*  Update – It’s come to my attention that some of the statements in this piece might be somewhat misplaced.  Many different economists have contacted me over the last few months to point out that MMT was not, in fact, the first group of economists to predict the Euro crisis (although that should not detract from the fact that they did in fact predict the crisis). I should also be clear that Wynne Godley was not an MMTer and I should not have implied as much.   Additionally, there are a number of economists who predicted that the Euro would not work and did so well before the MMT economists.  This list has been updated to account for this.  Sorry for the exaggeration.


Being right matters.  This isn’t emphasized quite enough in the finance world and in economics in general.  Too often, bad theory has led to bad predictions which has helped contribute to bad policy.  While MMT remains a heterodox economic school that has been largely shunned by mainstream economists, the modern proponents have an awfully good track record in predicting highly complex economic events.

In the last few years, the Euro crisis has proven a remarkably complex and persistent event.  And no school of thought so succinctly predicted the precise cause and effect, as the MMT school did.  These predictions were not vague or general in any manner.  In reading the research from MMTers at the time of the Euro’s inception, their predictions are almost eerily prescient.  They broke down an entire monetary system and described exactly why its construction would lead to financial crisis if the union did not evolve.

In 1992 Wynne Godley described the inherent flaw in the Euro:

“If a government does not have its own central bank on which it can draw cheques freely, its expenditures can be financed only by borrowing in the open market in competition with businesses, and this may prove excessively expensive or even impossible, particularly under conditions of extreme emergency….The danger then, is that the budgetary restraint to which governments are individually committed will impart a disinflationary bias that locks Europe as a whole into a depression it is powerless to lift.”

In his must read book “Understanding Modern Money” Randall Wray described (in 1998) the same dynamic that led to the crisis in the EMU:

“Under the EMU, monetary policy is supposed to be divorced from fiscal policy, with a great degree of monetary policy independencein order to focus on the primary objective of price stability.  Fiscal policy, in turn will be tightly constrained by criteria which dictate maximum deficit to GDP and debt to deficit ratios.  Most importantly, as Goodhart recognizes, this will be the world’s first modern experiment on a wide scale that would attempt to break the link between a government and its currency.

…As currently designed, the EMU will have a central bank (the ECB) but it will not have any fiscal branch.  This would be much like a US which operated with a Fed, but with only individual state treasuries.  It will be as if each EMU member country were to attempt to operate fiscal policy in a foreign currency; deficit spending will require borrowing in that foreign currency according to the dictates of private markets.”

In 2002, Stephanie Kelton (then Stephanie Bell) was even more specific in describing the funding crisis that would inevitably ensue in the region:

“Countries that wish to compete for benchmark status, or to improve the terms on which they borrow, will have an incentive to reduce fiscal deficits or strive for budget surpluses. In countries where this becomes the overriding policy objective, we should not be surprised to find relatively little attention paid to the stabilization of output and employment.In contrast, countries that attempt to eschew the principles of “sound” finance may find that they are unable to run large, counter-cyclical deficits, as lenders refuse to provide sufficient credit on desirable terms. Until something is done to enable member states to avert these financial constraints (e.g. political union and the establishment of a federal (EU) budget or the establishment of a new lending institution, designed to aid member states in pursuing a broad set of policy objectives), the prospects for stabilization in the Eurozone appear grim.” (emphasis added)

In 2001 Warren Mosler described the liquidity crisis that the Euro would lead to:

“Water freezes at 0 degrees C.  But very still water can be cooled well below that and stay liquid until a catalyst, such as a sudden breeze, causes it to instantly solidify.  Likewise, the conditions for a national liquidity crisis that will shut down the euro-12’s monetary system are firmly in place.  All that is required is an economic slowdown that threatens either tax revenues or the capital of the banking system.

A prosperous financial future belongs to those who respect the dynamics and are prepared for the day of reckoning.  History and logic dictate that the credit sensitive euro-12 national governments and banking system will be tested.  The market’s arrows will inflict an initially narrow liquidity crisis, which will immediately infect and rapidly arrest the entire euro payments system.  Only the inevitable, currently prohibited, direct intervention of the ECB will be capable of performing the resurrection, and from the ashes of that fallen flaming star an immortal sovereign currency will no doubt emerge.”

In a recent article, Paul Krugman referred to some of his predictions as “big stuff”.   What the MMT school has accomplished through its understanding and prescience of the European union is not merely “big stuff” – it is nothing short of remarkable.  This was not merely saying that the Euro was flawed for this reason or that and that the construct of a united Europe was misguided (a prediction made by many at the time of the Euro’s inception due mainly to political biases).  The MMT economists approached the formation of the Euro from a purely operational aspect and predicted with near perfection, exactly why it was flawed and exactly why it would not work as is currently constructed.

Some economists say MMT focuses too much on reality by focusing on the actual operational aspects of the banking system and the monetary system.  But as we have seen time and time again, having a poor understanding of the monetary system is not only detrimental to your portfolio, but detrimental to the millions of citizens who are now being subjected to the ignorance of the economists who influence these monetary constructs.

* Corrected date error in Godley citation.

** I should also be clear that Godley was not an MMTer and was the first post-Keynesian making the Euro comments.  


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • apj

    common sense ain’t so common

  • FDO15
  • Pippi

    I am too tired tonight to gush or even complain tonight. Well other than to say I was getting bored and could you juggle knives, swallow fire, or ride a scooter through a Walmart? And now I have ALL this reading to do. Yep, that’ll shut me up for a while. I should have swallowed the OTHER pill.

    Many thanks to you and MMT trailblazers for keeping me out of the crawlspace.

  • Pippi

    Oh, COME ON. I was NICE.

  • Anonymous

    MMT is far from common sense, in the current crisis it is the exact opposite of last”common sense” policy measures …

    Which is one of the reasons for this great atrocity, in which tens of thousands of Europeans have perished already: suicides are going through the roof.

    The self-serving ignorance of the European elite (in particular that of the ECB who are paid to know better) is Europe’s 911.

  • Ramanan

    Talking of Godley, was written even before .. in 1992.

    John Cassidy of the New Yorker talks of this:


  • Cullen Roche

    Told you. The spam filter has a crush on you.

  • Rick

    Mr. Roche do you think the EU leaders (Merkozi) are stupid? They know all that. The thing is about power. If you want to control people and profit from them then you design a game with an edge in your favor. The ECB has printed trillions during the crisis and delivered them to German and French banks and even corporations. For the others they demand to borrow. Isn’t that nice? This is a plain blackmail and deception Mr. Roche. It has nothing to do with MMT. It is all about stealing wealth from nations.

  • Ramanan


    Slight correction. The quote in the main text is actually from a Levy paper and is from 1997 (I guess).

    I just wanted to refer to the oft-quoted one from 1992 in my previous comment.

    PS: Incredible lacuna indeed.

    PS2: There was an article by Martin Feldstein (surprise!) in The Economist in 1992 and is reasonably right in several places. The Case Against EMU

  • Sostegno

    MMT is the most common sense in economical analysis ever.
    The point is, peoples reality believe is hard to change, even if you present them facts.
    That why the expression conspiracy theory was invented during Nurnberg trials, to just silence the ones, who could prrof war crimes of the allies, cause what doesnt fit mainstream paradigm must not be. It is a complete paradoxon on who this expression is applied.

    Now its same with the EUR and everything else that comes along with a better analysis of reality but doesnt fit mainstream reality believe/ propaganda whateve.
    The ones who hide the most from mainstream and operate untransparently under the surface call others that come along with facts, conspiracy theorists.

  • nark

    i’ve always read these posts looking for common sense rather than a grand theory of everything, but i’m just an ignorant observer. this business of “bond vigilantes” “attacking” bonds is obvious pap, though,,,, i mean you can see the data for countries like the us, uk and japan and compare it to eurozone ones with 1 minute of googling. not that this stops the silliness in the media.

    and thatcher was the worst example of valuing rhetoric over evidence until the tea party came along. she was famous for banging a copy of hayek on a table and declaring “this is what we believe in”. what we should believe in is robust data, but perhaps it’ll take a rather large culture change before this happens…. so keep up the debate!

  • Ben Wolf

    The only quote from Thatcher in the article is that the euro would “devastate the economies” of poorer nations. A prediction far too vague to be of much use, and wouldn’t apply anyway if europe moved to fiscal union.

  • Adam1

    “… do you think the EU leaders (Merkozi) are stupid?”

    Maybe not stupid but certain ill informed and they are doing stupid things because of it. While I would agree with your assessment of blackmail, deception and stealing that is only the proof that they don’t know what the hell they are doing. If the Euro elite actually wanted to maximize their wealth (and net financial asset accumulation, which is what I believe is what they really want to accumulate) then they would set about enacting fiscal and monetary policies to maximize full employment and accommodated net financial asset accumulation – which requires either a fully sovereign Euro entity with fiscal powers or independent nations with their own fully sovereign currencies. Current policies are only going to lead to less wealth for all Europeans – elite included.

  • Andrew P

    William Hague (of the UK) described the Euro in 1998 as “a burning building with no exits”. He was spot on. The only question is: when does the fire progress from slow burn to flashover and inferno?

  • lookma

    Very thought-provoking, thanks Cullen.

    And interesting timing too! FOFOA, who has a different take on the euro, just threw together some long-winded thoughts on MMT in light of the same –

    Economics is such a deep subject, I’m glad to see a willingness to think outside the box and actually deal with the thoughts and arguments in a meaningful fashion. Bravo!

  • Conventional Wisdumb


    Perhaps the fact that:

    “As currently designed, the EMU will have a central bank (the ECB) but it will not have any fiscal branch. This would be much like a US which operated with a Fed, but with only individual state treasuries. It will be as if each EMU member country were to attempt to operate fiscal policy in a foreign currency; deficit spending will require borrowing in that foreign currency according to the dictates of private markets.”

    was the intention all along. To create a pax Europa that was dominated by the largest and strongest economies in the group – fiscal strength leading to political strength. Perhaps, the idea of eliminating the possibility of another European war was also a motivation behind this idea.

    The idea of creating a unified Europe held together by debt (supposedly no more than 3% deficits) – a form of economic MAD (mutually assured destruction) – just went far beyond what they thought was possible. They failed to take into account the possibility that governments can and will “cook” the books.

    I think they knew exactly what they wanted to do – force a political union through fiscal integration – but didn’t expect it to work out this way.

  • freemarketeer

    Being in my mid-20’s and having no formal education in economics, I latched onto MMT pretty easily. But I ahve no formal education in economics because I found out what that entailed and thought it was a crock. I latched onto MMT because it is logical.

    I don’t quite understand how MMT is a “theory”, however. The operations of a man-made and man-controlled system are straight-forward unless there is some Stonectter-esque secret operation involved. We’re not talking about the behavior of markets, here (I’m under the impression MMT is all descriptive, not prescriptive).

  • Brick

    I would not argue about bad theory leading to bad predictions, but whether MMT predicted the precise cause and effect for the problems in europe I am not so sure about. Some austrian school economists predicted the failure as well but for subtely different reasons, so the important thing is cause and effect as is surmised here.

    The first comment by Wynne Godley suggests a government needs a central bank. No nobody suggests California needs its own central bank and I think the important thing is that, a CURRENCY needs a central bank which can be called apon to take appropriate action. Now the FED cannot take action to support the economy in say florida over New York, so I am not convinced by this argument. That the economies are running at different rates due to different fiscal policy and lack of a central treasury, leading to the central bank not being able to apply appropriate action for each individual european sovereign I might agree with.

    As for the extract of Randall Wray’s comments or even Stephanie Kelton’s comments then I would have a lot of sympathy in a way for the argument. There are some counter arguments which should be taken into account. The first is that although the Eurozone does not have a single treasury, European union (EU 27) does have a partial treasury. In part this involves taxes from the likes of Germany, the UK and the Netherlands being redistributed and spent in other european countries. The size of these transfers (120b) goes some way to explain reluctance on the part of some european nations to contribute more to the idea of europe. My thinking is that the Maastricht treaty ws supposed to combat this problem, but it was not flexible enough, sovereigns fudged their reporting to get round it and politicians eventually ignored it. Perhaps the problem was that the treaty should have set limits that were calibrated against GDP. There is also niggles of discontent that the distribution of European Union money promotes maintaining dis-equilibreum over growth.

    Warren Mosler’s argument seems to be that the ECB is not flexible enough to intervene in the way that is needed. Again I find my self sympathising with that view, but would query whether it would achieve the objectives of stabilising a european economy. There is suggestion that capital and liquidity that flowed into some european countries was misspent on things that did not really help the economy much. Seems to me you might be better defaulting the bad debt and using the ECB fire power to keep the usefull parts of the banking system running. That to me is a slightly different criticism of the ECB.

    So I am not sure the cause and effects are exactly right from the extracts you picked for bold claim that MMT gets it right, although its a fair argument it might be more right than some other economic schools of thought. The root causes for me is the fiscal differences in policy between sovereigns in the euro area and a missing central debt agency, with a touch of ECB politics thrown in.

    Michael pettis has a good post up about europe and I think points his finger at trade fiscal policy differences between sovereigns.

  • KB


    First of all, I think MMT is very “common sense”.
    Regarding euro – it was a very good call, but the system itself does not necessarily have to fall. As many people already mentioned, the current euro setup resembles old gold standard. We can debate what is better, the current monetary system in the US, or gold standard, yet we all know that gold standard worked quite successfully for long time. The problem is, to operate under it, a government has to have completely different attitude regarding current account, budget deficit, taxes/expenditure structure, and bonds issuance. EU lives as if it is US, which, we all agree is completely wrong. Thus, the failure is imminent.

  • BB

    Only one question remains; Will Germany/France leave the euro or will the perhiphery leave the Euro?

    The answer to this question will dictate which way to bet on the Euro.

    My thinking is that Germany/France will kick the offending nations out. I mean, why re-paper (currency) your entire economy when you can make the offenders do it!

    This so much better than the sunday night movie.

  • pafka

    I am curious to learn how this would affect the US economy and US dollar. Do any of you guys have an opinion/scenario of how it may play out? Thanks

  • vyw

    hi Cullen:
    It looks like Dr. Krugman is agreeing with your analysis:

  • nark

    freemarketeer- perhaps i’m coming from a similar position to you, but i don’t know how you claim that the operations of a man made system are straighforward? and if you did want to model such a system accurately then i’m sure that looking into the details of central and commercial banks would be an essential first step.

    the problems with a theory in the context of a “national debate” though are that 1./ you’re attacking a straw man (admittedly one that is widely believed in) which doesn’t need, in itself, a theory to stand against it; just some facts would be fine 2./ politics

  • Geoff

    Wow, you weren’t kidding when you said long winded!

  • innertrader

    As a human being and a trader I also think MMT to be very “common sense”, but then why didn’t everyone see it? Is it because the general population are never exposed to “common sense” thinking in our socialist school systems? Is it due to the fact that people today are taught that they are not responsible for their actions? I went through a bout with my own daughter (a National Merit Scholar) during her college years. However, once she got into the “real world” of having to make a living and away from her socialist professors she has come around to the facts of life. I don’t know the answers to these questions for sure, all I do know is that this country, more so than the EU, is in for huge problems due to this type of teaching, thinking and the resulting socialist actions thereof. I’m reading this morning that the president is in the process of another huge step toward socialism using the current college debt, while “buying” a huge number of votes at “your” expense in “dollars and freedom”. It seems to be never ending and explains why all 3 of my personal trading heroes have left the USA in the last 10 years. They sold out and are gone. I think that was good “common sense” too!

  • John Carney

    I’d put this slightly differently. It is not MMT that defies common sense. It is MMO–modern monetary operations–that run so hard against the grain of common sense. People have a lot of trouble understanding what money is in a world that has left commodities and fixed exchange rates behind. So of course anything describing the operational facts seems very far removed from common sense.

  • jt26

    MMT is the only problem with the Euro? At the time, I remember saying to myself how there were SO MANY good arguments showing the flaws in the Eurozone, as opposed to the benefits (mostly from Brussels’ eurocrats) and that it would come back to bite them:
    – leaders didn’t seem to understand the failure of the ERM
    – no unified taxation
    – no unified army (at least that flaw hasn’t come to haunt them)
    – no constitution
    – no true labour mobility
    – no abilitiy to enforce Maastricht, nor to leave the Euro
    – …
    It was just one big Hail Mary.

  • VII

    What does this mean?

    Could this be the precurser toteh ongoing torrent of monetary liquidity?
    First from the U.S next Europe and soon China?

    WE are adding 5% to Crude Oil today!- For those astute investors backwardation!
    This is not a sign post for a healthy period for SPX. I won’t spend too much time on facts(candidly on this call I’m not at liberty to share the data-It’s not mine and don’t have rights to share it) But it’s not what I say but what I do…..WE JUST added 5% to Crude today. We’ll end up close to 10% depending on the prices we can obtain.

    What I read above is…”bad policy”. I couldn’t agree more. Don’t let bad policy deter you from taking actions that bad policy encourages. Easy money and future inflation. Thus…it is not a strong economy that encourages higher oil bad bad monetary policy..and the facts of the data we saw across my desk.

    If you don’t agree then don’t do anything.

  • Tom

    I really dont get how someone like me with no financial/economic background can “get it” in a year or so that Ive been learning MMT, and yet smart economist types see it as some sort of alien language.

    It does really seem like its blatantly obvious once you “get it” and makes me wonder why more dont. I come from a science background and definitely support the empirical aspect of MMT, so maybe that’s why its easier for someone young like me to pick it up? Maybe its a combo of not being tainted and a math/science background makes it easy.

  • VII

    USO-has some issues that are negatively affected by Contago..and positive to backwardation
    OIL-is and ETN-subject to the credit of Barclays-could be issue?
    DBO-Powershares…manager thinks they have some skill rolling contracts?j

    We bought OIL-5%
    We bought GLD-5% in addition to the 6% we have Today.

    Cash levels now at 40%

  • wh10

    Good point.

  • Colin, S.Toe

    “Some economists say MMT focuses too much on reality”

    This is the part that just floors me – especially for a discipline that purports to be a ‘science’.

  • VII

    sorry..USO-5% we bought USO…for some reason MFGlobal scares me enough that I wouldn’t buy an ETN going into 2012.

  • Scott Fullwiler

    the point is we explained how it would all go down–do you want to argue that the things predicted didn’t happen? Or that what was predicted didn’t end up being the core issues for EMU countries to deal with? Seems to me that was spot on. Obviously, as things began to happen, EMU and policymakers started to figure out what some of the problems were and tried to find ways to respond that frequently violated the original terms or at least spirit of the EMU; it seems strange to use that as an argument against what we said 10 years ago, not to mention the fact that we’ve been reporting it as it happened the past few years and were still a step ahead.

  • casanova

    There is a logical fallacy in all of this “Chartalists were right about the Euro” idea.
    Friedman predicted that the Euro wont survive its first major recession too.
    Does that make him a Chartalist too or his economic doctrine right?

    The problem with the economics is that so much garbage is written by all kind of experts on all kind of subjects that in hindsight you can cherry pick any kind of information to make you look like a genius and say I told you so.

    Had the Euro been successful, I am sure Chartalists would find some one who predicted that too.

  • Vassilis Serafimakis


    The Britons have avoided the Eurozone’s debt crisis for all the wrong reasons (they stuck to the pound out of purely nationalist preferences, refusing to grant political authority for their currency to damn Brussels – which is only a few miles from Waterloo, lets we forget!) but avoid it they did!

    Some times people are saved for all the wrong reasons. If I avoided sex for religious reasons, the chances of me getting a STD are low.

    So, Thatcher and the rest of the Eurosceptics in British society are flush with glee at Europe’s problems not because they had foreseen anything (their economics are pretty dismally classical) but because they are opposed to the very notion of a united Europe, common currency or not! Yes, Britain’s “continental policy” has been pretty consistent for the past five or six centuries: Prevent through political means and alliances the emergence of any power that could unify Europe under it and, if all else fails, go to war against it, alone or with its allies. Albion acted out its policy against Spain, Portugal, the Netherlands, France and others.

    Come back, Charles, all is forgiven…

  • Cullen Roche

    Are you denying that those predictions were right? Only a man without eyes could say such a thing.

  • Colin, S.Toe

    “Being in my mid-20′s and having no formal education in economics, I latched onto MMT pretty easily. But I ahve no formal education in economics because I found out what that entailed and thought it was a crock. I latched onto MMT because it is logical.”

    I am not young, but had avoided economics for similar reasons. It never seemed to provide an answer for the most basic question: ‘Where does money come from?’ Then MMT came along and did just that.

    (I did get a solid grounding in science/math, and later, hands-on experience with double-entry accounting – both of these seem like major advantages.)

  • Tschäff Reisberg

    You can add Geoffrey Ingham to the list of MMTers who called it:

    As money is not a ‘neutral vail’, but rather a weapon in the ‘economic battle of man with man’ the legitimacy and effectiveness of any monetary system ultimately depend upon the enforcement and/or acceptability of a settlement between the major interests – that is to say creditors and rentiers, debtor classes of producers and consumers and the state itself. The potential weakness of the euro in the face of financial crisis is twofold. The first source of weakness as we have seen, stems from the absence of an overarching Europan political sovereignty that could speedily and unequivocally grant the European Central Bank the power to abandon the rules that might prove to be ineffective in a crisis. The second foreseeable source has the same basis. The Maastricht settlement, with its predominantly global creditors and money-capitalists, has been imposed on the other major nationally based interests – producers and consumers. Essentially the same regime is to be found across the capitalist world. But nowhere else are the constraints based on such inflexible stringent rules, and nowhere else do they exist in a sovereignty vacuum. In Goodhart’s view, ‘the defining moment for the eurozone will arrive when a (major) country is required by treaty to take deflationary fiscal action at a time when its economy is suffering the worse stagnation’ (Goodhart 2003:194). Any individual state’s non-compliance with the Maastricht conditions would effectively remove the credibility and political legitimacy of the euro. The response of the global money markets cannot be assessed with any confidence, but events in the euro’s novel monetary space may well help to demystify the ‘nature of money’ more thoroughly.

    As it is constituted by real social relations, money is an active element in social life- in Weber’s terms, a weapon, as I have constantly stressed. The attribution of real force and efficiency to money does not entail a metaphysical nominalism, or, more prosaically in orthodox economics’ terms, a ‘money illusion’. This appears to be the case only if the economy system is taken to comprise nothing of importance other than the ‘real’ exchange ratios of commodities produced by individual optimizing strategies of economic agents. But this weapon, as we noted in the Introduction, is not only used despotically by the different interests in the constant economic struggle; it is also a collective resource – that is, infrastuctural power. The advance of human society’s organizational capacity has been accelerated by changes in the social production of money – most notably by the balance of power between money-capitalists and the state in early modern Europe. As Weber also concluded, capitalism thrives on a delicate balance of its economic interests that prevents one group from achieving monopoly dominance. He believed that too great a concentration of power in the hands of one class -labour, producers, rentiers, etc – would inhibit the dynamism of the struggle. Following the conception of money as a neutral medium in a frictionless system of economic exchange, the Maastricht Treaty attempted to de-commission the weapon. By doing so, the European Union has temporarily enfeebled itself. The logic of the situation suggests – but of course can never determine – that it regains the power by placing its money in the hands of a sovereign body.
    Source: Ingham, GI. (2004). The nature of money. Malden, MA: Polity Press.

  • Geoff

    It is amazing that this FOFOA character has clearly spent significant time studying Cullen, Wray, and others, yet he is still a hyperinflationist and a gold-bug. The best part is when he calls MMTers repulsively arrogant. It seems to me that the pot is calling the kettle black.

  • casanova

    I am not denying the predictions.
    But trying to promote Chartalism thereby is a “non sequitur” logical fallacy.
    Just because some Chartalists predicted smth accurately, it does not follow that Chartalism is an accurate theory as you try to portray it.

  • Cullen Roche

    Okay. So why don’t you refute the point then. Show us how chartalism is wrong rather than just continually repeating your same talking points. The reason why no one takes your comments seriously is because there is no substance to them. Only you can fix that. Until then, the other readers will continue to see you as a troll and nothing more.

  • Gary_UK

    Whilst the MMTers may have been right with their predictions (so far), we won’t know for certain whether the Euro currency or the Dollar currency (and their attendant monetary systems) is the best option until we see which is the last man standing.

    As I always argue, the governments of the world ought to be revenue constrained, and let the market set rates of interest and allocate capital accordingly. I do hope the ECB is not influenced to break its commitment to a stable currency, the Europeans don’t know how lucky they are to have price stability.

    Any economic pain must be felt at some point, and whilst America has clearly decided to try to push the inevitable day of reckoning into the future, it seems the independent ECB will force the day of reckoning pretty soon.

    For what it’s worth, I believe some countries will exit the single currency, and have a relationship with Europe, like that of the UK. The remaining core and the Euro will be stronger as a result. My money is on the Euro to outlast the dollar, and assume the mantle of the next global oil-trading reserve currency.

    (Is that better Mr Roche?);)

  • Cullen Roche

    Superb comment Gary. Even if I don’t agree with it entirely. :-)

  • Ramanan

    Okay Brick … you haven’t seen the complete quote

    “… The Treasury paper also takes the view that what happens after EMU is a question that can be shelved: ‘Adopting the single currency means, by definition, surrendering control over monetary policy, but no further loss of national sovereignty would necessarily be bound to follow. Europe’s governments may well choose that course. Or they may choose otherwise.’ I don’t think this covers the ground.

    First of all, if a government stops having its own currency, it doesn’t give up just ‘control over monetary policy’ as normally understood; its spending powers also become constrained in an entirely new way. If a government does not have its own central bank on which it can draw checks freely, its expenditure can be financed only by borrowing in the open market in competition with business firms, and this may prove excessively expensive or even impossible, particularly under ‘conditions of extreme emergency’.”

    and .. from here

    “I recite all this to suggest, not that sovereignty should not be given up in the noble cause of European integration, but that if all these functions are renounced by individual governments they simply have to be taken on by some other authority. The incredible lacuna in the Maastricht programme is that, while it contains a blueprint for the establishment and modus operandi of an independent central bank, there is no blueprint whatever of the analogue, in Community terms, of a central government.”

  • cuwitay

    Lacuna = missing piece of text, long period of silence in a piece of music, lack of law or legal source addressing a situation, a Marvel Comics superhero.

    Yes, I had to look that one up. The second definition seems to fit with the whole shuffling of deck chairs meme in Europe, but I really think a superhero is what is actually needed here.

    Just sayin’

  • Max

    Some people have mentioned that many other economists thought the Euro was a bad idea. Yes, but few predicted the current crisis in detail, i.e. an emerging-market style debt crisis.

    The mainstream objection to the Euro was that it deprives the countries of an independent monetary policy and flexible exchange rates. Which is true, but is not why the Euro is in crisis.

  • Gary_UK

    I didn’t think you would somehow.

    I have a fun hour (or more) ahead of me now, reading FOFOA’s views on MMT and money.

  • Stephanie Kelton

    Another one who got it right — and who inspired so many MMTers — was Charles Goodhart. Economist at the London School of Economics and member of the Bank of England’s Monetary Policy Committee from 1997-2000. I can’t think of anyone at the Fed who is capable of this kind of deep thinking.

  • casanova

    Calling me a troll does not explain as to why you use a logical fallacy to subtly promote smth to unsuspecting readers here as being accurate where in fact there is no correlation whatsoever between some Chartalists predicting smth right and Chartalisn as a theory being accurate.

  • Gary_UK

    Would anyone have an idea as to these slightly odd movements at the Fed please?

  • casanova

    One more point and I am gone for the day…

    “Show us how chartalism is wrong rather than just continually repeating your same talking points”

    One more logical fallacy in your reasoning.

    Add argumentum ad ignoratium to the list of non sequitur and ad homminem, the most frequent inconsistencies in your logic.
    Appealing to ignorance by assuming smth is true because it has not proven false is a logical fallacy.
    The burden of proof rests on the person who makes the claim, to prove it is true.

    Just like Greenspan, you are saying that the critics of my policies must prove that I was wrong. It is the other way around.

    I met some flying aliens last night…prove that I did not!

  • Dunce Cap Aficionado

    I can’t believe I’m doing this…. but I’ll bite.

    Calling me a troll does not explain as to why you use a logical fallacy to subtly promote smth to unsuspecting readers here as being accurate…

    I have never seen you prove MMT to be inaccurate or a fallacy despite declaring it many times.

    I am sure you are as tired of this conversation as anyone who responds to your comments must be, but please respond here with your ‘disproving’ of MMT and lets start this circus from the beginning.

  • Cullen Roche

    Nonsense. Lee Adler still doesn’t understand how the central bank works. Beowulf, on the other hand, does:

    “You’re confusing the thunder with the lightning. The sale of assets is what caused the drop in cash deposits, not vice versa. Think about it, if a bank (for itself or as an agent) buys an asset from the Fed, where do you think the purchase money comes from?
    The currency swap with the ECB was clearly an effort to help out our friends across the sea, isn’t the point of any Fed reverse repo draining dollar reserves and not “borrowing cash”?
    The Fed has no more need to borrow dollars than Keebler elves have to borrow cookies; their power to make more is unconstrained and absolute. “

  • Rick

    I wonder Mr. Roche why you thought that was a superb comment. Obviously, its author has no proper exposure to reality in other EU countries. The euro has not enforced price stability to all nations of the EU but only to those that have surpluses. But as you have pointed out already in previous posts, the surpluses of some nations are the deficits of some other nations. If the debtor nations leave the EU, this process will continue with the remaining nations, i.e. the Germans will export inflation in the form of rising interest rates to the other nations.

    The only way for the euro to survive is for Germans to accept that their prosperity is due to the demise of other nations, which for whatever reasons decided to import from them in excess of what they exported and thus carrying a large current account deficit. The GIPS current account deficit amounts to $183 billion and that is matched by the surplus of Germany of $182 billion.

    It turns out that the euro currency is setup similar to a casino game where the house has the edge and the players (GIPS) are subject to gambler’s ruin.

  • Cullen Roche

    Flying aliens, a few sly ad hominems. This comment is about par for the course with you. Thanks for dropping in again today. You are not succeeding in making me dumber though. And while you’d like to think that the readers here are also just naive and ignorant, my demographic stats say otherwise.

  • Cullen Roche

    Personal ongoing joke between myself and Gary. Don’t read into it. I didn’t say I agree with him…..

  • Dunce Cap Aficionado

    I take umbrage with that!

    You know you have at least one reader with high levels of duncery…. (adjust conical cap).

  • http://Toobadhe’stotallymissedtherallyineveryotherassetclass Steven

    Maybe you are correct on bonds, however stocks have yet to reach pre-crisis levels. If you look to the period since creation of the Euro and not since the bottom in stocks, gold has crushed any alternative investment. Inflation adjusted returns of other investments significantly negative.

  • Dunce Cap Aficionado


    The onus of has been filled by many.

    And this is a short list of links to lists of sources. MMTers have been doing and publishing work for decades. The onus is definitively on you, casanova.

  • Cullen Roche

    This is the most blasphemous defense of the hyperinflation position – that being bullish on gold prices means they’ve been right. That’s as absurd as someone who says that a permabull’s analysis about the US economy has been right since 2009 because stocks have rallied. The market is not the economy. This goes for gold also.

  • Pippi

    Gary, you win. The internet isn’t large enough for the two of us, so I will leave. Yes, I am completely deleting myself from the internet since I’m not this stable. If anyone looks for me (TO APOLOGIZE), you will find me in the fetal position, rocking back-and-forth, drooling on myself.

    So, in all fairness, I get to put in one last request: Tell FOFOA to find a space WIDER THAN 2.5 G-GAMN INCHES IN WHICH TO ASSAULT THE PSYCHE OF UNSUSPECTING VICTIMS. FFS.

  • boatman

    not being able to create assets out of thin air (and then dealing with the bad long term results) to make up for unrealistic unsustainable entitlements given to an electorate for votes…….. in the long run, will not be a vice.

    said electorate needs to come back to reality…..the problem is the entitlements, not the fact they cannot expand their money supply to paper it over til tomorrow…..for them, tomorrow is today….in the long run that might be better.

    for the US tomorrow is a few days later is all.

    there is blood and then there are turnips.

  • Dan Kervick

    It’s not a logical fallacy. It’s a straightforward application of the hypothetico-deductive method, the method of science. If a theory predicts some phenomenon will occur, then if the phenomenon does occur, we have evidence in favor of theory.

    It’s not a “proof” of the theory – but it is evidence.

  • Gary_UK

    But it’s great exercise for your mouse-operating index finger!!

    Enjoy life offline.

  • Pippi

    There is a much better use of one of my fingers. Hint: it’s not my index finger, since I used that one in my last “Pull My Finger” review of one of FOFOA’s posts. Next one over.

  • beowulf

    “They don’t have to unlearn everything the neoclassicals taught them….”

    Exactly! I once made this very point to Scott Sumner by sharing a true story, too long to post here, that concluded with…
    That’s unlikely or the dying soldier’s last words would have been “Cobb-Douglas lacks microfoundations.


  • marko

    In 1997 70(!) Dutch economists wrote an article in the national newspaper De Volkskrant that summed up why the EMU was not going to work. Just a reminder there’s nothing exclusive about MMT’s we-said-so-claim:

  • beowulf

    Ramanan, here’s a project for you…
    Take the campaign slogan the NY Times handed Dennis Kucinich (during the ‘04 presidential campaign, the Times asked ad agencies to come up with posters and slogans for each candidate), “The Eyes That See Through The Lies!”

    and post it over a picture of Wynne

  • freemarketeer

    I come from an engineering background, so when I think of theory, I think of, say, the Ideal Gas Law. It’s a simplified equation for approximation, and one that has been modified with additional terms to better model reality. This does not work in economics, generally, where assumptions regard psychology, not frictionless motion.

    My comment about being straightforward doesn’t imply easy to understand, of course. The biggest roadblock I had in accepting MMT has been a lack of knowledge regarding central bank mechanics.

  • jt26

    Even if the Euro parents had recognized that they were recreating the gold standard, what lead to their current failure was the inability to increase regulation and enforcement/penalties (financial and sovereign) in the Euro framework and build that in AT CREATION. In the end, whether you are the Euro or the USD or the Yen, the key failure is the same … reckless endangerment via financial misregulation.

  • http://Toobadhe’stotallymissedtherallyineveryotherassetclass Steven

    My comment was only to dispute your point that FO(FO)(A) has been so “so utterly wrong”. On the contrary, their predictions have actually been astonishingly accurate. It is way too early to claim victory on either side.


    Rick, I think you have it absolutely correct but this is conveniently never mentioned or talk about.

  • f

    Is MMTer’s prediction are 100% correct so far?

  • f

    Dear Cullen,

    To sciencest(physics,chemistry..), a theory is correct means it can predict 100% correct and can be duplicate everytime.

    As you know(your are a very knowledgeable person in economics), is ther any economic theory particular MMT predict things 100% correct so far?

  • Gerald P

    Innertrader, I am curious to know what you define as socialism, versus the policies of Sweden and the Netherlands. Their economies seem relatively strong.

  • Cullen Roche

    How have they been accurate? I was on the website for 30 minutes earlier today and found a whole bunch of hyperinflation predictions, a suckers rally prediction in March 2009, a whole bunch of fearmongering about bonds and the USD and a never ending commercial for gold. That’s your idea of “astonishingly accurate”? Enlighten me if I am wrong about them….

  • Gerald P

    European politicians know as little about economics as American politicians. They do understand power.

  • Adam1

    Ignoring what’s right in front of your face just proves your mental laziness…

    •Reserves are the basis of the banking system upon which all banking transactions rely – FACT.
    •Reserves can only be used to extinguish tax payments; buy government issued bonds; buy currency or coin; or settle payments between banks – FACT
    •Government sales of bonds remove reserves from the banking system – FACT
    •Removal of reserves from the banking system reduces the supply of reserves available for interbank lending – FACT
    •Reduced supply of reserves from the banking system leads to higher rates – Believed to be FACT even by most heterodox economic theories
    •FED/Central Bank has a target interest rate (Interbank Lending Market) in order to maintain proper level of reserves – Definition of Lender of Last Resort
    •If interest rate tries to move from target CB rate; the CB must intervene (add or remove reserves) to maintain its target rate – Believed to be FACT even by most heterodox economic theories

    So long as the central bank can infinitely supply reserves and holds a target interest rate (which is required to fulfill its role as lender of last resort) then fiscal policy is not constrained.

    The rest is just basic accounting which you’d obviously fail.

  • http://Toobadhe’stotallymissedtherallyineveryotherassetclass Steven

    I am not here to disrespect your view. For some reason, I felt compelled to defend FOFOA. Their view is polar opposite of yours and simply holds more water IMHO. So for starters, they predicted the Euro would replace the Dollar as the world’s reserve currency, the inevitable rise of gold upon the creation of the Euro, the financial crisis specifically, the resulting Fed actions to said crisis to save bad debt at all costs by buying it outright for cash, ultimate hyperinflation which if I remember correctly was estimated to be around a decade from Another’s writings, etc. etc. Even if the timing is off a few years or a decade, things have played out to script. Again, it is way too early to claim victory. 30 minutes might not be enough time to draw conclusions on a wealth of information.

  • F. Beard

    the problem is the entitlements, boatman

    I agree. So why are banks allowed a lender of last resort, government deposit insurance, legal tender laws and other entitlements that grant them a money monopoly?

  • Cullen Roche

    I’m not sure how you’re claiming this person predicted all of that since those predictions predate the inception of their website, which was August 2008. Since then hyperinflation was their big prediction. This means rising gold, collapsing bonds, collapsing USD and they said the rally in stocks was a head fake in March 2009. So, as far as I can tell, they’re 1 for 4 on the big asset classes involved in a hyperinflation.

    Most of these hyperinflationists have been pushing some form of the same argument for 10 years or so. They just keep pushing back their forecast every year (and the suckers who subscribe to their newsletters keep buying for some reason). Will we get higher than average inflation at some point? Probably. And then they’ll all act like they predicted the next coming of Christ. Never mind that hyperinflation isn’t coming. Most of these people don’t even understand what hyperinflation is…..See the following pieces. The hyperinflation analysis is literally becoming comedic. That fact that anyone takes this garbage seriously is really unbelievable. There’s actually nothing consistent with the modern day USA and historical cases of hyperinflation. Ironically, hyperinflationists don’t even understand the cause of hyperinflation because they’re too caught up in political rhetoric to do the research required in understanding it. I’ve done it fortunately and helped a lot of people avoid falling prey to this meme (while also remaining bullish on gold).

  • Colin, S.Toe

    False, Such theories consistently make only approximate predictions within limited constraints

    As noted above, ‘ideal gas law’ gives approximate results, as long as pressure is not too great. Newtonian Mechanics, similarly until velocities approach light speed at which point, Relativity becomes applicable. Likewise, wave theory of light ‘works’ at longer wavelengths; particle theory at shorter. (Even Ptolemaic theory reliably predicted apparent motions of heavenly bodies and eclipses.)

    Science is relative and dynamic, not absolute and static, over time. Moreover, to expect any social science to approach the (less than 100%) exactitude of a physical science is inappropriate. In addition, much of MMT thinking is more a description of reality than a systematic theory.

    Ultimately, validation depends on a theoretical approach enabling some real accomplishment that was not possible prior to its application. In the context of economics, if a new approach enabled a real-world economy to be managed with long term better results (eg full employment plus price stability) within arguably comparable constraints, it might be regarded as validated. Monetarism has perhaps undergone such a real world testing. MMT has yet to receive such a trial.

  • First

    Lemonade is not a precise recipe.
    But faith is often stronger than rationality.

  • ryyjjyyr

    Cullen, I understand MMT and US is now in a MMT system and cannot go bankrupt. However has the US economy done well under MMT? In the Bretton Woods system the US economy grew faster on average post war in the 24 year period from 1947 to 1970 (3.7%). In the 24 year period after true fiat currency introduced 1971 to 1994 growth was (3.1%). From 1995 to 2010 growth dropped further to 2.5%.
    I think if you look at labour productivity numbers they show the same story. Before 1971, labour productivity was higher.

    Sure correlation is not causation. My point is not to show that MMT caused lower growth. My point is that there is nothing wrong with economies being based on a Gold standard. Maybe just maybe, the threat of balance of payment crises and the inability to print money and bailout entities caused people to be more focused on real productivity benefiting the US pre-1971.

  • First

    Negative balance of payments can not be replace with fiat money its only an temporary illusion.

  • First

    Cullen, How could there be such financialization if the currency had been back by Gold ?

  • Cullen Roche

    Does it matter? The gold standard is a faulty construct that would have caused much bigger problems than we’re having now.

  • First

    God….. I going for sardines.
    I realize its late.

  • http://Toobadhe’stotallymissedtherallyineveryotherassetclass Steven

    Another and Friend of Another (FOA) discussed these things from 1997 to 2001. FOFOA is Friend of Friend of Another and yes his site is newer. The site expands upon their original writings (from the late 90’s) and the implications of the unique architecture of the Euro and its role in the future monetary world. While you point to the “flaws” of the Euro and its ultimate demise, I see its beauty that was not only built to last but to thrive. Unlike the Treasury/Fed, the architecture forces the hard choices our system will not or cannot. The Fed/Treasury are taking the Dollar down the same path every other currency has walked at the end of its timeline. I do not want to get into a circular debate on stocks/bonds/dollar; only that their three year performance is not entirely inconsistent with FOFOA writings. Time proves all things. Thanks for your responses and for the suggested reading. I’ll take them into consideration.

  • Colin, S.Toe

    What is constant about science is its allegiance to truth; ie to the conviction that reality takes precedence over theory (or ideological bias/vested interest) – and the corollary willingness to question, and modify or abandon, premises in response to new knowledge.

    Science bears an asymptotic relationship to truth: belief in the possibility of approaching truth, and that it matters, becomes an article of faith.

  • First

    Commie joke: “We are in deep s–t,” says the 1st comrade. “The question is,” replies the 2nd comrade, “will everybody get an equal share?”

  • Mike

    On a side note Cullen, why don’t you go after more exotics than the lowly rockfish? You are very close to productive white seabass and yellowtail fishing spots. Heck venture a bit further and you are likely to run into big (40+ lbs albies)…hehehe

  • Cullen Roche

    The water has been very cold this year so there’s been no point going for the pelagics. The average temperate right now is probably 60 degrees out there. Even in August it only got up to 70 or so. It makes a huge difference in this area. If we get up to 75 like most years La Jolla will be swarming with Yellowtail and WSB. Not this year. I went out the other week and we hauled in about 40 fish in a few hours. Mostly rockfish and other bottom feeders, but still fun. I mostly get out there to enjoy the time away from everything. I can spend 4 hours on the water catching nothing and still have the best time of my life. Next year when the water heats up I’ll likely venture south to the great fishing spots. Catalina trip is also in the cards…..Hopefully it will be a warmer water year. You fish this area much? I am still pretty new to the SoCal boating and fishing life even though I spent a ton of time out there this year. I likely have to plead ignorance on not being able to go for the big fish yet….

  • Cullen Roche

    Thanks for the details Steven. I actually enjoyed FOFOA’s critique, but did find it a bit dogmatic (as he likely finds my work). Btw, your posts get hung in the spam b/c of the email you’re using…..

  • Mike

    Actually Since you are in SB I would venture a bit north (half moon area) since the albies is quite literally a few miles from shore. It is a different school of albies than the one coming up from Mexico. i think these albies comes from the Japan to pt concepcion to upstate oregon circuit. And they get big too (60+ lbs). You have home guard yellowtail and white seabass at the channel islands too. Heck if you are heading south, I would rather head to San Clemente island as the get big yellows and big calicos there. catalina gets too much fishing pressure from the weekend and cattle boats crowd.

  • Mike

    Actually around Santa Claus Dr in the SB area is very productive shore fishing for halibuts. They are literally lying in 2-3 ft of water and about 30-50 yards from shore. I have seen guys catch 25+ halibuts in a session (all catch and release of course)

  • SkySavage

    casanova is 100% correct – many people predicted that the Euro would not survive who were not “MMTers”, and it is a logical fallacy (and essentially meaningless) to state that MMT was responsible for the “greatest prediction of the last 20 years”. I don’t see an adequate response to that critique anywhere above.

  • SkySavage

    There are so many sites referring to Milton Friedman’s views on the Euro I could not possibly post them all.
    But here’s a good read. Have fun.

  • Scott Fullwiler

    I didn’t see anything there that dealt with the points Cullen raises here. According to that article was against the euro but not for the same reasons and thus not for the reasons it came crashing down.

  • JWG

    Since I have been visiting this site, the predictive capacity of MMT as applied to the US economy has been very good, and has put money in my pocket, which is all I can ask. The Euro’s failure was a terrific and specific macro-monetary call for MMT that evolved over two decades. Hyperinflation didn’t happen; QE really was mostly an asset swap; the downgrade of US debt was a non-event; default is not possible for the US; inflation is the bogey; Fed independence is a myth; banks don’t lend reserves; etc.

    MMT describes monetary and banking operational reality, whether you like it or not. Fed-Treasury transactions are merely step transactions that can be collapsed and disregarded when analyzing monetary policy. As TPC points out, the left and the right might have very different policy prescriptions resulting from MMT analysis (e.g., I believe that ELR programs cannot possibly work due to the high welfare and Medicaid benefit package in the US), but MMT describes functional reality for the left and the right. Memo to mainstream economists: the US has been in a pure fiat system since LBJ abandoned silver coinage in 1964 and then Nixon closed the gold window in 1971; the Fed and the Treasury are simply two pockets in the same pair of pants.

    I will make an MMT prediction of my own. If the ECB does not step up to stabilize the Italian situation as buyer of last resort (regardless of treaty and mandate concerns), we will soon be hearing this three word phrase: “cascading counterparty failures”; or this one: “gross equals net”.

  • suckmybishop

    good god. By the reasoning of economists listed in this article, MMT only got part of the crisis correct. MMT got the liquidity crisis aspect correct, but, god, the only people that have gotten that part wrong are sitting in the ECB. But that is a liquidity problem. Liquidity problems can turn into solvency issues, which is arguably happening with Italy and soon France.

    However, it is obvious that Greece, Portugal, and probably Spain have a solvency issue and the direct cause of that is balance of payment imbalance. You should find MMT articles which specifically predict that problem, which is the crux of the current crisis, to make your article more compelling. (They shouldn’t be hard to find)

  • suckmybishop

    Two things!
    1) The balance of payments hasn’t led to a sovereign debt crisis in the US, obviously because we can print money. (the trade imbalance is an ongoing disaster for our country though!).
    2) Again, I’m sure there are MMT people who have predicted the current account imbalances as a precursor to the liquidity crisis! In fact, a quote from Goodhart above seemed to be promising.

  • Paul Skinner

    Being right doesn’t matter – it is irrelevant.

    Being profitable matters; it is very relevant.

  • First
  • First
  • Options Trader

    I have a similar background which, like you, has served me well over the years.

  • Bond Vigilante/Willy2

    1. Having a central bank issueing currency (or anything else) simply postpones the inevitable. i.e. a deflationary bankruptcy/default. But the longer the central bank is able to postpone the credit contraction the more severe the deflation will be. Followed by a credit/bond market blow up. USA, China, Australia, Germany, Greece, Iceland, California or Illinois. MMT or no MMT. Currency issuer or currency user.
    2. A recapitalization of the central bank WILL be inevitable AS WELL. DO NOT count on a recapitalization of e.g. (major) US banks.
    3. Any govt (US, Germany, Greece, Japan, California, Illinois) ALWAYS has to compete with the private sector for money in the credit markets. And precisely THAT competition is ONE (and only ONE) reason why interest rates go up and down. And NOT because the FED supposedly sets/controls interest rates.
    4. Even a central bank WILL have to watch the size of its balance sheet. And when I look at the what the FED has done in operation Twist confirms – IMO – that the FED is out of (monetary) bullets. The FED seems to be VERY worried what they’re holding on their balance sheet. The FED has become the second largest holder of T-bonds. So, in effect together with China they have become the T-bond market.

  • Cullen Roche

    Godley discussed this in 1992:

    “What happens if a whole country – a potential ‘region’ in a fully integrated community – suffers a structural setback? So long as it is a sovereign state, it can devalue its currency. It can then trade successfully at full employment provided its people accept the necessary cut in their real incomes. With an economic and monetary union, this recourse is obviously barred, and its prospect is grave indeed unless federal budgeting arrangements are made which fulfil a redistributive role. As was clearly recognised in the MacDougall Report which was published in 1977, there has to be a quid pro quo for giving up the devaluation option in the form of fiscal redistribution. Some writers (such as Samuel Brittan and Sir Douglas Hague) have seriously suggested that EMU, by abolishing the balance of payments problem in its present form, would indeed abolish the problem, where it exists, of persistent failure to compete successfully in world markets. ”

    Godley’s greatest achievement was his work on sectoral balances. I should have spelled this out more clearly.

  • F. Beard

    Trading sardines? Remember not to eat them!

    Gold as money is silly and a gold standard is fascist. Why should anyone be FORCED to use gold as money? Cui bono?

  • First

    Bond Vigilante/Willy2 “The FED has become the second largest holder of T-bonds. So, in effect together with China they have become the T-bond market”.

    Vigilante/Willy2 where did you get that statistics ? Thanks

  • Geoff

    “Great news everyone. Europe was just saved”

    You crack me up with that every time.

  • First

    Until next week.

  • First

    The Federal Reserve has surpassed China as the single largest creditor of the U.S. government.

    “the Federal Reserve at the end of 1Q held about 14% of total outstanding federal debt (debt held by the public). It is, therefore, now the single-largest creditor of the US government.”

    “According to separate data from the Treasury Department, China is ranked second. It owned in late March Treasuries worth USD 1,145bn, which is slightly less than 12% of the total amount outstanding.”

  • Dunce Cap Aficionado

    So the single largest creditor of the US is…. The US.

  • Dunce Cap Aficionado

    … When they’ll ‘save’ it again.

  • Dismayed

    “Appealing to ignorance by assuming smth is true because it has not proven false is a logical fallacy.”

    Well, casanova, you have certainly proved that you do not understand the scientific method. MMT fit the facts. No one can ‘prove’ a theory correct – they can only refute it by producing evidence that the theory can not explain. You always fail to produce the evidence that refutes the theory so you are, therefore, a troll.

  • Geoff

    Bonds sold off hard following the approval of the austerity measures in Italy. Since when are austerity measures are inflationary??

  • First

    I don’t disagree with with you about Gold, My question was: How could there be such financialization if the currency had been back by Gold ?

    Gold may not be the answer but what we have since 1973 did not work that well did it? We have had the very high inflation of the 70’s and after Volcker pushed rates to Historic high 18% Treasury and money market where at 22% we had a prosperity that ended up being a series of historical bubbles that ended in a total financial collapse that is still going on.

    Gold as money is silly and a gold standard is fascist. Why should anyone be FORCED to use gold as money? Cui bono?


  • First

    Dunce Cap Aficionado
    Actually I was wrong as of June it was up to 16%.

  • First

    Since when are austerity measures are inflationary?? They are not but since when did austerity measures mean any thing in Greece or Italy? Its in there culture the word fiscal disciplines is not in there dictionary. Its not going to happen.

  • Pierce Inverarity

    It has nothing to do with inflation; it has everything to do with Italy’s ability to *repay* under austerity measures. The bond market is saying the higher tax burden and/or lessened govn’t outlays will have a negative effect on GDP, which results in lower tax receipts, which … etc. etc. Austerity is a vicious cycle, and the bond markets know it.

  • F. Beard

    The solution is to separate the State and banking. It is absurd that banking have any government privileges just as it is absurd that churches have government privileges. The government does not need banks and as for the private sector why should some, the so-called “creditworthy” be allowed to steal purchasing from everyone else?

  • Pierce Inverarity

    A recapitalization of a central bank is conceptually absurd for any CB affiliated with a country that is the sovereign issuer of its own non-convertible currency. Recapitalize…to what purpose? Even though you seemingly acknowledge the difference between a currency issuer and a currency user, your conclusions are all predicated on a “user” framework.

  • First

    “A recapitalization of a central bank is conceptually absurd for any CB affiliated with a country that is the sovereign issuer of its own non-convertible currency.”

    Thats is correct but only to a certain extent. If you keep replacing lemons in your lemonade by diluting it with water you are fooling your self if you think you don’t need to eventually recapitalizes your lemonade with more lemons.

  • First

    Is it not ironic to see Government owned banks selling those Bond when the same Governments are bailing out those countries.

  • First

    Agree 100% No Government privileges and the same should apply to the heath care fee festival scandal. They don’t compete they send the bills and they are absolutely outrageous and the Government simply pays them. This is the most scandalous conflict of interest and it now going to be mandatory.

  • The Dork of Cork

    I am sorry but I just don’t get it – where is the final payment settlement between nations in a MMT universe ?
    Example – France engages in a supposedly uneconomic nuclear programme – it appears uneconomic in the dollar centric universe of the 80s.
    At the time it merely confers cheaper coal and natural gas prices on its neighbours while it reduces consumption to pay for this apparent malinvestment in a ad hoc monetory ecosystem – where is the payback without Gold in the mix ?

    A world of just paper obligations makes the above endeavour pointless as gaming the systems depletion rate is more profitable until it finaly is not – and if real applied technological improvements are pointless rather then California dreaming which although a money spinner is dependent on the physical world humming along just nicely then we are in a world of S$£t

  • suckmybishop

    Thanks that’s nice. There was also a Goodhart quote about, one country accepting contractionary monetary policy when they are in economic stagnation. (and vice versa) Germany of course, got easy money when they wanted it, and now they get tight money now that they want it. In both cases, it is devastating to the long-term health of the peripheral countries.

  • Pierce Inverarity

    Can you speak in specifics, please? I don’t understand the analogy.

  • First

    “sovereign issuer of its own non-convertible currency.”
    Its own “non”-convertible currency. That is the water in the lemonade.
    As mention it can work but “only to a certain extent”

  • First

    “the final payment settlement between nations in a MMT universe ?”
    Simple you print it.

  • Pierce Inverarity

    You’re a gold bug?

  • Awakened Sheep


    Have you done a point by point review of this yet?
    The catch slogan is “debt free money” – they obviously misunderstand our monetary system, hence their desire to radically remodel it, but they desire a system that MMT teaches we already have (but very few know how to operate). There has to be some common ground here.

    This stuff is flying around like crazy all over OWS related blogs, sites, and FB. It is as if remodeling the system to make it easier to understand (more directly intuitive)could make statements like the “the US Federal government does not have to borrow to fund deficits” down right explicit.

    Thoughts? Is it just a matter of packaging? Does the packaging really matter?

  • The Dork of Cork

    Thanks – no conduction , convection or radiation – just print.
    Me thinks this is the fatal flaw of MMT – a complete absence of energy flow & conservation in its model.

  • The Dork of Cork

    I essentially accept your thesis that MMT is the working model we have now with both taxes and private gov bond buying essentially destroying or removing money from the banking system but I still can’t understand how it can work as a final settlement between nations.
    This final settlement dilemma is being played out in Europe right now – with Germany/France vs the rest.

  • http://none rdathink

    I’m new to this topic and MMT (after finally figuring out what it represented). I’ll endeavor to read some of the foundations (honest) currently open in another tab.

    Having read through the above, I’ve not detected the question:

    Has any MMT prediction been incorrect? This, of course, is one of the acid tests of a theory’s validity.


  • Charles Hayden

    Cullen, you’re a national asset in the war on economic stupidity. Your work deserves a medal. Deficit Owl solidarity!

    I would add, though, that 1st Generation MMTers did not just predict the Eurozone crisis, they were right about the Clinton Surplus and insufficient Bush deficits, too!

  • TC

    Not only that, they miss the impact of Long Only commodity funds. These have become an absolutely huge factor in the commodity markets.

  • TC

    The Korean war was nearly the same as an Jobs Guarantee with a focus on blowing stuff up.

  • TC

    I’d argue that MMTers concern themselves far more with real resource constraints than any other school of economics. Witness Moslers proposals on Long Only Commodity Funds and speed limits.

    Not only that, MMT is the only school to focus on real growth at the expense of inflation. Every other school uses inflation fears as a reason to restrict real growth.

    I don’t think I am claiming anything controversial to state MMT as a school believes: “We want to maximize real growth, period. At some point, inflation becomes counter productive to maximizing real growth. But never, never forget we want the most real growth we can get. In the short and long run, it’s all that matters.”

    We recognize real constraints on growth. We just happen to think that monetary restrictions on growth should be largely ignored.

  • Michael Harrington

    Not to take any wind out of MMT’s sails, but I think the claim to be the only school of thought to see the EU’s problems on the horizon is a bit overstated. As a grad student in 1991 I wrote a paper on Europe 1992: Conflict or Cooperation? analyzing the issues confronting the EU. I used the analytical framework of institutionalism and the New Economics of Organization in combination with a cursory application of the Mundell-Fleming model’s trilemma of fixed exchange rates, monetary independence, and free capital movement to outline the likelihood of success or failure for the EU under the Single European Act. No predictions, as integration was a 40-year process from the European Coal and Steel Community to the European Common Market to Maastricht (and the EU has not disintegrated yet), but I certainly outlined the risks an economic shock would cause to the union that was moving toward currency union before the harmonization of fiscal policies and a supranational fiscal institution could evolve. I had no inkling of MMT, but certainly appreciate its more recent contributions.
    It seems rather rudimentary to me now, but perhaps I’ll post the pdf to my blogsite.

  • Michael Harrington

    I just posted it as a pdf at:
    It’s kind of a 2nd-yr grad school ditty, but somewhat prescient I guess.

    I will give MMT kudos, but predictions always carry more weight when one bets the farm. Some hedgie like Soros or Paulson, citing MMT, should have leveraged billion$ on the sovereign credit spreads and broke the ECB. That would gotten peoples’ attention. Cheers.

    BTW, after reading Mosley’s Economics of Soft Currencies I do have a few questions regarding MMT perspectives that I’d like to raise with you. Since it’s a bit off topic, is this the best place?

  • Cullen Roche

    Hi Michael,

    Here or by email. Doesn’t matter.



  • marko

    In economics everybody is always right for the wrong reasons.
    OccupyRotterdam invited 6 of the 70 to a debate on Dec 20. Nice chance to find out where they’re at now. Will ask some nasty questions.