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PaperclipPerfector  6d ago (text post)   27151 thread views

Culture War Roundup for the week of June 2, 2025

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I've said this before, but I'm pretty sure a lot of members of congress have learned at least some MMT stuff about banking & government finance accounting. They pretty much all still use the deficit, debt, and fear of large numbers as rhetorical weapons against their opponents when out of power. But we seem to see fewer people than ever signing up for the mistaken sucker play of being in power and actually crashing the economy with austerity. Maybe more senators than house members understand the reality; surely more democrats than republicans have been incentivized; and definitely more congressional aides and rank&file treasury/fed people know how the financial plumbing works compared to elected & appointed officials (but in the US in particular, these types seem to effectively be able to get the word out to stop politicians from wrecking things usually). This time around, Trump even potentially had Elon as a perfect fall guy to take any blame, if Trump actually wanted to cut the deficit (luckily he didn't).

To be economically literate, one would have to know that saying the government deficit should be cut is identical to saying the non-government surplus should be cut. Or that the government's debt is not "our" debt, it's our asset: the government is just a balance sheet entity we made up, which we use to emit IOUs that we (the actual people) get to hold & use. It's much more akin to a scorekeeper, tracking the points everyone has. The national debt is essentially the net money supply, and that money is being created by running a deficit (constantly for hundreds of years, with no reason to stop if the people keep wanting to accumulate monetary savings). Government deficit & debt are good things, and the only problem is along the lines of 'too much of a good thing' (inflation, which is the self-correction mechanism).

I think MMT was especially catching on amongst politicians around like 2018-2019. The inflation of 2022 probably put it on the backburner for awhile. But even back in 2012, here they are talking about how a load of congress members understand things but just can't say anything publicly: https://youtube.com/watch?v=ba8XdDqZ-Jg&t=1h4m25s

Moderator: Can you answer the question of why does the system not adopt what you're saying?

Mosler: Yeah so last year we had the debt ceiling drama. Remember that last summer? And right after the State of the Union, Paul Ryan got up and said 'Look the US could be the next Greece, we're going to be on our knees to the IMF, interest rates are going to spike, we might get downgraded, we might default, we have to take $1 trillion out of the deficit, and we're not going to vote for the debt ceiling increase unless we do that'. And Obama actually agreed! The president agreed, and he had a plan to take 6 trillion out, but they didn't like what each other was doing, they got right down to the wire, they kicked the can down the road with a compromise... Interest rates had gone up in anticipation of something terrible happening, the stock market was crashing, and we got downgraded by S&P... And what happened? Okay, interest rates went down instead of up. 3-month treasury bills were going through at 0%. Everybody was like 'what's going on, how is this possible?' No move on the deficit, we're up over 16 trillion...and, you know this is supposed to be the end of the world. And then suddenly it started sort of coming out: you had Alan Greenspan come out and say 'well you know, we print our own money'. And Warren Buffett came on and said 'we're 4A not 3A, because the Federal Reserve prints the money'.

So I compare this to the War of 1812 and the Battle of New Orleans. The Battle of New Orleans was fought after the war was over. So what's happened is that moment when they came out realized that we weren't going to be the next Greece...okay the US was not going to be at its knees, that deficits don't drive interest rates up (and there's absolutely no reason to think they would when you understand monetary operations--they never do)... the war was over! Okay, we had won the war. The reason for deficit reduction was gone. It disappeared. All the reasons that, you know, Ryan and Obama..."we've run out of money", all these things were over! Okay, but they kept fighting the war anyway! And it's kind of the strangest thing. They just started pushing ahead with, 'okay, now we got to do it towards the end of the year...'. And nobody talked about Greece for a while, and then now all of a sudden in the last few months you're starting to hear Greece sneak into it again. Okay, that war is over, you're right, it should be over! Okay we know that deficits don't cause any default risks, they don't cause interest rates to go up, they don't cause any of that. Now, they might cause inflation, if we overspend. But let me say two things on that.

Japan's been trying to inflate as hard as it can for 20 years, and hasn't managed to get out of deflation. The Federal Reserve has been trying to inflate with everything it's got, every trick in the book, every tool it can imagine, for four years and hasn't done it, it's utterly failed. It's not that easy. I've been writing for years that central banks cannot cause inflation no matter what they do. And I think we've seen that proven out. So #1, inflation is not that easy. (The causes of these other things were all special circumstances, all the hyperinflations I won't get into that). But if there is any reason to think that we do need deficit reduction, that we should cut spending or raise taxes, it has to be inflation. Because none of the other things are a factor. So let's look at our inflation forecast: there isn't one analyst out there who has a reputation to defend that's forecasting any kind of inflation. The treasury index bonds, 30-years, are forecasting very very low inflation. There's not a single inflation forecast out there.

So I talked to representative, what's his name, Hollen--he's on the deficit reduction committee from Virginia, he's a progressive Democrat. I said "okay the war is over, why are you pushing for cuts in social security, cuts in Medicare? Isn't the burden of proof on the other side to tell you that we have to cut or else is going to be inflation? Maybe they have to do a little research, and prove to you that there could could be inflation and therefore we have to cut Social Security and Medicare? Because there's certainly no forecast out there. Why are you just voluntarily (the left, the Progressive Democrats) out there proposing these cuts?" He goes, "well, it's a pretty large number and I think we need to do something about it." It's like 'What??'

Okay there's something very wrong with the political process. And I think what's happened is they become victims of their own propaganda. They've gotten it so instilled in people that we have to do something about the deficit, they can't even begin to talk otherwise. Even though they know the war is over, even though they know they've lost any possible reason for it, even though they know the burden of proof is on the other side now to show that spending needs to be cut or taxes need to be raised for some reason... The polls show and the reactions show that if they come out and aren't for deficit reduction, they get laughed off the stage and they they lose their spot. So this is the the Battle of New Orleans being fought after the war is over because people don't realize the war is over. So even though the policy members might know that, they're dealing with a population that doesn't know...and is just an economic disaster, a real tragedy.

Let me say one more thing about taxes, if I can, and the size of government because I want to make this entirely apolitical (which it should be). The size of government is a political question. How many teachers do we want in the classrooms, how many soldiers do we want in the army -- if you take too many there'll be nobody left to grow the food and we're going to starve, if you take too few we're going to lose the war. These are all political decisions of what resources we want to move from the private sector to the public sector. And you'll have differences of opinion: some people think we need more government, some people think we want less government. But once we've settled politically on the right size government, then there is an appropriate level of taxes that allows the right size deficit, so we have the right amount of savings, to offset our pension needs and stay at full employment. So given that the size of the government is a political decision that shouldn't be based on whether the economy is good or bad -- 'we need a a legal system, how many judges and clerks do we need?' Well you know if there's a 10year wait, maybe we need more. If they're calling you up asking you to see 'why don't you go out and sue somebody, we have people waiting around to have a trial', maybe we've got too many of them. See, you've got to come up with the right size legal system and everything else.

But once you've done that, taxes are the thermostat on the wall. If the economy is ice cold and unemployment's high: you're taking too much money out for the size government we have, and you need lower taxes for that size government. If on the other hand it's overheating, there's too much spending, and prices are going up too fast, and unemployment is too low (whatever that means): then taxes have to be raised because for the size government we have, taxes aren't high enough (we're not taking enough money out). So for this right size government, taxes are the thermostat on the wall. They're not there to balance a budget, to bring in money. We're just changing numbers down, we're changing numbers up. The deficit is a residual. You find out afterwards if it was a right size deficit by counting the bodies in the unemployment line. Not by worrying about 'paying it back' or 'becoming Greece' and all that nonsense -- there is no such thing.

So your question now is "why can't the political process get us there?" And now that you know all this, I'm going to ask you for the answer. Because it's becoming more of a mystery every day. Because the more people I know who know the right answer.... you know, it's almost like the less willing they are. I talked for hours to Senator Blumenthal who read my book Seven Deadly Innocent Frauds (you get it free online, it's an easy read). And he gets the whole thing and he won't do anything -- just sits there. Same with Lieberman from Connecticut (I ran for Senate from Connecticut a couple years ago). Talked to these people, I talked to Hollen, I talked to all kinds of people over the years... and they're not going to be the ones to move us off the dime on this. We've got the academic community starting to get some of the right answers and through the blogs. And it's called mmt: modern monetary theory (somebody gave it a name, wouldn't be the name we chose). It's been expanding rapidly. But it's not there yet: that the only thing between us and full employment and prosperity beyond what anyone can imagine, is the space between our ears. There's nothing else in the way right now: there's no food shortage, there's no shortage of housing, we have surpluses of everything.

Kelton: Warren, remember. I won't say who it was, but Warren and I met with a member of Congress together. And we went through all of this with this person, and when we got done, this person looked at us and said "I can't say that". Not "I don't believe that", "I disagree with that", "you're wrong", "you're crazy" -- "I can't say that"! We have to make it increasingly safe for these folks to say that, to take these positions. And wasn't it FDR who said 'I can't do things, you have to make me do things'.

Mosler: And this is pro-agenda for all of them. The Republicans would love to cut taxes and not have to cut spending. They could agree to that. But they can't...if they cut taxes, they've got to cut spending even more because they think they have to balance the budget, so they don't even do their own tax cuts. Democrats would like to increase spending.

MMT is a relatively accurate model of how modern Western monetary policy works. But have you sit down for a second and asked yourself if that's a good thing that it works like that or not?

Because if you did not, I don't think you're equipped to engage with its actual opponents.

Does the State having control over the rate of interest incentivize good or bad investments? What's a good rate of inflation and who does that good rate benefit and harm? And most importantly, what happens to all this the day that people stop buying US debt no questions asked?

MMT is mainly about describing how fiscal policy and money itself works, and it apparently has been essentially the same throughout human history. The word 'modern' was a joke from a Keynes quote about "the past 4000 years, at least". Mesopotamian temple accounts, European tally-sticks, various stamped coins, etc. Always money being transferable credit, and dominated by credit from the authority of the day. It's how you would bootstrap a monetary economy into existence, whether you're talking about a hippie commune, a Lost desert island situation, or a new nation, without relying on any circular reasoning "lets call this seashell money: I value it, because someone else will value it, because someone else...". Using the authority's power of taxation (and power to punish/expel those who don't pay) to give value to money is an imposition, but it appears to be the least barbaric method for organizing society we've come up with so far.

Monetary policy as the business of setting interest rates, isn't of that much concern to me. I think they've landed on basically sane goals of desiring slight inflation over time, and a policy regime of simply paying interest on reserves to set the base interest rate (much better than the pre-2008 system of open market operations). I would like to see them just set the interest rate at 0-1% and leave it there forever, as I don't think there's good evidence that it controls inflation or the economy like they wish it did, and I think interest payments are maybe some of the worst government spending.

But have you sit down for a second and asked yourself if that's a good thing that it works like that or not?

I was basically a libertarian before I learned MMT and became a normie, although I never really had that core furious uncomfortability that someone else's decisions can affect 'my money', which seems to really animate some people in these questions you're raising.

The whole current system especially in the US is downstream of hundreds of years of business interests, ideological libertarians, and others clashing over precisely the kind of political questions you listed. The core economic logic is actually extremely simple, but there are a million self-imposed constraints, strange terminology, and extra steps between it all (leftover from the gold-standard era mainly, but it's been through a lot).

And most importantly, what happens to all this the day that people stop buying US debt no questions asked?

It's almost purely a charade that they pretend the market has a role in buying US debt. 'Almost', because they currently do like to take the temperature of market predictions on longer-term securities, and let those rates up the yield curve fluctuate with market sentiment. It's a self-imposed constraint that the treasury and central bank are separated, a self-imposed constraint that the treasury can't go into infinite overdraft on their account, a self-imposed constraint that they can't directly swap liabilities with each other, etc. After WW2 when they re-imposed that last constraint, the Fed chair Eccles told congress exactly that the market plays no real role and that it was a charade, but they re-imposed the pretend restriction anyway for the optics.

The current system of maneuvering around the laws in the US is that the central bank contracts commercial banks as 'primary dealers' who have an obligation to make sure every treasury bond issuance goes off perfectly without a hitch at the chosen policy rate. No bond vigilantes get a say in the process.

I never really had that core furious uncomfortability that someone else's decisions can affect 'my money',

Frankly, you just sound like a tits and beer liberal, if you're not mainlining Mises to the degree that it affects your metaphysical outlook, you're not really doing a libertarianism in my opinion. But that's a fine and reasonable position. I was once just such.

The whole current system especially in the US is downstream of hundreds of years of business interests, ideological libertarians, and others clashing over precisely the kind of political questions you listed.

"It says here in this history book that luckily, the good guys have won every single time. What are the odds?”

It's almost purely a charade that they pretend the market has a role in buying US debt.

I notice you're stalling on answering the question, and trying to get into procedural matters. Nobody gives a shit what the US' opinion of their own system is, they give a shit about the real economic effect of US debt being toilet paper.

Moving the ball is not making it disappear. I too can borrow to myself infinitely in made up me-bucks. But in the scenario where US debt is no longer the world's reserve currency, that doesn't translate into any ability to buy goods.

"Primary dealers" of monopoly money can surely not fail in delivering it to the US government, but how exactly does that translate into food rations for GI?

"It says here in this history book that luckily, the good guys have won every single time. What are the odds?”

Not sure you're following the point, that was saying that we have a goofy system precisely because different people have been trading off who wins & loses all the time. Especially in the 19th century the winners didn't exactly know what they were doing (constant boom & bust cycles with many severe depressions).

"Primary dealers" of monopoly money can surely not fail in delivering it to the US government, but how exactly does that translate into food rations for GI?

The government prints up some IOUs called treasury securities, and swaps them for some other government IOUs called central bank reserves, in a primary dealer auction completely unencumbered by "people choosing to buy debt". Then they use those IOUs (widely called 'money') to spend and/or give to people out in the economy, who are willing to trade goods & services for those IOUs. These government IOUs are valuable because they're the only way to settle your taxes that the government declared that you owe.

If that sounded like gibberish to you, well I already said most people don't understand the monetary system and never learned about it. If you think there's "a" world reserve currency conferring special status to a single country, that does explain where you're at, but the basic logic I just laid out also applies to other countries that issue their own currency.

What if people refuse to use your currency to trade goods and services? What if they tell you to fuck off when you ask them to pay you your own fun bucks? And I'm not just talking about Americans that you have over the barrel of your gun. I'm talking about the rest of the world.

This entire scenario is specifically about what happens when your power to enforce the privilege of exchanging debt for ressources ends.

What happens when US treasuries are no longer viewed as the most risk free investment vehicle in the world and are replaced by something else and demand craters?

The answer is usually that you'll have to dip into foreign currency reserves or sell hard assets, but what do you do when you run out?

What if I start paying your military men in the new harder currency to loot your country?

What if people refuse to use your currency to trade goods and services? What if they tell you to fuck off when you ask them to pay you your own fun bucks?

This entire scenario is specifically about what happens when your power to enforce the privilege of exchanging debt for ressources ends.

Money is debt. So that would be inflation, which was definitely covered from the start. That is absolutely the relevant constraint on government deficit spending.

As far as the exchange rate goes: in the very worst case scenario of your exchange rate suffering, you can always at least import as much as you export. That's true whether you even have your own currency or not. But if you have a currency that foreigners are willing to save in (a world 'reserve currency', which basically all currencies are to different degrees), that just allows you the luxury of importing even more than you export (not necessary, but can be nice, although then your exporter businesses might start bitching about your country's 'trade deficit', so it's not all roses).

What happens when US treasuries are no longer viewed as the most risk free investment vehicle in the world and are replaced by something else and demand craters?

As I tried explaining procedurally above, it doesn't matter a single iota whether there's any market demand for treasuries. That's the charade part of it. The government effectively is just printing money as they deficit spend, and they always have been. They print the money, they set how much interest money pays (if any), and we have to get the government's money regardless of anything, in order to pay taxes.

If the king wants something done, he levies a tax on the subjects. Then he prints up some tally sticks, and pays them out to people to do the thing. Then they pay their tax, and he burns the tally sticks. Same with colonial american paper money: levy a tax, print up some stacks, get the work done, then shred the money as it gets paid back in taxes.

So you're just going to repeat back MMT to me as if I haven't read Tcherneva and never heard of chartalism? Come on, at least engage with the idea of a debt crisis. Do you really think everyone from Louis XVI to Hindenburg was too stupid to realize they could just raise taxes to lower inflation? The political expediency of reasonable policy matters, and all I see from MMT proponents is a total faith in the impossibility of default or hyperinflation.

I'd like you to at least acknowledge recent history, seeing as though your model is supposed to model it.

you can always at least import as much as you export.

This just isn't true. I've actually we lived in countries where that wasn't true. Getting your state looted by foreign creditors is a real thing that really happens to people. Ask any Russian.

At some point people just start demanding real collateral. How does MMT explain the Pepsi fleet exactly?

So you're just going to repeat back MMT to me as if I haven't read Tcherneva and never heard of chartalism?

On the other side of the dunning-kruger scale, this is loudly announcing 'I looked up the wikipedia page'. And I'm not just repeating MMT back to you. I answered your precise first question by showing you how the actual government finance operations work in the US, with a link to an official testimony people find a bit shocking and interesting if they know anything about what's being discussed, and you thought that sounded like monopoly money that 'nobody gives a shit about'. You can't really be helped if you don't know the first thing about any of this.

Come on, at least engage with the idea of a debt crisis.

all I see from MMT proponents is a total faith in the impossibility of default or hyperinflation.

Involuntary default in your own currency that you issue? Definitely impossible. Inflation? I already started with that covered as the real constraint.

What if I start paying your military men in the new harder currency to loot your country?

Getting your state looted by foreign creditors is a real thing that really happens to people.

Ok, we're nearly up to countries can go to war with each other. Can you try to tie this back in to the fiscal responsibility of US republicans & democrats? Do you have any prediction about the timeline of the US becoming Russia?

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