Please click on the link below to listen to a conversation with Warren Mosler. Topics include: Demand leakage (how to fix end-demand), Fed Policy (QE is counterproductive) and overall market/econ outlook for US, Europe and China.

Please click here for the audio

22 Responses

  1. What did Warren mean about a ‘regime change’ and inflation in China? Thanks – I’m not up on China.

  2. I agree that the interview was excellent. You say that we can muddle along at about 2% growth, but what do you think is the possibility of another banking crisis? Bill Black seems to think there is one looming in our future.

  3. A truly superb and insightful talk.

    Warren: It is interesting to learn from the talk that, e.g. in the US, a deficit spending of about 7% GDP is generating a 2% growth. So does that mean that part of the deficit spending ended up being saved and/or spent on foreign products? Are there historical data relating the two figures accompanied perhaps with some analysis? It would interesting to see their relationship during economic boom and bust.

    Many thanks!

    1. @lula,

      Check out

      Federal Reserve Economic Data – FRED – St. Louis Fed
      research.stlouisfed.org/fred2/
      Download, graph, and track 45000 economic time series from 41 sources.

      You’ll have to do your own analysis.

  4. Warren,

    Great interview (I provided a link on my blog http://bit.ly/MoaK5u)! You’ve been spot on with stagnation and growth calls for Europe and the US, respectively. Although you note the difficulty in predicting China’s outcome, I thought your points about leadership change and the historical likelihood of a hard landing were spot on. As usual the discussion of monetary operations/policy and fiscal policy was a nice reprieve from mainstream media, analysts and economists.

    The only place my views slightly depart from yours relates to confidence in politicians and our institutions to act wisely. On China I lean towards an expectation of history repeating with growth following a path close to that suggested by Michael Pettis. Regarding the US and Europe, I’m not as convinced deficits will be permitted to remain at current levels, which might push growth 1-2% lower than your predictions. That being said, your experience and success is plenty reason to doubt my own views.

  5. Warren,

    Altering your phrase, it’s “deficit” spending that supports any economic growth.

    Nicely put, very succinct. Please say that to people every day, but in a different format.

    Why is such a simple point not universally recognized?

    Can’t have more people + more activity w/o creating more currency to denominate more transactions.

    We’re back to semantics. Why is currency creation called “deficit” or “debt,” when that use conflicts with other applications of those words?

    We can’t ease the cognitive tensions over this as long as we keep calling currency creation a deficit.

    It’s currency creation that allows more transaction-chains to be denominated, thereby unleashing exploration of any & all options we can imagine?

    If an aggregate can do something, and benefit from it, what on earth is the problem with recording the transactions involved, so everyone can adjust accordingly? As you keep hinting, fiat currency supply is just another automatic stabilizer for an organized aggregate. Please just say it more bluntly, more often.

  6. Do we get fiat from somewhere else? Can we run out of fiat? Do we owe fiat to someone? No, no & no.

    It’s the semantics that are our stumbling point, not static vs dynamic operations.

    Cease, forever, the practice of calling fiat currency creation a deficit, or a debt.

    We can’t ease the cognitive tensions over this as long as we keep calling currency creation a deficit.

    Please, let’s all just say so, more bluntly, more often.

    It’s currency creation that denominates any economic growth.

  7. While we’re limiting currency supply – by foolishly trying to hoard it, and stabilize the “buying power” of a dynamic asset – we continue to spawn both more people AND more options.

    Our Output Gap is growing by leaps & bounds. “Good for stocks & bad for people” mentions a dynamic that cannot be actually tracked with currency.

    It’s not just failure to understand currency operations.

    We’re also failing to understand the role of monetary policy subservient to national policy, which you call Public Purpose.

    Marriner Eccles described this vividly, back in 1932.
    http://fraser.stlouisfed.org/docs/meltzer/ecctes33.pdf

    “We shall either adopt a plan which will meet this situation under capitalism, or a plan will be adopted for us which will operate without capitalism.”

    “.. what can be done under communism or socialism, can be done under capitalism in the United States, if we have sense enough to set up an adequate flow of currency and credit in the right channels.”

    “YOU have got to take care of the unemployed or you are going to have revolution in this country.”

    “When you get enough unemployed they will control the Government and change our present political, social, and economic system.”

    How close we get to that sort of revolution is a social metric that CANNOT be accurately measured via currency, stocks or by bankers & financiers, either at the ECB or on Wall St.

    We cannot peg all other policy to monetary policy. If we try, a time will come when the bankers will be the last to know that they’re being swept away by a revolution.

    There is a better way.

  8. If inflation in China was caused by excessive deficits (20% of GDP – estimated), and not by oil prices, it would be the first example of that phenomenon since 1971?

    Can that 20% be used as some sort of benchmark level to avoid? China also has a positive balance of payments, don’t they, so would it need to go even higher in the US in order to cause the same degree of a problem?

    Is there unemployment data for China? Any Phillips Curve-like observations to be made?

    1. the trade surplus means taxes have to be higher than otherwise for a given size govt.

      but to your question, it all depends on the ‘demand leakages’ you need to overcome to sustain full employment

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