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The podcast discusses the potential catastrophic effects of the US government defaulting on its debt due to reaching the debt ceiling. The risk is underscored by the interconnectedness of cutting spending, reducing tax revenues, and creating a dynamic downward spiral that can impact the economy significantly.
In the event of the US not paying Social Security, resulting in reduced tax revenues and government spending cuts, individuals' tax liabilities decrease. This dynamic process highlights how government actions can affect tax revenues and overall spending behavior.
The discussion delves into the relationship between interest rates, deficit spending, and inflation. An increase in interest rates leads to a raise in deficit spending, posing potential inflationary risks. Past instances, such as Volcker's high interest rate policies and their effects on inflation and real public debt, are analyzed.
The wage-price spiral dynamic, where wage increases lead to higher prices and vice versa, is explored. Additionally, the podcast addresses income distribution shifts resulting from interest rate adjustments and their impact on consumption patterns among different income groups.
The podcast delves into the impact of government deficit and interest expenses on the economy. It highlights how increased deficit spending and interest rates have influenced economic trends. The discussion underscores how fiscal cycles and interest expenses play crucial roles in shaping economic outcomes by supporting or hindering economic growth.
Another key point explored is the role of central banks in relation to inflation and currency values. The conversation touches on the impact of interest rates on inflation and how different countries manage their currencies. It also discusses the implications of raising rates, the dominance of interest expenses in economic dynamics, and the complexities of currency systems.
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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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.
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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
(01:11:21) Is The Solution To Inflation To Cut Government Spending?
(01:16:30) Blockworks Research
(01:17:28) The Debt Ceiling
(01:24:08) The Dollar
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