How Much Money Can We Print? - Warren Mosler, Modern Monetary Theory - DSPod #251
May 27, 2024
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Economist Warren Mosler talks about Modern Monetary Theory, debunking myths about deficit spending, inflation, and government finances. The podcast delves into the purpose of taxes, the Federal Reserve's role, and the concept of informed democracy. It challenges traditional economic beliefs, discussing economic forecasting, public debt, and deficit impacts. Mosler also explores the nuances of inflation fears, government interventions in banking, and global trade dynamics.
Fiscal crises stem from governments not spending enough money, requiring comfortable deficit spending to reverse recessions.
Interest rates impact deficit spending, leading to higher deficits that boost the economy despite traditional inflation concerns.
Proactive deficit spending during expansions challenges the misconception that deficits cause inflation, offering new views on sustainable growth.
Public debt functions as a financial asset supported by tax dynamics, intertwining taxes, spending, and financial stability.
Price levels adjust based on government payments, influencing currency value and inflation, highlighting the impact of government spending.
High public debt doesn't always lead to inflation; inflation is driven by continuous government spending rather than debt existence.
Deep dives
Exploring Modern Monetary Theory with Warren Mosler
Modern monetary theory delves into the origins of money and government spending, challenging traditional economic narratives. At the core lies the creation of money by the government to fund its operations and drive the economy. The theory argues that taxes do not fund government spending but rather play a role in regulating the value of money by creating demand for it. Mosler emphasizes that a lack of understanding of these principles by policymakers leads to misconceptions about money creation and distribution in the economy.
Impact of Interest Rates on Government Deficit Spending
Interest rates play a significant role in shaping government deficit spending. Increases in interest rates lead to higher deficits as the government pays more in interest on securities, ultimately injecting more money into the economy. The notion that raising interest rates reduces inflation by decreasing circulating money overlooks how such actions actually boost deficit spending. Mosler's analysis highlights how interest rate adjustments can influence the economy's financial dynamics, impacting growth and inflation levels.
Debunking Conventional Economic Narratives on Deficits and GDP
Traditional economic models often misinterpret the relationship between deficits, GDP, and inflation, leading to flawed policy decisions. Mosler challenges prevailing beliefs that deficits directly correlate with inflation and hinder economic stability. He underscores how a proactive deficit spending strategy during economic expansions, as seen in contemporary times, breaks away from historical trends, offering a new perspective on sustainable economic growth.
Reframing Public Debt and Monetary Operations
Mosler redefines public debt as a financial asset held in the economy, generated through deficit spending and tax dynamics. By emphasizing the role of tax liabilities in driving currency value and government spending, Mosler sheds light on how public debt supports economic productivity. His insights into monetary operations unveil the interconnectedness of taxes, spending, savings, and financial stability, highlighting the systemic complexities underlying modern economic systems.
Understanding the Origin of Price Level Inflation
In a monetary economy like Pompeii, when spending decreases to zero due to lack of income, prices adjust accordingly. Prices are determined by the exchange value of currency, influenced by government payments to workers. Market forces like job availability influence how prices are set, creating a mutual understanding of value.
Impact of Government Payments on Price Levels
Government payment policies directly impact the value of currency and subsequent price levels. By adjusting wages for services like being a police officer or sanitation worker, the government redefines the value of its currency. Increasing government payments can lead to a continuous increase in price levels, highlighting the role of government spending in shaping inflation.
Debunking the Myths Around Public Debt and Inflation
The relationship between public debt and inflation is often misunderstood. Examples from history like Weimar Germany and Japan show that high public debt does not always lead to inflation. Inflation is primarily driven by continuous increases in government spending, rather than the mere existence of public debt.
The Complex Dynamics of Bank Bailouts and Regulatory Forbearance
Bank bailouts are often misunderstood, such as the Treasury's injection of capital into banks during the financial crisis. This action was functionally identical to regulatory forbearance, where the bank's capital position was maintained. The bailout did not directly impact deficit spending, as it merely shifted funds within the government's balance sheet.
Addressing Inflation Concerns in Stimulus Programs
In the context of stimulus programs like UBI, concerns about inflation arise if the government prints money to fund such initiatives. However, understanding the impact of government spending on price levels and the role of market forces in determining value can provide clarity on how stimulus programs can be managed without causing significant inflation.
The Importance of Regulatory Understanding in Financial Interventions
Looking at the government's response to financial crises like the TARP program highlights the significance of regulatory understanding. Differentiating between regulatory actions like forbearance and actual bailouts is crucial to grasp the real impact on deficits and financial stability.
Financial Crisis Responses and Government Balance Sheet Considerations
Responses to financial crises, such as injecting capital into banks, involve complex shifts within the government's balance sheet. The allocation of funds between regulatory measures and direct bailouts can affect how deficits are managed and perceived, highlighting the intricacies of financial interventions.
Navigating Misconceptions Around Bank Bailouts and Government Spending
The intricacies of bank bailouts and government spending unveil common misconceptions surrounding financial interventions. Understanding the true impact of such actions on deficits, inflation, and regulatory frameworks is essential to grasp the complex dynamics of financial stability and monetary policies.
Understanding the Reserve System and Routine Job at the Federal Reserve
The podcast delves into the mechanics of the reserve system, emphasizing the importance of having a reserve ad before a reserve drain. This process, highlighted through examples like selling movie tickets before collecting payments, is a routine job for entities like the Federal Reserve, ensuring money is added to the system before transactions take place.
Inflation Management and Real Consequences of Trade
The episode explores the concept of managing inflation and the real-world impact of global trade conditions. It discusses the limited influence of inflation on trade scenarios, using examples like coal exports to showcase how world prices dictate the exchange rates, focusing on the domestic distribution of benefits from trade rather than the inflation rates themselves.
Market Dynamics and Oil Pricing Strategies
Unpacking the dynamics of oil markets, the podcast unveils the pricing strategies employed, particularly by countries like Russia and Saudi Arabia. It highlights the significant control key players hold in setting oil prices, showcasing how shifts in global oil prices impact economies and geopolitical relations, projecting potential disruptions in case of pricing changes and emphasizing the critical role of strategic considerations in global trade.
Warren Mosler is an economist, hedge fund manager, and proponent of modern monetary theory, an economic model that posits fiscal crises are caused by governments not spending enough money. From Mosler’s perspective, the reversal of any recession starts with getting very comfortable with deficit spending. Opponents argue that unchecked spending eventually leads to inflation of the currency and economic collapse, which Mosler argues is impossible as long as you know how money actually works. We dive deep into chartalism, the theory about the creation of money that sits at the heart of MMT, lay out why deficit spending doesn’t have to lead to inflation, and why the Federal Government’s checks will never bounce. To read more about Modern Monetary Theory and Mosler’s take on it, check out https://moslereconomics.com/
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(00:00) Go!
(00:03:05) Do interest rates actually influence inflation?
(00:11:36) Purpose of taxes is not what you think
(00:19:26) Economy as faith based activity
(00:27:22) Feds have no idea where money comes from?
(00:37:33) Fed lacks tools to control inflation
(00:53:37) Interest at the Treasury is unnecessary
(01:07:00) Informed democracy & decision making
(01:20:15) Michael Hudson
(01:25:11) Why are we poorer despite the GDP?
(01:41:53) Weimar repeat possible?
(02:06:44) Threats from external economies?
(02:28:58) Oil demand can't be ignored
#sciencepodcast #ModernMonetaryTheory #MMT #Macroeconomics #FiscalPolicy #GovernmentSpending #Chartalism #MonetaryTheory #DeficitSpending #Inflation #EconomicTheory
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PODCAST INFO: Anastasia completed her PhD studying bioelectricity at Columbia University. When not talking to brilliant people or making movies, she spends her time painting, reading, and guiding backcountry excursions. Shilo also did his PhD at Columbia studying the elastic properties of molecular water. When he's not in the film studio, he's exploring sound in music. They are both freelance professors at various universities.
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