The Fed's Interest Rate Increases

A year ago, interest rates were at zero. So the interest expense from the federal government was very low. The Fed didn't earn any more interest from the treasury. But if you'll get interest paid to the economy, the Fed had $8 trillion at one point and now it has $6 trillion. That's as if the treasury had that many treasury bills.

Play episode from 01:09:46

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Warren Mosler, founder of Valance Co., Inc. and author of “The 7 Deadly Innocent Frauds of Economic Policy,” is widely viewed as the intellectual godfather of Modern Monetary Theory (MMT), a framework for understanding money and debt which underscores a government’s ability to print money to pay for goods and services without relying necessarily on borrowing or taxation.

Mosler joins Forward Guidance to apply these ideas to today’s financial issues. He argues why a failure to raise the U.S. debt ceiling would be truly catastrophic, and he makes the case that the Fed’s rate hikes are actually contributing to inflation, rather than fighting it, because the government is printing more money in order to pay its debt. Filmed on May 30, 2023.

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Warren’s website: https://moslereconomics.com/

Warren’s book and other writings: https://moslereconomics.com/mandatory-readings/

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(00:00) Risk Of Government Unwind Would Be Catastrophic

(07:24) "Money Is Just A Series Of Dots Going On And Off In People's Bank Accounts"

(14:52) The Federal Reserve Prints Money

(19:07) The Government Spends First, Taxes and Borrows Second

(31:23) Permissionless

(32:01) Quantitative Easing Does Not Have An Actual Effect On The Economy

(33:17) High Interest Rates Mean More Deficit Spending

(48:29) Challenging The Narrative of Volcker As The Slayer Of Inflation Dragon

(54:00) Challenging The Wage Price Spiral

(01:01:13) Currency Itself Is A "Public Monopoly"

(01:04:04) We Are NOT In A Recession, Says Mosler