se, but I'm

1458

01:10:29,892 --> 01:10:31,982

certainly against what happened.

1459

01:10:32,502 --> 01:10:32,612

Adam Butler: the

1460

01:10:32,812 --> 01:10:36,232

Warren Mosler: You know, yeah,

that was there and that may

1461

01:10:36,232 --> 01:10:36,862

or may not still be there.

1462

01:10:36,872 --> 01:10:39,212

So anyway, so I don't, I don't want

to get off in that argument, but.

1463

01:10:39,732 --> 01:10:44,902

After the 80s, it all fell apart with

competition, international competition,

1464

01:10:44,902 --> 01:10:52,992

Reagan breaking the uh, and everything

else, but it was uh, largely, we had

1465

01:10:53,242 --> 01:10:56,112

all got to believe everything, you

know, the automakers would get together.

1466

01:10:56,652 --> 01:11:01,062

The unions would strike one,

they'd agree on something to give

1467

01:11:01,062 --> 01:11:02,732

raises in line with productivity.

1468

01:11:03,062 --> 01:11:05,242

And the others would fall into

line and just raise prices.

1469

01:11:05,882 --> 01:11:07,722

That was the path of least

resistance for business.

1470

01:11:07,722 --> 01:11:10,392

And business always follows

the path of least resistance.

1471

01:11:10,562 --> 01:11:11,192

They want to make money.

1472

01:11:11,202 --> 01:11:12,617

That's pretty clear.

1473

01:11:13,157 --> 01:11:15,847

And that went away with

foreign competition.

1474

01:11:15,857 --> 01:11:19,037

So the only reason labor had power

was because business had power.

1475

01:11:19,057 --> 01:11:22,017

Without big, business doesn't

have any pricing power.

1476

01:11:22,017 --> 01:11:22,987

Labor doesn't have any power.

1477

01:11:22,987 --> 01:11:25,087

They can just, they'll

just shut the firms down.

1478

01:11:25,087 --> 01:11:28,077

There's nothing the firm can do about

it and they lose their leverage.

1479

01:11:28,537 --> 01:11:29,327

And that went away.

1480

01:11:29,847 --> 01:11:33,577

And predictably, those lines

diverge where the productivity

1481

01:11:33,797 --> 01:11:35,387

line and earnings line diverge.

1482

01:11:35,397 --> 01:11:39,647

Now, part of that is that line, I

don't think includes benefits, or

1483

01:11:39,827 --> 01:11:42,517

so you got to double check to make

sure that benefits are in there.

1484

01:11:42,517 --> 01:11:45,864

But even with that, it is, if you

look at the real standard of living,

1485

01:11:45,904 --> 01:11:50,344

what's happened is, you know, one wage

earner, the husband typically could

1486

01:11:50,344 --> 01:11:55,345

earn enough at a medium factory job

or at a, you know, Supermarket job to

1487

01:11:55,345 --> 01:11:58,675

support the wife and have two cars and

the television set and the kids went

1488

01:11:58,675 --> 01:12:03,265

to school and they were dressed nice

and had plenty to eat, went to college.

1489

01:12:03,845 --> 01:12:08,684

And today, husband and wife

working is struggling with that.

1490

01:12:09,025 --> 01:12:13,492

And, and, you know, at least

on the surface is, you know,

1491

01:12:13,492 --> 01:12:14,362

in some ways, worse off.

1492

01:12:15,427 --> 01:12:18,867

And so you could call it a 50 percent

decrease in the standard of living.

1493

01:12:18,887 --> 01:12:20,737

Two people have to do

the job instead of one.

1494

01:12:21,227 --> 01:12:23,157

And the anxiety level now is much higher.

1495

01:12:23,937 --> 01:12:27,067

And so our prescription

drugs are a lot higher.

1496

01:12:27,877 --> 01:12:30,697

And, you know, everything

else that goes with that.

1497

01:12:30,767 --> 01:12:33,290

And, if you look at all the

miracles of the Internet.

1498

01:12:33,640 --> 01:12:37,010

What it's doing and companies

like Google and Facebook, they

1499

01:12:37,010 --> 01:12:38,280

just replaced Madison Avenue.

1500

01:12:38,280 --> 01:12:40,610

It's all just the

advertising agency thing.

1501

01:12:41,400 --> 01:12:44,760

That's the real strength of that, which

is, you know, what it is, what it is.

1502

01:12:45,309 --> 01:12:48,170

We're spending enormous amounts

of energy on advertising.

1503

01:12:48,170 --> 01:12:51,370

If you look at how much it's all

consuming and all the data centers and

1504

01:12:51,370 --> 01:12:54,070

all the AI, what's it, what's it all for?

1505

01:12:54,070 --> 01:12:56,000

Why are they doing this

to sell advertising?

1506

01:12:57,005 --> 01:12:57,195

Adam Butler: Mm

1507

01:12:57,240 --> 01:12:59,300

Warren Mosler: Which is, you know,

what's making the system run.

1508

01:12:59,970 --> 01:13:00,930

It's really interesting.

1509

01:13:01,700 --> 01:13:05,180

If you banned internet advertising,

you know, all of a sudden

1510

01:13:05,180 --> 01:13:07,920

our energy consumption and

everything else goes way down.

1511

01:13:07,940 --> 01:13:12,290

We've met all our goals for the next

hundred years on emissions control.

1512

01:13:13,410 --> 01:13:14,510

And what have we lost?

1513

01:13:14,630 --> 01:13:16,309

All these people trying to sell us things.

1514

01:13:17,210 --> 01:13:19,870

Adam Butler: So I want to, I want

to pull on one of the threads

1515

01:13:20,180 --> 01:13:20,950

Warren Mosler: Back to the wages.

1516

01:13:20,960 --> 01:13:24,460

So that comes from what you're

talking about, what you're seeing.

1517

01:13:24,925 --> 01:13:28,985

The people struggling, a lot of

it is from this disparity of power

1518

01:13:29,295 --> 01:13:30,945

where there's no longer any support.

1519

01:13:31,465 --> 01:13:33,895

We won't even, the minimum wage

is only seven and a half bucks.

1520

01:13:33,895 --> 01:13:35,745

We're not even like doing that.

1521

01:13:35,815 --> 01:13:38,845

At least that used to be sort of

a little bit of minimum support.

1522

01:13:38,845 --> 01:13:43,555

So if nobody recognizes that cause,

then nobody recognizes, recognizes

1523

01:13:43,625 --> 01:13:47,325

the need for minimum support,

as an institutional necessity.

1524

01:13:48,095 --> 01:13:49,245

And so it doesn't happen.

1525

01:13:50,000 --> 01:13:53,290

And labor gets crushed and our

disparities of income go up.

1526

01:13:53,580 --> 01:13:56,530

Minimum wage in Australia is,

I don't know, 20 or 30 an hour.

1527

01:13:57,514 --> 01:13:59,734

So other people do things

about this that we don't.

1528

01:14:00,695 --> 01:14:05,335

Adam Butler: But is the job

guarantee not a potential policy,

1529

01:14:05,375 --> 01:14:07,125

like labor supported policy?

1530

01:14:07,315 --> 01:14:09,265

And would that not shift

the power dynamics?

1531

01:14:10,330 --> 01:14:11,530

Warren Mosler: not a seven

and a half dollars an hour.

1532

01:14:11,870 --> 01:14:14,350

So the concept is that you have

to do it from the bottom up.

1533

01:14:14,934 --> 01:14:16,575

Because of this disparity in power.

1534

01:14:16,575 --> 01:14:20,375

Once you understand that, yes, now you can

introduce everything from the bottom up.

1535

01:14:20,375 --> 01:14:24,845

So now the job guarantee is 15 or 20 an

hour, because you want that to be the

1536

01:14:24,855 --> 01:14:29,565

minimum wage, everything will adjust,

and you're going to keep fiscal policy

1537

01:14:29,765 --> 01:14:31,855

tight enough so that there are people.

1538

01:14:32,300 --> 01:14:34,110

Looking for the job guarantee job.

1539

01:14:34,440 --> 01:14:37,750

If you don't suddenly have nobody

in the job guarantee and you've got

1540

01:14:37,750 --> 01:14:39,970

inflation going, okay, you failed.

1541

01:14:40,380 --> 01:14:43,559

But if you keep fiscal policy tight

enough, so they're one or 2 percent

1542

01:14:43,559 --> 01:14:47,330

of the people in the job guarantee,

it's turning over regularly and

1543

01:14:47,340 --> 01:14:48,500

you're introducing other benefits.

1544

01:14:48,880 --> 01:14:50,670

It comes with childcare, it

comes with healthcare, it

1545

01:14:50,970 --> 01:14:51,920

comes with whatever you want.

1546

01:14:52,180 --> 01:14:54,540

Now, everybody else has to

provide those to be competitive.

1547

01:14:55,059 --> 01:14:58,897

So you're using market forces

to introduce benefits from the

1548

01:14:58,897 --> 01:15:00,627

bottom up instead of the top down.

1549

01:15:01,367 --> 01:15:05,577

And so if you want that as public

policy, that's the way to do it.

1550

01:15:06,457 --> 01:15:09,537

Now, a lot of people, like I

started earlier, don't want

1551

01:15:09,547 --> 01:15:10,757

to see that as public policy.

1552

01:15:10,757 --> 01:15:14,997

They want to see somebody desperate so

that they will come to cut their lawn

1553

01:15:15,187 --> 01:15:17,547

for 20, you know, or beg for their money.

1554

01:15:17,577 --> 01:15:21,327

They want to see that happen and

they'll complain if it's not like that.

1555

01:15:21,877 --> 01:15:25,477

Oh, I remember when I could call up a

repairman and he was there in an hour.

1556

01:15:25,887 --> 01:15:26,757

Those were the good old days.

1557

01:15:26,757 --> 01:15:27,017

Yeah.

1558

01:15:27,727 --> 01:15:30,487

15 percent unemployment turned

into the oil crisis or something.

1559

01:15:30,487 --> 01:15:32,587

You had people showing up really quickly.

1560

01:15:33,177 --> 01:15:38,307

So it depends on how selfish the person

passing judgment on the economy is.

1561

01:15:39,507 --> 01:15:42,797

Richard Laterman: Now, do these policies

all apply to other, sovereign nations

1562

01:15:42,817 --> 01:15:46,807

that have control over their own currency,

putting the EU aside because they're a

1563

01:15:46,932 --> 01:15:47,372

Warren Mosler: Yes.

1564

01:15:47,372 --> 01:15:47,692

Yes.

1565

01:15:47,707 --> 01:15:48,097

Richard Laterman: union.

1566

01:15:48,467 --> 01:15:49,977

Do they apply, or is there

1567

01:15:50,272 --> 01:15:56,112

Warren Mosler: They apply, they

apply to the EMU, to the Eurozone

1568

01:15:56,112 --> 01:15:59,432

also, but at the level of the

ECB and the European Parliament.

1569

01:16:00,027 --> 01:16:00,997

They don't bounce checks.

1570

01:16:01,257 --> 01:16:05,097

European Parliament, ECB had their

trillion euro day, you know, when

1571

01:16:05,097 --> 01:16:07,847

they spent that money, look the

next day to see where it was.

1572

01:16:07,847 --> 01:16:08,917

And they couldn't even find it.

1573

01:16:08,917 --> 01:16:11,267

Accounting, they're just crediting

accounts, just like the Fed.

1574

01:16:12,007 --> 01:16:13,557

Richard Laterman: Well they

don't have a fiscal union.

1575

01:16:13,847 --> 01:16:15,097

They don't have a fiscal union, right?

1576

01:16:15,097 --> 01:16:18,437

So, so, so they have this Frankenstein

system where there's a monetary

1577

01:16:18,437 --> 01:16:19,647

union without a fiscal union.

1578

01:16:19,647 --> 01:16:19,797

And

1579

01:16:19,902 --> 01:16:20,722

Warren Mosler: Yes and no.

1580

01:16:21,592 --> 01:16:22,402

They have a rule.

1581

01:16:22,422 --> 01:16:24,922

They have this policy where we'll

do what it takes to prevent default,

1582

01:16:24,942 --> 01:16:28,962

which means they can run any debt to

GDP they want as long as the European

1583

01:16:28,962 --> 01:16:32,342

Central Bank approves it and allows

them to keep funding themselves.

1584

01:16:32,742 --> 01:16:33,812

So they sort of have it.

1585

01:16:34,182 --> 01:16:37,842

See, here the states have to run balanced

budgets because they're quote, you

1586

01:16:37,842 --> 01:16:39,302

know, presumed to be off on their own.

1587

01:16:39,302 --> 01:16:43,612

So the central government runs a 100

percent deficit, 120 deficit in Europe.

1588

01:16:44,067 --> 01:16:45,847

Central government doesn't

do it, so the states do it.

1589

01:16:45,857 --> 01:16:47,717

Somewhere in the public

sector, they have to do it.

1590

01:16:48,287 --> 01:16:50,147

Or else, oh, this is what I missed back.

1591

01:16:50,637 --> 01:16:53,997

You know, that's where the net

financial assets come from, okay?

1592

01:16:53,997 --> 01:16:58,027

The public debt, whether it's state

level, guaranteed by the ECB, or at

1593

01:16:58,027 --> 01:17:03,447

the federal level, here, is the equity

behind the entire credit structure.

1594

01:17:03,477 --> 01:17:07,817

That's the net financial assets of the

economy that are there to support credit.

1595

01:17:08,717 --> 01:17:13,057

And when that, and it's, it's in real

terms, you need so much of that in

1596

01:17:13,067 --> 01:17:17,127

real terms to support, you know, an

equity, just like Apple needs so many

1597

01:17:17,137 --> 01:17:19,217

dollars in real terms to have a cushion.

1598

01:17:19,767 --> 01:17:22,707

and if you don't sustain that,

then everything collapses.

1599

01:17:23,637 --> 01:17:28,407

So in 1979, where the inflation rate

was higher than the rate of deficit

1600

01:17:28,407 --> 01:17:32,947

spending, you had like 12 percent

inflation and 6 percent deficit spending,

1601

01:17:33,867 --> 01:17:37,367

the real public debt was collapsing

at 6 percent a year, which is crazy.

1602

01:17:38,057 --> 01:17:42,067

The equity behind that at the macro

level, the credit structure collapsed.

1603

01:17:42,137 --> 01:17:45,427

And we had the worst collapse we've had,

you know, one of the worst collapses

1604

01:17:45,427 --> 01:17:47,127

we've had in 08 was the same thing.

1605

01:17:47,927 --> 01:17:49,587

We had the deficit down to 1%.

1606

01:17:49,647 --> 01:17:51,852

We had inflation running at five or six.

1607

01:17:51,872 --> 01:17:54,582

And the real number might've

been the inflation indicators.

1608

01:17:54,902 --> 01:17:55,742

Well, I tripled, right?

1609

01:17:55,742 --> 01:17:58,162

It went up to 150, 160.

1610

01:17:58,322 --> 01:18:01,572

And so, we had a real total collapse

and the real public debt and

1611

01:18:01,572 --> 01:18:02,602

the whole thing just collapsed.

1612

01:18:02,602 --> 01:18:06,302

There was no equity, no sufficient equity

behind the credit structure to support it.

1613

01:18:06,672 --> 01:18:09,562

We had a big credit expansion

and it just collapsed.

1614

01:18:10,142 --> 01:18:14,722

Same thing in 2000, the

real debt deficit went down.

1615

01:18:15,182 --> 01:18:16,762

we had another oil pop back then.

1616

01:18:17,222 --> 01:18:19,872

And, you know, you have a

leveraged economy because of

1617

01:18:20,277 --> 01:18:22,067

housing, Y2K, and everything else.

1618

01:18:22,337 --> 01:18:25,957

Budget went into surplus, plus

the inflation, so that the real

1619

01:18:25,957 --> 01:18:27,447

public debt was collapsing.

1620

01:18:28,367 --> 01:18:29,597

And it's just everything caved in.

1621

01:18:30,037 --> 01:18:33,337

And every single time we've had a

cave in, it's been the consequence

1622

01:18:33,337 --> 01:18:35,037

of a collapse in real public debt.

1623

01:18:35,517 --> 01:18:38,137

Three years ago, with Fed's

tightening, everybody sees a collapse.

1624

01:18:38,137 --> 01:18:39,457

I go, what are you, what

are you talking about?

1625

01:18:39,457 --> 01:18:42,047

We got a 6 percent increase

in the real public debt.

1626

01:18:42,067 --> 01:18:44,597

Not well, it's 3 percent

real, 6 percent nominal.

1627

01:18:45,307 --> 01:18:50,117

I said, show me one time in history

where that's ever not led to strong

1628

01:18:50,117 --> 01:18:53,767

growth and nobody could come up with

one, but they still didn't look at it.

1629

01:18:53,877 --> 01:18:56,967

They thought this other thing, the

high rate hikes would be more powerful.

1630

01:18:58,117 --> 01:18:58,467

It wasn't.

1631

01:18:59,067 --> 01:18:59,987

They could have been right.

1632

01:18:59,997 --> 01:19:01,817

I mean, I didn't know

what was going to happen.

1633

01:19:01,817 --> 01:19:05,177

I'm just knowing, looking

at what I was looking at.

1634

01:19:05,997 --> 01:19:09,687

Adam Butler: Yeah, well, I know you said

that you've got a dinner to go to and

1635

01:19:09,916 --> 01:19:10,627

Warren Mosler: Oh, what time is it?

1636

01:19:10,707 --> 01:19:11,717

Oh, 5 30.

1637

01:19:11,727 --> 01:19:11,987

Adam Butler: 530

1638

01:19:12,377 --> 01:19:12,627

Warren Mosler: Thank you.

1639

01:19:12,757 --> 01:19:13,087

Thank you.

1640

01:19:13,087 --> 01:19:14,166

I was having too much fun here.

1641

01:19:14,797 --> 01:19:16,497

Adam Butler: yeah, me too.

1642

01:19:16,567 --> 01:19:19,837

and I, and I wanted to, to save time

to ask you if you have any sort of

1643

01:19:20,267 --> 01:19:25,817

investment, views or, you know, asset

allocation views or what have you, the

1644

01:19:25,817 --> 01:19:30,467

reality is you've given us a very detailed

framework and explained it very well over

1645

01:19:30,477 --> 01:19:32,067

the, over the course of the discussion.

1646

01:19:32,407 --> 01:19:35,927

Do you want to leave us with, with

anything, that might be non consensus?

1647

01:19:36,027 --> 01:19:36,047

Um,

1648

01:19:36,837 --> 01:19:42,031

Warren Mosler: it's not, not, this is

not a market play, but the tips now

1649

01:19:42,031 --> 01:19:43,877

at 30 years of two and a half percent.

1650

01:19:44,767 --> 01:19:49,107

Why is the government paying

two and a half percent over CPI?

1651

01:19:49,795 --> 01:19:51,525

When it sells bonds, what are you doing?

1652

01:19:52,135 --> 01:19:55,620

You know, if there is a spike in

ZPI, you're gonna have to pay it.

1653

01:19:56,380 --> 01:19:57,800

Which will increase deficit spending.

1654

01:19:57,800 --> 01:19:58,990

They won't raise tax to pay for it.

1655

01:19:58,990 --> 01:20:02,960

And if it's, and if it's large

enough, that'll create more problems.

1656

01:20:02,990 --> 01:20:04,790

You're going to have

Argentina on your hands.

1657

01:20:04,900 --> 01:20:08,580

It's like, that's how they all started

with this indexation nonsense and,

1658

01:20:09,070 --> 01:20:13,114

linking their Mexico, linking the peso,

you know, the test of bonos, linking

1659

01:20:13,114 --> 01:20:16,544

it to US dollar and Russian rubles,

you know, linking it to the US dollar.

1660

01:20:17,384 --> 01:20:20,934

Things, you know, you make promises

you can't keep and you get this, let's

1661

01:20:20,934 --> 01:20:24,234

call it hyperinflation, which is an

exaggeration, but you know, compounding

1662

01:20:24,234 --> 01:20:26,924

inflation, unvirtuous cycle on the upside.

1663

01:20:26,924 --> 01:20:32,523

And you can have a currency, an inflation

that people would call hyperinflation, 10,

1664

01:20:32,604 --> 01:20:37,514

15, 20 percent of the currency collapse

going down, you know, based on it.

1665

01:20:37,914 --> 01:20:38,924

So why are you doing this?

1666

01:20:38,924 --> 01:20:41,234

You don't, you're not doing it because

you've already spent the money.

1667

01:20:41,664 --> 01:20:45,454

It's just a reserve trade and the Fed

will say, well, you know, it gives us

1668

01:20:45,464 --> 01:20:46,824

information as to what the market's.

1669

01:20:47,824 --> 01:20:48,794

What do you need that information for?

1670

01:20:49,344 --> 01:20:50,174

It's like, this is nuts.

1671

01:20:50,534 --> 01:20:51,443

Sell a billion or something.

1672

01:20:51,464 --> 01:20:53,624

Don't sell, I think 10

percent of the public debt.

1673

01:20:54,034 --> 01:20:55,504

Approaching 10 percent is tips now.

1674

01:20:55,744 --> 01:20:56,294

It's growing.

1675

01:20:56,894 --> 01:20:57,264

Right?

1676

01:20:57,324 --> 01:21:01,804

So, and as an investor, not

knowing anything, to be able

1677

01:21:01,804 --> 01:21:03,154

to get a real return of 2.

1678

01:21:03,154 --> 01:21:05,604

5%, it's a chicken's way out.

1679

01:21:05,874 --> 01:21:07,384

You're not going to get

that in anything else.

1680

01:21:08,134 --> 01:21:12,784

You know, you look at the Argentine stock

market, it's gone up 77, 000%, but in

1681

01:21:12,854 --> 01:21:18,124

realtors, it's down 10, right, whatever,

down 5, you know, over the last 10 years.

1682

01:21:18,744 --> 01:21:24,414

So, yes, the stock market will go

up huge, nominally, if you get a big

1683

01:21:24,424 --> 01:21:26,814

boom, but it will go up in real terms.

1684

01:21:27,294 --> 01:21:27,954

I don't know.

1685

01:21:28,414 --> 01:21:29,504

Richard Laterman: Now

they have Javier Millet

1686

01:21:29,794 --> 01:21:29,894

Warren Mosler: it?

1687

01:21:30,504 --> 01:21:33,154

Richard Laterman: cutting deficit

and, and strengthening the

1688

01:21:33,154 --> 01:21:34,574

currency, lowering inflation.

1689

01:21:34,584 --> 01:21:35,784

The stock market is up.

1690

01:21:35,794 --> 01:21:37,044

I'm originally from Brazil.

1691

01:21:37,044 --> 01:21:38,443

So a lot of my

1692

01:21:38,499 --> 01:21:38,759

Warren Mosler: Yeah.

1693

01:21:39,484 --> 01:21:42,714

Richard Laterman: uh, around these

policies are underpinned by being a

1694

01:21:42,714 --> 01:21:46,494

child of the eighties, having lived

through what was called hyperinflation

1695

01:21:46,504 --> 01:21:47,904

back in Brazil, back in those days.

1696

01:21:48,179 --> 01:21:48,439

Warren Mosler: Yeah.

1697

01:21:48,479 --> 01:21:48,749

Yeah.

1698

01:21:49,344 --> 01:21:52,874

Richard Laterman: I, I am faced with, uh,

some cognitive dissonance of my own in,

1699

01:21:52,884 --> 01:21:56,854

in, in, in trying to embrace some of the

ideas that you're espousing here today.

1700

01:21:56,854 --> 01:21:58,684

But I, I appreciate you giving it a try.

1701

01:21:59,699 --> 01:21:59,949

Warren Mosler: Yeah.

1702

01:21:59,959 --> 01:22:04,075

So, um, I was in Argentina two years

ago, met with the central bank.

1703

01:22:04,075 --> 01:22:05,545

There was, I forget the

guy, there was a young guy.

1704

01:22:05,955 --> 01:22:07,085

There were only a couple of us there.

1705

01:22:07,085 --> 01:22:10,395

And I did a presentation on

the Peso, which is online.

1706

01:22:10,475 --> 01:22:11,625

You can have the link if you want.

1707

01:22:12,225 --> 01:22:18,512

And, uh, someone was saying, And

inflation was 30 or 35 and the

1708

01:22:18,512 --> 01:22:19,902

interest rate was 30 or something.

1709

01:22:20,642 --> 01:22:21,832

I'm sorry, it's the other way around.

1710

01:22:21,872 --> 01:22:25,312

Inflation was 30 or 35 and the

interest rate was 40 or whatever.

1711

01:22:26,002 --> 01:22:29,291

And the IMF was making them

keep the interest rate above the

1712

01:22:29,291 --> 01:22:30,662

inflation rate to have a real rate.

1713

01:22:31,352 --> 01:22:33,232

And I was saying, this

is causing inflation.

1714

01:22:33,232 --> 01:22:35,662

It was going up because

of that from lower levels.

1715

01:22:36,419 --> 01:22:39,689

And for the reasons we've talked

about over there, it's worse because

1716

01:22:39,689 --> 01:22:42,779

at 40 percent interest, which is

where they are now, by the way,

1717

01:22:42,779 --> 01:22:43,859

they've only come down to 40.

1718

01:22:43,889 --> 01:22:45,159

They haven't come down

to anything reasonable.

1719

01:22:46,189 --> 01:22:49,679

They're looking at 15 percent

of GDP in interest expense.

1720

01:22:50,318 --> 01:22:51,369

That's a pretty high number.

1721

01:22:51,989 --> 01:22:55,409

So anyway, I said, and he agreed,

but they had the IMF deal and there's

1722

01:22:55,409 --> 01:23:00,549

nothing he could do, and he quoted the

Sergeant Wallace thing from 1987, that's

1723

01:23:00,759 --> 01:23:04,029

pretty much the same thing, the new

Keynesian model, which is what Krugman

1724

01:23:04,029 --> 01:23:05,239

said when I talked to him way back.

1725

01:23:05,239 --> 01:23:08,119

So they, they agreed with this,

but they couldn't, didn't want to,

1726

01:23:08,259 --> 01:23:09,379

weren't in a position to do anything.

1727

01:23:10,129 --> 01:23:12,839

So since I left, you know,

inflation went to 40.

1728

01:23:13,479 --> 01:23:15,469

So they went to 50, inflation went to 50.

1729

01:23:15,469 --> 01:23:16,349

So they went to 60.

1730

01:23:16,629 --> 01:23:19,249

They went all the way up to

200 before the chainsaw hit.

1731

01:23:19,249 --> 01:23:19,499

Right.

1732

01:23:20,219 --> 01:23:20,679

Yeah.

1733

01:23:21,407 --> 01:23:24,897

Inflation didn't come down after they cut

rates, or if it's came down a little bit

1734

01:23:25,587 --> 01:23:27,697

and after they cut rates, it came down.

1735

01:23:27,697 --> 01:23:32,057

So this, they cut rates to 40 or 35

or 40, depending on what rate you look

1736

01:23:32,057 --> 01:23:33,857

at and inflation somewhere around 35.

1737

01:23:34,687 --> 01:23:36,916

I don't think they got much

lower than that unless they

1738

01:23:36,916 --> 01:23:38,117

keep covering the rates down.

1739

01:23:38,497 --> 01:23:41,317

Now that report and the whole meeting is.

1740

01:23:41,942 --> 01:23:44,622

Was on the desk of the central bank,

the head of it, and he understood it.

1741

01:23:45,092 --> 01:23:49,192

There's no pushback with him or his staff.

1742

01:23:49,192 --> 01:23:50,302

So they were, it was in front of him.

1743

01:23:50,382 --> 01:23:54,102

So maybe it did get through to

somebody who's not doing anything.

1744

01:23:55,142 --> 01:23:56,702

you know, now it doesn't have a job now.

1745

01:23:56,732 --> 01:23:58,282

Maybe it got through to

the people in power now.

1746

01:23:58,291 --> 01:24:01,492

Maybe somehow it got, you

know, it got passed along.

1747

01:24:01,541 --> 01:24:01,912

I don't know.

1748

01:24:02,672 --> 01:24:03,502

So I'll just.

1749

01:24:04,052 --> 01:24:04,791

Leave you with that.

1750

01:24:04,802 --> 01:24:08,932

So watch to see how much of that you

think is attributable to the interest

1751

01:24:08,932 --> 01:24:12,532

rate, how much of the cutting soup

kitchens, which is half a percent of

1752

01:24:12,882 --> 01:24:18,032

GDP or something, and how much is to

just making a 25 percent cut in the

1753

01:24:18,032 --> 01:24:21,822

deficit by cutting rates, the low hanging

fruit is cutting the interest rate,

1754

01:24:22,602 --> 01:24:26,482

whether they keep doing it or whether

the correlation holds up, I don't know.

1755

01:24:26,732 --> 01:24:28,612

But that I'd say, keep an eye on that.

1756

01:24:29,617 --> 01:24:30,117

Adam Butler: Awesome.

1757

01:24:30,397 --> 01:24:30,777

Wow.

1758

01:24:31,174 --> 01:24:31,564

All right.

1759

01:24:31,564 --> 01:24:33,154

Well, we'll let you get to your dinner.

1760

01:24:33,193 --> 01:24:34,174

Thank you very

1761

01:24:34,369 --> 01:24:35,638

Warren Mosler: Okay,

1762

01:24:35,734 --> 01:24:35,874

Richard Laterman: on,

1763

01:24:35,894 --> 01:24:36,454

Adam Butler: patience with us

1764

01:24:36,599 --> 01:24:40,109

Warren Mosler: and if you have any follow

up questions, just email or send them or

1765

01:24:40,109 --> 01:24:41,068

if you want to do it again, let me know.

1766

01:24:41,934 --> 01:24:42,534

Adam Butler: phenomenal.

1767

01:24:42,794 --> 01:24:43,414

Thank you very much.

1768

01:24:43,568 --> 01:24:43,979

Warren Mosler: Thanks guys.

1769

01:24:44,409 --> 01:24:44,969

See you.

1770

01:24:44,969 --> 01:24:45,279

I'm on my way.