Over the last 3 years I have continually compared the situation in the USA to that of Japan’s. That was based on the idea that the USA was undergoing a balance sheet recession or a post bubble debt de-leveraging in which the private sector would remain too weak to sustain sufficient economic growth to close the output gap and generate full employment. This would require fiscal stimulus as the government sector becomes the only sector strong enough to offset the growth collapse.

But I’ve made a very important distinction between Japan’s balance sheet recession and that of the USA’s. We are Japan on fast forward. This is based on several factors including our government’s faster response to the crisis, a less severe real estate bubble, spread out equity and real estate bubbles, consumer vs corporate balance sheet recession and the continual stimulus via large budget deficits (as opposed to the start and stop measures in Japan).

I was pleasantly surprised the other day when a fantastic presentation by Nomura’s Chief Economist Paul Sheard came across my desk. It meshes with my general views almost perfectly so I am obviously biased, but it sounds as though he’s been reading quite a bit of his colleague Richard Koo’s work, but ultimately agreed with me on the conclusion that we are not exactly like Japan and have in fact learned from their mistakes. He also makes several other conclusions that mesh with my view including myths about QE’s effectiveness, the Euro area being a currency crisis and not a debt crisis (and requiring fiscal union), QE’s transmission mechanism (or lack thereof) and a few others. As for the “we are Japan on fast forward” them he had 4 slides that sum up his position nicely:

Figure 1

Figure 2

Figure 3

Figure 4

As for the balance sheet recession, I am still seeing a 2013/2014 end date so no big changes there….But hey, in this sea of negativity, the bright side is that things could be a lot worse. We are not Japan…entirely. At least not for as long.


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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  • Alice

    Can I ask why it is common to use Japanese land prices as a basis for comparison against other countries housing prices?

  • Praxeologue

    Ignoring the presumption that more money and government spending are the right solutions if just administered hard and fast enough with conviction and that total net debt levels in US are higher than Japans NET debt levels were… your sample set of 1 observation is weak even by the standards of a positivist, no?

  • The Wanderer

    May be true, but unemployment (in the broad sense) is 20% here, 3 times more than Japan, and 45 million people live on food stamps, not happening in Japan. I have to tell to one of my unenployed friends (an engineer not a truck driver) that he doesn’t have to be worried because we’re not Japan.

  • Brick

    I get the feeling that you think the US has made some good policy decisions compared to Japan from this post. I guess I would not argue with early and positive decisions making a difference, but perhaps there is also an argument that more thoughtful slower decision making has its benefits to. When you look at Japan’s unemployment rate, earnings increases against RPI and manufacturing output rates you could argue that the real Japanese economy faired better through its 10 years in the wilderness compared to the US’s with its rapid reponses. Personally I don’t think the difference is down to policy response but rather the resilience of the japanese economy due to personal savings rates, the carry trade and culture.

    While you can argue that the US learn’t from policy mistakes in Japan and tweaked their response they both tried variations on a theme which in both cases did not really work as expected. Perhaps the way to look at it is not Japan on fast forward, but a delayed Sweden approach to policy. Having the world’s reserve currency and a large economy pegged to it will make a big difference to the options available and the eventual path taken. Just because two economies appear to have a similar path over time does not mean they cannot branch off at different points.

  • Andrew P

    The biggest difference from Japan is that out stock and real estate bubbles were not coincident, and our demographics are better. Also our bubble was not as big. In Japan’s favor, their bubble burst when the rest of world was still growing. The current mess is global. Otherwise, it is very similar. And you may hope that it will end in a few years, but no one knows that. Since the collapse is global, more black swans can arrive from overseas.

  • Bond Vigilante/Willy2

    I have a different view on why the US is different from Japan. And why the US is “”Japan in Fast Forward””. As mentioned before, the US has a Current Account Deficit and Japan a Surplus. That means that the US is at the mercy of its creditors and Japan isn’t. We’ve seen that in july 2008 when foreigners started to sell their Agency paper. That simply forced the hand of the US/FED, to do something.

    So, the US is vulnerable to the whims of foreigners and Japan isn’t. But that also means that, as we have seen in the last 20 years, the japanese were able to “”kick the can down the road”” for more 20 years as well because there was no outside pressure to “”restructure”” their debts.

    And that’s what the US should have done in 2006 or 2007. That would have caused a lot of pain but the US didn’t feel the need to do so. Because Uncle Sam’s creditors didn’t force Uncle Sam’s hand until july 2008. And even then it took two to three months for the US to wake up.

    And – IMO – it will be foreigners AGAIN that WILL force Uncle Sam’s hand to do something. This could/will be the result of a widening US federal budget deficit in combination with a shrinking US Trade Deficit. And I won’t even mention what would happen if foreigners were (forced ??) (again ??) – for one or another reason – to sell all their US T-bonds.

    When I look at the graph with real estate prices in both the US and Japan then that confirms the notion that the US succesfully tried to kick the can down the road as well in 2009 and 2010. But only for two years.

    More over, AFAIK, US real estate prices started to rise (significantly) around 1994, 1995. So, the graph is – IMO – more than a little misleading.

  • fin

    A good read by michael pettis. Big in japan

  • Ben Wolf

    No, the U.S. is not at the mercy of its creditors. Creditors are at the mercy of the U.S., as evidenced by a bond market literally begging the U.S. to borrow from it. The Federal government is effectively doing investors a favor by allowing them to invest in it: we certainly don’t need their money.

  • Different Chris


    Also, the “creditors” of the US buy our paper with Dollars we pay them for goods and services. If we no longer buy their goods and services they are in dire straits economically.

    USG paper is like a savings account for foreigners holding US dollars. Our economy is the lone supply of the Dollars to them.

  • VII


    I’ve explained with fact why your thesis has a low probability of ever working.
    I can’t figure out why your thinking which hasn’t worked or yielded any of the results you thought in the past fast forward to today you hold on to. Other than he you are reading or have come to rely on for your facts has totally mislead you. You can not or will not connect the dots with what has been poor results. Your thinking has totally failed you. And yet you hold on to this notion of U.S bond Vigilantes.

    If this was a new theory in which we would need time to test I’d say keep at it. But you’ve been saying this along time. And here we are today where you predicted the bond vigilante gang would ride and even Bill Gross your leader has left you. The Myans predicted a date and when that date comes they are either wrong or right. You have lost your credibiliy due to the fact that it is ever a moving future

    “The whims of foreigners”? 45% of U.S debt is held by the United States and social Security Trust fund. 25% by other Central Banks and roughly 30% is for profit institutions.

    You make this claim in every post. I don’t think you are a Los Angeles Clipper fan saying they will win the NBA championship(there is a chance one day..) But rather a Liverpool footbal fan who believes Liverpool will win the NBA championship. It’s almost impossible when you look at the mechanics and motivation. It shows a complete misunderstanding of the athletic systems..or in this case Montary Systems used to decide policy, investment and international trade.

  • f

    “…Also, the “creditors” of the US buy our paper with Dollars we pay them for goods and services. If we no longer buy their goods and services they are in dire straits economically. ”

    The creditors Dollar were not 100% used to sell goods/services to the US. A lot of their Dollar were used to buy oil, food form non-US country.

  • Anonymous

    Koo is saying that US is on a worse track than Japan (see business insider for the story)! Cullen, I am afraid your writings have been becoming more and more self congratulatory (the above article, I was right!) and more rigid (MMT is the be all and end all and everything can be solved by it) rather than having a perspective that we are in unchartered waters and sometimes you can be wrong too. At least you may want to be open to different opinions.

    While your site has been a good reference point, it is fast becoming a site with too much ideology (mainly that you and the MMT’ers are always right and you quote Koo when he is in agreement with you but conveniently forget quoting him when he disagrees with your view point!).

    Of course, it is your site and I should not bother saying anything because you have the right to say whatever you feel is right, but this is my 2 cents. Feel free to ignore it.

  • sfamc2

    With all the comments about the weakness of the Japanese economy, why is the Yen so strong?

  • jswede

    they are comparing relative price shifts, not absolute prices.

  • Kostas Kalevras

    Dear Cullen,

    could you provide a link to the presentation if it is publicly available?

  • Zimmer


    Where do you think we bottom out in terms of household debt to GDP in 2013/2014?

  • Bob Salsa

    and now those oil and food sellers have dollars that will do what?

  • jswede

    @anon, you say “MMT is the be all and end all and everything can be solved by it”

    that is not at all the case. you’re not taking the time to understand. MMT is a way of understanding how the system works, not a solution. there is no “solution”.

  • Cullen Roche

    Well, 2013/14 is just the break even point in my analysis. So we’re probably not looking at boom times in the next 5-10 years, but that range is the point where the consumer becomes relatively self sustaining in terms of debt and income trends. In other words, de-leveraging is no longer necessary. That’s a really good sign. But let’s also remember that there are a lot of moving parts here (upside and downside risks) so we’ll be revising forecasts accordingly….

  • Thomas

    I agree, unfortunately. And making comments about people’s identity not being anonymous to you is just not right.

  • ReturnFreeRisk

    No we are not Japan. We have Bernanke who will keep doing silly QE experiments, bid up commodities, then let them crash…boom bust boom bust. Lovely.

    The Bernanke trade is unraveling. Spectacularly.

  • Cullen Roche

    It’s a fact. I come here every day and lay my opinion on the line in an open and honest manner. Don’t visit the site on occasion using one alias (still anonymous) then leave a criticism of me thinking you’re still anonymous. It’s not as if I exposed who this user is anyhow so what does anyone else care? No one here is anonymous to me through the admin controls so keep that in mind. I can handle the criticism just fine and I appreciate the feedback, but if you’re going to throw stones then at least man up and use your real name (even if it’s an alias). Hiding under anonymity just proves that you’re afraid that your criticism might be unwarranted or flat out wrong…..Using a consistent alias at least provides some credence to your beliefs. Hiding and screaming insults at the same time is an absurd way to make an argument and just proves how weak it really is. If you can’t handle arguing face to face with another man then perhaps you should retire from the business of being argumentative.

  • Gary_UK

    ‘This would require fiscal stimulus as the government sector becomes the only sector strong enough to offset the growth collapse.’

    How much did the US Govt (and many others around the globe) spend in 2009/10 to try to ‘offest the growth collapse’? Countless trillions?

    Have you ever considered the benefits of just allowing these things to play out naturally? Let capitalism work, rather than this quasi-communism you now suffer from?

    What good did it do offering cash-for-clunkers, or housing incentives? None at all. Why were the automakers bailed out? Why was AIG? Why is the whole housing market now socialised?

    You guys have lost the plot entirely, and you are faced with so much more of the same. None of it will do any good. You will not recover until the current government go bust, and you can start afresh. Sooner rather than later let’s hope.

  • Cullen Roche


    You’ve been reading long enough to know that I wasn’t an advocate of cash for clunkers, housing tax credits, bank bailouts or any of the poor spending you cite….It’s quite tiresome to see you drum up the same old talking points time and time again without even taking the time to understand my position…..

  • Thomas

    Man up? What’s your problem?

  • Peter D

    Countless trillions? Really? Like hyperbole much, Gary?
    Less than a trillion, 800bn, with a lot of it in tax breaks, actually. And it saved us from the Second Great Depression.

    “Using the most updated data, we can see that in 2009 there is actually about a $544 billion difference between what GDP would have been had it continued to contract as rapidly as it did during the fourth quarter of 2008 and what it actually was. As Holtz-Eakin points out, the total amount of fiscal stimulus during that year was $260 billion. This suggests the Recovery Act produced about $2.10 in economy activity for every $1.00 in spending or tax cuts. That’s a pretty good multiplier.
    And if we apply the same methodology to the entire lifespan of the Recovery Act, not just to 2009, the multiplier becomes even more impressive. The total cost of the stimulus bill was about $800 billion, delivered over the course of two years. The difference between actual GDP through the first quarter of 2011 and what GDP would have been had it continued “falling off a cliff” is around $3.3 trillion—implying a multiplier of more than 4.

    With the non-govt sector wealth eroded by something like a GDP worth, you’d suppose a few billion would be a small price to pay…

  • Peter D

    Hey, Cullen, where did the Comments Edit feature go?

  • Cullen Roche

    It bogged down the site. It’s a heavy duty plug-in and the site’s traffic is too big for it. I’m having someone look into alternative options. Sorry….

  • Peter D

    No problem and thanks for even trying!

  • plain jane

    I just wanted to say “thanks!” to Mr. Roche. I’m an uneducated housewife from Nowhere, USA, but it is finally starting to make a *little* sense to me. The idea that the government debt is just like an unpaid Visa bill is the one I was raised with, but over the last few years that seemed to make less and less sense.

    If deficits were the end of the world, Japan would have gone under a long time ago, yet it still pays out decent pensions to its old folks and maintains a pretty nice standard of living for most of its people. It isn’t perfect, but to hear my friends talk, you’d think it was a hell-hole teetering on collapse. I’ve been there; I know better.

    So the real economy– the natural resources and stuff and services we create– is what matters, while “money” is just a handy way of denominating the value of all that stuff. The bond market is sort of an antiquated way we have of creating those denominators. Bonds are not really different than cash, because it is very easy to convert one into the other. That all makes sense, I think?

    Heck, even I have bonds and indeed I do think of them as “My Savings,” not “Hateful Government Debt.”

    If China did decide to stop buying our bonds, then what? We would just buy them up ourselves?

    Thanks for the hours of entertainment and the very mind-boggling perspective on the world!

  • Gary_UK

    Cullen, if you are advocating zero government stimulus (whatever it may be) then we will agree on something. But I suspect you, and Peter, believe the government should step in somehow with spending? In which case we shall disagree. Me, I’d slash government by 40%, slash taxes too, and let real wealth build again. Too many leeches for that to happen though.

    Peter, nice stats. I’d rather have seen nature take its course and governments stay out of the way. And I think if you re-read my post you’ll see that the trillions I mentioned was related to ‘governments around the world.

    If you believe government can spend, stimulate, or borrow its way to national prosperity, you will be expecting a permanent recovery.I will not.

    Time will tell who is right.

  • Cullen Roche

    Wait, you don’t want the govt to pay off those evil govt debts so you can get rid of your evil savings account? :-) I always love to see people’s reactions when this all “clicks”. You’re welcome Jane. It’s my pleasure and enormously rewarding to see average people understand what is truly a very complex thing.

    Now, the country would appreciate it if you could explain this to our politicians, Fed Chairman, President, etc!!!!

  • Gary_UK

    Jane, just bear in mind govt. bonds can go down as well as up. We’ve had a 20 year bull market in bonds, and yields will not stay down for long. Be ready to take your profits in a hurry.

    Try buying some physical gold, that’s real money, rather than debt, which is a promise.

  • Cullen Roche

    Gold is commodity money. But it’s unique in that it serves very little economic purpose. Because of this, gold is only valuable if it appreciates in price and can be exchanged for paper money in the economy in which you reside. So, it’s best to think of gold as a speculative asset and not as “money”.

  • Cullen Roche

    You want lower taxes. Let’s do it. You’re still not understanding the point though as you’re bogged down by politics. We advocate higher budget deficits. You want less govt? Fine. Cut taxes. We’re on the same page.

  • Gary_UK

    I don’t think I am bogged down in politics, I just factor it in, as it has a big influence on real world events.

    Using the page analogy, I am just turning the last page of the American superpower book, whereas you are still only halfway through perhaps.

  • Thomas

    No, you are not fine with criticism.

    Regarding me and other readers “not providing subtantive arguments” and your “wel thought out position”, recall your June 22nd post “We are Japan on Fast Forward”. You argued that my argument that stock prices should tank was “spurious” and the upside risk to our economy was “stronger growth”. Since then, the market has already fallen 15%.

    I will stick by my post back then that we may very well revisit the 2009 lows in the stock market based on rolling earnings estimates of $60 EPS and a multiple compatible with zero % GDP growth. 30% year government bond yields will touch 2% before the S&P 500 sees 1,350 again.

    Man up to your “stronger growth” vision, will you?

  • Peter D

    “Peter, nice stats. I’d rather have seen nature take its course and governments stay out of the way. And I think if you re-read my post you’ll see that the trillions I mentioned was related to ‘governments around the world.”

    Yeah, Gary, it is always good to have opinions substantiated by actual numbers, not just ideology ;)
    Wanna know how many “countless trillions” the govts around the world spent? You see, the US has a quarter of world’s GDP, the US spent really something like $500bn (because $100 was just an ATM tax extension that was supposed to happen anyway and $200bn were in your beloved tax cuts). So, you can expect the world to spend no more than $500bn times 4 = $2T. Which turns out to be about right:

    “Fiscal measures have been announced but have been relatively inadequate: The total
    global stimulus spending is $1.98 trillion.
    Among 32 countries (including the G20), the
    stimulus spending in 2009 accounts for approximately 1.7% of GDP as compared to the
    2% recommended by the IMF. Furthermore, fiscal stimulus as a percentage of global GDP
    is 1.4 %.”

    Phew, “countless trillions” indeed. As I said, Gary, better have your opinions backed by facts than by ideology.

  • plain jane

    Gold is not very practical for me, I don’t believe– my house is not very secure, and I imagine a local bank would probably charge a fair bit to babysit.

    If I were afraid of my money becoming worthless, I would probably be storing up dry beans and firewood and wool instead. (it never hurts to have some beans in one’s cupboard, anyway.)

  • Cullen Roche

    First of all, stocks are down 10% since June 22nd. You very clearly predicted something FAR more dire – a 50%+ decline:

    The downside is a 50%+ cut in asset prices.

    If you want to claim that you’ve been right then that’s fine, but 10% is a garden style variety downturn. Nothing to go crazy about and start beating your chest over. My algo triggered its last sell signal on July 8th – 3% higher than your 50% downside remark. I have been out of the market ever since (aside from a meager German equity purchase the other day) so if anything, I’ve actually been more right about the price action than you were.

    As for my growth comments. You’re misconstruing my comments – I said the “upside risk” to my outlook was “stronger growth”. I have long maintained that the USA is in a period of below trend growth. The fact that you could try to label me as an advocate of “strong growth” is practically absurd. There are HUNDREDS of articles documenting my consistent position. What I said was that things aren’t collapsing:

    I am not super optimistic so I don’t know where that comes from. I am just trying to shed some light on the picture with an honest assessment. Yes, things stink, but it’s not the end of the world that so many forecast. We’ll get through this. And some pain will occur. And yes, if some exogenous risk were to derail everything then my marginally optimistic scenario could be thrown down the tubes….This is a fluid situation. For now, it doesn’t look like the end of the world to me….

    Don’t get me wrong – there are huge risks out there. If housing turns further down, China craters, European debt crisis, etc then my somewhat optimistic thinking gets thrown down the tubes and I hope I’ll respond accordingly. For now, I am not convinced that we are going to suffer another lost decade. It might be tough sledding for a few more years, but it’s not the end of the world in my opinion.

    If the US economy collapses my outlook will be proven wrong. But let’s see the -5% GDP print before that happens. Thus far, GDP is still positive and showing no real signs of collapsing.

    Again, you’re proving my point. I can perfectly handle criticism. What I can’t handle is when people come here and totally misconstrue my commentary or facts in an effort to prove their own thinking right – something you’ve clearly done here.

  • Gary_UK

    You criticise my language Peter, crack on.

    You think that $1,980,000,000,000 was well spent then? To buy a one year reprieve from the depression? How much will they spend next year I wonder? Maybe for a 6 month ‘recovery’. $4,000,000,000,000?

    The world is turning, the mood is changing, the bubble is bursting, the game is up. Socialist governments can cook up whatever GDP figures they like, but nearly 46 million Americans are on food stamps. And true unemployment is pushing 16%. Some recovery.

  • Gary_UK

    I hope Cullen doesn’t mind me posting a link here. But Jane, please do read this:

    Even if you disagree with its conclusion, it’s an interesting read!

  • Peter D

    Gary, I criticize your opinions not substantiated by facts. You think that writing down zeros will make point where there is none? Maybe try counting the deficit in pennies or tenths of pennies – this will require even more zeros!
    You see, you need to actually study what happens “when the market tries to right itself”. Like, actual examples of, say, going back to the Great Depression and Roosevelt Recession of 1937:

    -1929-1930: President Hoover’s first response is to do as little as possible to let market mechanisms do the job of “correcting imbalances.” The general consensus is that government deficit would lead to crowding out effects and so would worsen the economic situation. As a consequence, those first two years records a fiscal surplus

    -1931-1932: The economic situation worsens and enters into a debt-deflation process. Hoover is forced to increase government involvement through policies like the Reconstruction Finance Corporation. This leads to a fiscal deficit representing about 2.5% of GDP.

    -1932-1933: Public opinion is outraged by the “massive” deficit and “waste.” Roosevelt runs a Presidential campaign that promises to bring back the federal government fiscal position into the black; he is elected in a landslide.

    -1933-1936: Roosevelt puts in place New Deal programs and experiments a bit more with fiscal deficit. While the scale of ND programs is quite impressive, their actual impact on the deficit-to-GDP ratio is limited with a deficit of 5% relative to GDP. Unemployment rate (Figure 3) goes down from 25% to 9% if one includes WPA, CCC and others New Deal employees into the employed population (official data counts them as unemployed). WPA, CCC, and other work programs bring the US into the 20th century in terms of infrastructures (electrification, irrigation, schools, etc.). However, all this is completely overshadowed by outcries about the “unsustainable” deficit and the supposed “communistic” nature of the New Deal.

    -1936: An election year, Roosevelt feels the pressure in terms of discontent regarding the deficit so he proposes to cut New Deal Programs massively (see Figure 2) and to lower other government expenditures.

    -1937: Recession year. Roosevelt implements his proposal to “restore fiscal sanity.” The decline in government spending leads to massive layoffs, and so to a decline in wage earnings. Profits of companies also go down because of decline in aggregate demand. Nobody is happy even though the deficit-to-gdp ratio reaches 0%.

    And you are a very inattentive reader, Gary. The stimulus did not just buy us a “one year reprieve from the depression”. It saved us from depression. It is like being saved from drowning. The fact that we’re alive and afloat is good enough for me. Yes, I would’ve loved a larger stimulus and it would have put us firmly into recovery. But even with the measly $500bn we got a multiplier of 2 to 4 – awesome numbers! What have you got? When did your way ever work? In fact, for the last several decades, the US moved steadily in the free market orthodoxy direction. And yet, looking at every indicator, the situation only worsened. How come? If your policies are supposed to be good, how come moving towards them makes us worse?

  • Roger Ingalls

    Welcome PJ!

    I think you have plenty of beans in your cupboard already!

  • Ted

    Here’s where I have a problem Gary: I don’t think people should be allowed to throw out phrases like “slash government 40%” w/o being specific on what you would cut. I’m guessing included in that 40% would be a lot of jobs for teachers, military, police, nurses, and a lot of IT and engineering professionals that work on govt contracts. There is some waste no doubt, but there is also a lot of added value there. Do you really think a drastic cut like that would help the economy, improve confidence, or fix any of our problems? I’d say there would be a burden of proof on you to show how that would help us build wealth in a deflationary environment like this.

    I do agree that measures like cash-for-clunkers are a waste of time and instead the govt should send everyone a check.

  • Roger Ingalls

    I suppose you have to allow anonymous comments, but frankly I wish you did not. I much prefer people “own up” to their opinions.

    Someday, this lack of anonimity may come back to bite me. Someone may choose not to hire me because of my writings here, under my name.

    That makes me measure my comments, and to carefully choose my words, so that they are indeed an accurate reflection of my beliefs and to some extent, my capabilities, and an overall sense of who I am.

    So yeah, Cullen, call out the nameless stone throwers who provide no useful comments. I’m always hapy to hear dissent, and alternate opinions, as long as it is backed up by a coherent argument, and hopefully data.

  • Gary_UK

    Ted, you really think the govt should just send everyone a cheque? Oh dear. That would just lead to inflation. Please have a look at the DXY index over the past 40 years to see where your wealth has gone.

    It’s a moot point re the 40%, because the cuts will never happen. I’d find 40% somewhere though. Why would the people vote for less handouts and free stuff, or to eradicate their government non-job? The US is being sucked down the vortex, there is no way out for it now.

  • DanH

    Cullen, I agree with Roger. Turn off anonymous coomenting. It serves no purpose other than to harbor trolls. I like that you hold yourself out to be held accountable. The readers should do the same if they’re going to attack you.

  • Gary_UK

    Peter, the stimulus didn’t save anyone or anything. It just bought time, and not much of it. I really look forward to hearing your reasoning next year when you’re back in a deeper recession. I think a drowning man can float to the surface 3 times, then he’s under for good? Will that apply to the US? 2015/16 is when I have the US down for hyperinflation.

    I think you’ll find the US has been socialising (and wrecking) capitalism for a long time. Look at the bailout of the Savings & Loans, it’s not capitalism that has caused the problem, it’s corrupt governments (on both the left and right). Anything that has failed should just be allowed to fail. Otherwise capital gets misallocated. Pretty simple economic fact, and the argument against that is various versions of communism.

    From your statements I see you are definitely an advocate of goverment largesse. I am not. Nitpick my statements as much as you like, but your system is doomed to failure, and in the not too distant future. Socialism/communism always fails, always, every time, always.

  • Peter D

    Gary, what’s the difference between sending everybody a check for $X or cutting everybody’s taxes by $X?

  • haris07

    I wasn;t trying to “hide”. I installed this AdBlocker and switched to Google Chrome that hides the Id. I noticed after I posted.

  • hangemhi

    Cullen – I have learned so much, and I thank you. I also have so much more to learn, and (I think :) I thank you for the insatiable appetite i now have for learning finance, macro economics and all things monetary. I’m thinking of studying for a series 7 and 66 even though i have no plans to put them to use as a planner or trader – just using them for the knowledge. Maybe you can tell me if my time would be better spent on other means of learning? My goal is to learn to invest my own money wisely (i’m scared s***less after mis-understanding both the tech and RE bubbles). If only I had found this site before one or both of those. Either way, you’ve got a big fan here.

  • haris07

    Sorry about the anon, not my intent! I have been saying forever that MMT is a good theoretical and accurate description of the way fiat currency world works! Kudos to Cullen for this. But there is waay too much of a gap between the theory and practice and I don’t think he and the others are open to the idea that MMT’s theory won’t work well in practice. It is all great to posit running deficits and to posit that inflation won’t take hold in a labor and capital slack world, but fact is German inflation hit 2.8% today, US CPI (or any other means of measuring inflation) have increased (cost push or otherwise, it HAS increased). Bottom line, just running deficits and Fed issuing money doesn’t work, and very simply put, it can’t because otherwise everyone would do it and that is the end of that.

  • Peter D

    Gary, it is useless to argue with you because you don’t base your opinion on any verifiable facts, but only on your ideology (so, you’re basing your opinion on your opinion…)
    You see, some people actually took the trouble of figuring out whether the stimulus helped or not. Not based on their “opinion” but based on actual models, however imperfect, and actual numbers.
    Here is a survey of 9 studies of stimulus:
    6 say it worked, 3 say it had little or even negative impact. Out of those last 3, two are obviously garbage (one uses Ricardian Equivalence and fails to match the actual data and the other produces statistically insignificant results.) The last one is from John Taylor (a famous conservative economist – your kind of guy!) and basically says that it actually was too little to work well. Or, as Taylor himself summarized it:

    To sum up: the federal government borrowed funds that it mainly sent to households and to state and local governments. Only an immaterial amount was used for federal purchases of goods and services. The borrowed funds were mainly used by households and state and local governments to reduce their own borrowing. In effect, the increased net borrowing at the federal level was matched by reduced net borrowing by households and state and local governments.
    So there was little if any net stimulus.

    Not only does he say the stimulus was too small, he also basically admits that the issue was not malivestment and the supposedly rampant govt waste (“only an immaterial amount was used for federal purchases of goods and services”) but the lack of direct govt spending on output!
    So, people who actually do some work on stimulus show that you are wrong. But you won’t admit it, of course. No problem, I don’t expect to change your deep-seated beliefs. But other people reading will see who makes more sense.

  • Gary_UK

    Peter, you do love to twist the argument don’t you. Ted was referring to the stimulus, I am opposed to stimulus, I can’t say it any clearer than that.

    If 40% was cut from government, I wouldn’t care if they repaid the savings by cheque or by tax cut. But there is no point cutting taxes and increasing deficits, you’ll still go bust.

    You can’t win the real argument can you, obfuscation is your ploy.

  • haris07

    The main thing is “people don’t learn” if the govt just keeps bailing them out with deficit spending. And inflation isn’t something that can be bottled up just to allow the MMTers to deficit spend their way out of a recession.

    Combine deficit spending with controlled debt destruction and then I would become bullish. And the market is going down, to 676 or 400 or 800 I don’t know. My base case is that we stay in low/no growth for a looong time punctuated by recession and Bernanke trying gymnastics that bring out spurts of “everything is good again”. But I also worry that Bernanke overdoes it and everything goes to hell and a hand basket.

    China hard landing, Europe blowing up….why bother being in risk assets.

  • Cullen Roche

    Gary, you say you want to “slash taxes” but you hate stimulus. So which is it? They’re the same thing….

  • Peter D

    “I have been saying forever that MMT is a good theoretical and accurate description of the way fiat currency world works!
    “But there is waay too much of a gap between the theory and practice and I don’t think he and the others are open to the idea that MMT’s theory won’t work well in practice.”

    You don’t see a contradiction between your first and second statements?

    “It is all great to posit running deficits and to posit that inflation won’t take hold in a labor and capital slack world, but fact is German inflation hit 2.8% today”

    Germany has one of the lowest deficits in the EU and stills gets inflation? Maybe inflation is really not correlated with deficits?

    “US CPI (or any other means of measuring inflation) have increased (cost push or otherwise, it HAS increased)”

    So, you’re just happy to be right for the wrong reasons?

  • Gary_UK

    As I just replied to Peter, and I’m sure you both realise, I advocate a huge slashing of government. Balanced budgets, reducing deficits, no more bailouts, all of those things that socialists hate.

    Take a chunk out of govt expenses, and then you can cut taxes. I oppose higher deficits, they will ruin your country (any country). We will never agree on this I know.

  • Peter D

    What? I am not twisting anything. I just asked you to explain the difference between sending everybody a check for $X or not taking $X out of everybody’s salary, that’s all. And the fact is, there is no difference. And the hated stimulus was 3/8 tax cuts, so, shouldn’t you be happy?

    “If 40% was cut from government, I wouldn’t care if they repaid the savings by cheque or by tax cut”

    Wait, so you’re OK with the government slashing its spending by 40% and sending all this money back to people? OK, what kind of spending do you want to slash. Now, get concrete, please. Say, Social Security? Let’s see: Social Security works by sending people checks by mail. So, you want to stop sending people checks by mail but you are OK with the govt then taking these unsent checks and… sending them to people by mail? You understand how ridiculous you “logic” is?

  • Gary_UK

    Twisty..oops, sorry, Peter.

    Another good twist attempt.

    I am not American, I live in the UK. I am sure if you withdrew from your oil wars, and slashed your military spending to the bone, that would be a good start. How about the money just blown on Solyndra? Another great waste of taxpayer funds.

    Have you never heard the phrase ‘pork barrel’? I’m sure if you google it, you will find plenty of Tea Party sites with suggestions for you to consider. Look, we’re philisophically poles apart, you will never change my mind, and your mind will only be changed by the collapse that is coming.

    I wouldn’t allow people to starve, but it was twisty of you to pick Social security, you twisty thing you!

  • LVG

    Gary, there’s a simple flaw in your argument. The USA is a trade deficit nation. That means it sends dollars out of the US economy every day. Those are dollars no long in circulation for people to use in the USA. There’s a leakage there because not all of these dollars come back to the USA. So the USA has to deficit spend in order to keep the supply of dollars in the USA at the same level it was prior to sending all of these dollars out of the USA. That’s why Cullen and Peter and others say you must spend in excess of the current account.

    It’s basic math. It’s irrefutable. If the USA ran a balanced budget today and a 4% trade deficit the economy would contract. So, love it or hate it, someone has to deficit spend because there will always be trade imbalances in the world.

  • Gary_UK

    LVG, you wrote:

    ‘If the USA ran a balanced budget today and a 4% trade deficit the economy would contract.’

    Yes you are correct.

    As I keep repeating: so be it, you have made your bed, now you have to lie in it.

    Let it happen. Your trade deficit is evidence of the hollowing out of your economy, not much is left, so your GDP should be showing contraction.

    You merely advocate unaffordable govt debt to fill the hole of a failing economy, and pretty soon that will cause collapse.

  • Alan


    “Koo is saying that US is on a worse track than Japan (see business insider for the story)!”

    I’ve been looking for Koo’s latest letter to confirm this, but to no avail. I saw the BI story also, but it seems likely to have taken a sensationalist bit out of context. For those who want to follow along, here are the links…

    Just the day before Koo gave an interview to CNN/Money that seems more in line with his longstanding views. The key graph is a warning…. “If the government acts to cut the deficit while people are continuing to pay down their debts, then we could have a second leg of decline that could be very, very ugly.”

    If you read it you’ll see he advocates greatly increased deficit spending (particularly increased spending vs. reduced taxes), not spending cuts.

  • plain jane

    I’ll look into it a bit more when my kids go to bed. :)

  • plain jane

    Ha, thank you sir!

  • Cullen Roche

    Core inflation has averaged 3.9% since 1957. Today it is 2%. How is inflation in the USA high? Even CPI has averaged 3.7% and is 3.8% today. The data just don’t confirm your “high inflation” theory….And the recent collapse in commodity prices virtually guarantees that those numbers are high and dropping….

  • VII


    “to harbor Trolls”….that is hilarious….you made me laugh.

    Thomas- there are no subscription fees or dues here. Cullen does not have an axe to grind and he’s not an investment God. From where I sit..he offers solutions to many problems that have caused my neighbors and friends financial hardship and undue stress. I have many friends who are struggling. This site brings in different authors experiences and advice. With in this it is an open forum for us to help each other along during difficult finacial conditions. Cullen is not an investment God and may at times not be 100% correct on his calls. He is humble and giving of his time.

    None of us have a monompoly on what is the best thing to do or what will work. I tend to agree with you that the market will decline. My call has been Q1 2013 850-875. And I’ll do my best to support this but…I have a difficult time when it comes to Cullen. I disagree with some commentators but Cullen gives his time freely and provides a forum to help us. I can not fathom why the rioters shoot at the fireman who is trying to help their neighborhood. Fire fighters are not saints…and Cullen is humble and never pushes his opinion on anyone. He offers advice and his views. Try understanding it…ask questions and if it doesn’t work leave. No one is keeping anyone here. He will never tell you he’s always right..he does his best and it has helped me personally. Maybe he’s not for you.

  • Cullen Roche

    Not an investment God? This is blasphemy. This is madness! (gets kicked into a hole).

  • VII


    This site is FREE. Your time is FREE. You offer solutions and everyday you try and help the average person, the sophisticated investor and higher level thinkers. I’ve been her a while and your consistent in more ways than one.

    You do your best….the difference I see is your offering solutions with no axe to grind…market up – market down. No Sell side…company quotas…candidate push..religion to sell…Party line nonsense….dogma for you is a Huskie your mom is watching. I am not the smartest when it comes to MMT. I always admit this. But at the very least…I know the theory/reality of it is being recomened by someone who’s motive is right. That is why I stayed around to learn it. Because you never pushed it. You recomended and tried to help me understand it.
    From that…I’ve learned alot and I’m having my best investment year(inspite of my EM 9/6 trade, and Europe/Financials this week).

    I don’t always agree(oh no here it comes…I’m not a fan of anyone from Goldman Sacks…Jan Hatzius) do I respect what your doing for this country. Public Service was never meant to be a blog…but the government should pay you the same pension they receive. Your doing their job while they distort things for votes.

  • Nils

    So after they abolished their government completely would you allow them back in the empire?

  • Old Dog

    ” I am still seeing a 2013/2014 end date so no big changes there…”

    Cullen – Why in the world would you see this as an end date? It must be wishful thinking as there is absolutely no basis for such a thought.

    This will likely take as long as the last balance sheet recession (1929 – 1952) – if we have a major world war. Longer if we do not.

  • f

    “…and now those oil and food sellers have dollars that will do what?…”
    Qiet percent(may be more than 30%) Dollar circulet off shore(i.e. did not came back to the US).

  • Anonymous

    I agree. Lets make it clear that government spending is necessary, and that even seemingly “expensive” programs have massive payouts.

    Take for example the Cold War and the Space Race. Without the massive government spending on crazy ideas — Reagan’s Star Wars defense shield being one — we wouldn’t have made as much progress in integrated circuits, telecommunications, and material science to name a few

    That is not to say that we can or should spend unwisely. For example, the cost of bailing out Fannie and Freddie is projected to reach around $320 billion dollars. This amount could actually fund NASA for 16 years. Yet, spending on the later is more likely to be cut despite the fact it generates life changing advances. The former gives us granite counter tops in inhospitable deserts.

    Imagine what a $320 billion dollar investment in material / energy science could do. If we, for example, told NASA to take it and get us to Mars on the condition they research power systems, hydroponics, water reclamation, etc, I would say the chances are good that the resulting research leads to advances we all benefit from. As anyone who has ever used Astroglide can attest to :O

  • Cullen Roche

    Yeah, my idea is what I called the innovation initiative. Completely outsource PE funding via govt spending to the pvt sector to promote innovation. Unlike Solyndra, the program would be run FOR profit by pvt sector companies so the selection process would be much more rigorous.

  • Lenny

    On one hand we have people lamenting “unfunded” social security but without US debt where would “funded” social security money be going? Treasuries are savings accounts for these large entities.

  • Charles Yaker

    What if Japan has not had a lost decade but is scamming us as Eammon Fingleton claims.?

    He has been calling economists and analysts out on that story and is offering $10,000 dollars to the charity of anyone who will publicly debate him. He is also pointing to growth in electricity usage during the 90’s greater then in the US.

    I don’t know how to varify his claims but if he is correct about Japan and now China as outlined in his book “In The Jaws of the Dragon” we are in deep trouble competitively.

  • circuit

    Cullen, you’re right on. And you’re in good company. Economist Marc Lavoie provided his take before Canada’s Parliament yesterday. He’s suggesting that we’re indeed witnessing the Japanization of western economies.

  • Ted

    President Bush did exactly that – he sent most people a check for $600 in the spring of 2008 (about $150 billion total). Let me assure you that runaway inflation did not take place immediately after in 2008 and 2009.

    I think it would help if you thought of government as an insurance company with an army, not as a reckless organization that gives away “free stuff”. Think of your taxes as premiums where you are paying for insurance for health, unemployment, disability, and loss of income in old age. In difficult times, the insurance company can cover losses by taking on loans at historically low interest rates.

  • Ted

    Exactly – how about GPS for a more tangible example? We have inexpensive GPS in cars and smartphones b/c the government has kept a steady stream of satellites in orbit over the past few decades and has basically given it away to the civilian sector for free. Would AT&T or Verizon have done that? If I could I’d give NASA a few extra hundred billion to go figure out space-based solar power.

  • Trixie

    PJ! Welcome! It’s good to see more and more women posting here. I am confident there are more of us out there. And I demand women stop lurking from the pantry and show themselves! In time, we will overrun this site and perhaps Cullen will allow us to redecorate. :)

    And since Gary was kind enough to provide further reading for you, by default, he is also sharing his link with the rest of this site’s readers. So my review is fair game:

    Summary: Vigorous phalange wrenching facilitates whispering hints of olfactory devolution to permeate your ethereal existence.

    Translation: Pull my finger. Maybe more than once.

    Gary, I want to personally thank you. This article is the sort of train wreck I can’t take my eyes off of because I obviously hate my head. And I can’t get enough of it. Go figure.

  • Gary_UK

    Ted, most people paid down debt or saved the cheque.

    That is why the system is doomed to fail, the debt load has stopped increasing at the household level. It’s a good thing, if left to happen.

    Koo calls it a fallacy of composition, but he is a socialist too!

    Let it fail, only then can true growth come through. But TPTB are too dependant on the system, the handouts, the gravy train, so it will be saved.

    And Nils….until the past few years I was a big fan of the US, but it is not the country it once was. Look at the police brutality towards those peaceful protesters in NY, just like Egypt et al.

  • pkinvst

    TO achieve your objective – really want people to learn and understand the financial world better – you need to tone down.

    Let me add: I have learned a lot from your articles, especially on MMT and power of fiat currency especially when it is backed up by military might.

    MMT is pretty hard to understand when you have spent most of your life living on the BS fed by the banks, brokers, investment advisors and talky boys and girls in media.

  • Ted

    You’re correct that many saved or paid down debt with the check, so it doesn’t fundamentally improve the economy. However it can help reduce the overhang of debt. Congress could hypothetically take $500 billion and send each taxpayer a check (or tax cut) for $2,000. Although it wouldn’t fix the economy, it would reduce the average household debt and help speed our escape from the balance sheet recession.

    Clearly you feel the USA is a house of cards, turning socialist, and is unable to spend wisely for the good of all. Let’s agree to disagree.

  • Thomas

    Did I say a 50% stock market drop in only 3 months? No.

    Stronger growth is not a possibility under our economic conditions. That is not misconstruing, you said it was a possibility. In my view it is not possible! We are not deleveraging at all (still $52 trillion) at the aggregate level, therefore GDP will not expand.

    I don’t care about alias issues, real names or MMT theories – I care about well thought out analysis that is different than mainstream media. With MMT you are concerned with explaining flows, I am concerned mostly with balance sheet and income statement.

    Regarding you being out of the market on July 8th based on your algo or if you are holding TLT or European equities – my advice is you keep that stuff to your advisory clients and not put it in public forum.

    Good luck, keep up the good work and don’t get so caught up with feedback that goes against your views.

  • Peter D

    ”I am not American, I live in the UK. I am sure if you withdrew from your oil wars, and slashed your military spending to the bone, that would be a good start. How about the money just blown on Solyndra? Another great waste of taxpayer funds.”
    You see, I actually agree with you – for different reasons though. I do think we engage in stupid wars and am against those, but not primarily because of the wasteful spending – war spending can actually be very beneficial to the nation’s economy the myopic, egoistic sense – but because these are horrible wars with horrible consequences for human beings involved. But, guess what, “defense” spending is just about the last thing the majority of your conservative buddies here – including the Tea Party – are inclined to cut! If you ask them, they’d like the state to be the military and that’s about it. Some will allow it to pave roads. These are your buddies, not mine.
    But what riles them usually is the social net programs, which is why I picked Social Security. And those social net programs are sending checks to people, which supposedly you don’t have a problem with. Or maybe you do, you just haven’t decided yet.
    And don’t give me Solyndra. To prove that most of govt spending is wasteful you’d have to do better than pick an isolated case. You’d actually have to do some, you know, hard work, instead of blanket assertions, to actually go into budgets and put some numbers together, something that you’re not very good at, as made obvious by you not having a clue as to the size of the stimulus, its multiplier etc. You don’t care whether numbers support your assertions or not.
    Here is some actual numbers for you. Govt spending is about 20% of GDP in the US. 50% goes to healthcare and “defense” – let’s leave those out – see above for “defense” spending, and healthcare is expensive because our healthcare system as a whole is broken. Many countries with govt sponsored healthcare systems have better and cheaper healthcare. But actually I would agree that defense spending should be slashed and healthcare reformed. Moving on. 20% on pensions – giving people back what they worked for all their lives. The safety net. Not even too generous by European standards. Peanuts really. That leaves 30% on welfare and all the rest. So, this is 20%*30%=6% of GDP on all the rest. Even assuming that ALL the 6% is bad, wasteful, distorting the markets etc (which is a totally ridiculous assumption) – this is what get’s you all worked up? 6% of GDP is the whole problem?
    You call us “socialists” for supporting the stimulus? Haha, then Richard “We’re All Keynesians Now” Nixon, Reagan and George W. Bush were also all “socialists”, which would be big news to them. All of these guys not only used fiscal stimuli to get out of recessions, they grew the size of the government! But you never even bothered to think and realize that tax cuts are equivalents to sending people checks by mail, and then this was pointed out to you had to resort to claiming “twisting”. You’re only exposing yourself and an ideologue with little regards for logic or facts.

  • Cullen Roche


    I appreciate your comments, but you’re VERY critical while also providing very little evidence to back up some rather strong comments. All I was trying to communicate to you is my wish that critics would be a bit more detailed. Thats all. Thanks and good luck.

  • Cullen Roche

    It’s an important and dense subject that requires intense defense when attacked by people with little or no evidence. I am about as patient and understanding as you’ll find on this planet, but I refuse to put up with baseless arguments. Critics should be informed if they’re going to spend their time being critical.

  • VII

    “don’t get caught up with feed back that goes against your views”

    Sometimes we don’t notice our flaws. You understand your recomending Cullen do somethign you seem unwilling to do yourself…I’m just saying. You may want to work on this yourself before lecturing Cullen.

    “my advice is not to put that in the public forum”

    You really want to control this site. No one is keeping you here and if Cullen feels it’s appropriate i’d move away from unsolicitied advice. When you start your own site….let me know. I’d like to check it out. Until then stop lecturing the Chef on how he should make his food. If and when you create your own blog I’ll share the same courtesy with you. I’ll respect your place of business.

  • VII

    Roger are you a mortgage broker?

  • Pierce Inverarity

    Well put, VII

  • casanova

    “You call MMT an ideology. I call it an accurate description of the fiat monetary system. To me, not believing this “ideology” is like saying that 1+1 does not equal 2″

    This is the ultimate hubris I have ever read.
    Chartalism is the absolute truth, there is no other truth but Chartalism. Long live Chartalism.

  • LVG

    We might be anonymous, but that doesn’t mean we are not accountable. Cullen has spent a lot of time trying to cultivate an atmosphere that is conducive to learning and benefiting from each other’s strengths and weaknesses. You should try to respect that by contributing rather than trying to tear it down.

    And a balance sheet is a stock. An income statement shows a flow period. You might learn a bit more before you come here and lecture people who are experts in the things you are not.

  • haris07

    Peter D,

    I normally see no reason to address your questions, but here it is for one time. You can put your head in the sand and be there forever, but the facts are the facts.

    I see no contradiction between 1st and 2nd sentence. MMT is great theoretically, won’t work practically.

    FWIW, when I first introduced this crititque of MMT, Cullen agreed with me and asked Bill Mitchell (or maybe Randall or someone else) to address this very criticism. As far as I know, no one has really addressed my criticism.

    My concern is that by advocating MMT as the be all and end all solution, we are not even keeping an open mind on whether it will even work. My beef with MMT is not with its accounting elegance or that is it wrong (it has been “right” all along and I have used it well). The concern I have is with its working in practice and I have argued that running deficits and dropping money into people’s hands won’t work because it won;t be used for “productive” purposes and will be channeled into unproductive speculation.

    As far as inflation goes, you smarty pants, the point I am making is that one of the central tenets of MMT is that inflation can’t rise when there is so much slack. Well…you can put your head in the sand and “ignore” the inflation or say that it is “transitory” etc. FACT is inflation in UK, US, even Germany has risen to well beyond what the MMTers projected. There are transmission mechanisms apparently that do cause a rise in inflation even when there is significant slcak (in labor and in capital assets).

    So, you can take the MMT as the holy grail and keep advocating its solutions – run deficits and voila everything is solved. My argument has been, run deficits and destroy unserviceable debt. Let the speculators take the pain so that they get the idea that they can’t just speculate, and then govt comes over and bails them out. Read Ed Harrison – he is in exactly this camp (and has been for a long time)….you all advocating blind allegiance to MMT, good luck. It won’t work in practice.

  • haris07


    As you know, I have always been of the opinion that govt deficits (especially on things like automatic stabilizers and deposit guarantee etc.) HAVE to be done. I also understand MMT’s point fully that unless govt deficit spends money into existence, private sector can’t save and/or invest.

    The problem lies in the transmission mechanism, if govt deficit spends willy nilly, all it seems to do is encourage speculation. Arguably, Fed’s antics are more responsible for this than deficit spending per se, but I am not sure govt’s deficit spending can be dismissed outright. Otherwise, at the first sign of any problem, govt can just run another $1trn deficit and lo and behold, problem is solved. I argue that unless that $1trn is used productively, it doesn’t create “value” and in its absence, that $1trn finds its way into all kinds of speculative binges.

    My other question is the tenet that inflation can’t rise when there is so much slack. Theoretically I agree. But practice doesn’t seem to be that way. And while one can argue transitory, effect of commodities, point still remains that inflation has risen in the face of significant slack.

    I am 95% there with you on MMT, but I find that you dismiss any critiques of MMT and its associates tenets far too easily….I just am keeping an open mind that not all of it may work as well as it seems to work on paper.

    All that said, I am going to lie low, I have made this point enough. Continue the good work, its certainly better than the gold bugs and hyperinflationists, but I just wish that you weren’t as strident to dismiss all of the criticisms of MMT as nonsense. At best, we have a lot that we don’t know and are still finding out. I think there is a serious flaw in MMT’s policy implementations and solutions. You may think that it is n’t serious enough and therein lies our difference.

    BTW, if you recall, waaay back, when I raised this very point in critiquing MMT, you seemed to agree that it at least merited attention and forwarded it to Bill Mitchell I recall.

  • Peter D

    Cool down, budd. From your comment it is now obvious that you’re mixing up the descriptive part of MMT – that which describes how the system works now, with the prescriptive part – that which uses the insights from the descriptive part to come up with specific policy proposals. So, yeah, it was funny to see you say in one breath “accurate description of the way fiat currency world works” and “MMT’s theory won’t work well in practice”, but if you bothered to delineate the two different parts of what is referred to as “MMT Theory” there’d be little confusion. Anyway, we’re on the same page now.
    It is also clear that you misunderstand MMT stand on inflation. For that you need to actually understand that inflation can come with different flavors. MMT would posit that demand pull inflation is impossible when demand is suppressed and there is output gap, which is almost self-evident. About cost-push inflations, these are different beasts, arising for totally different reasons and thus should not be conflated with demand pull inflations. Because deficits have nothing to do with cost-push inflations, cutting deficits to control those will not do anything except depress the economy. So, it is not that I “can put [my] head in the sand and “ignore” the inflation or say that it is “transitory” etc”; instead, I am for identifying where this inflation is coming from and not using tools that cannot solve this issue to begin with. It is actually people like you – who ignore the differences between types of inflation – who are “putting their heads in the sand” and try to hammer nails with screwdrivers (yeah, nails and screws sure look very similar) If you want to better understand inflation, I suggest this reading:
    About the folly of controlling cost push inflation with suppressing demand:

  • Colin, S.Toe

    I wonder if a fair trade could be made between government funding for R&D, and a principle of making all non-patented findings openly available.

    (Reports on environmental impact of ‘fracking’ indicate companies declining to release list of chemicals used to protect their ‘competitive advantage.)

    Open exchanges of knowledge (of which this site is an example) seem to greatly spur innovation – although ideally, it would occur on the global level.

  • Options Trader

    Amen. Exactly.

  • Options Trader


    Were I you I would do us all a favor and delete 100% of the comments that don’t pertain to the topic of the very fine post you made.

    You run a fine board with some excellent commenters and those that add understanding to the conversation ought to be able to stand out. This would happen more naturally if readers did not have to sift through so many comments that add no value and amount to name calling.

    You deserve better on your fine board.

  • Trixie

    I know it must be frustrating to keep up with the vicious cycle of love and hate I throw your way on a regular basis, but your innovation initiative idea is one of the best articles I’ve read here. Well done.


  • Delta Financials

    To add to the earlier discussion: I would make the point that both Japan and the United States have chosen the path of increasing government spending as a percentage of GDP in response to the bursting of their RE bubbles. Japan was at the 30% mark in the early 1980s – now up at the 40% mark. Deficits are of course a necessity, but you can get there by reducing T and keeping G steady/declining gradually. Japan became a lot less dynamic after the RE bubble burst, and the US is on the same path. Also, worth noting that the high growth economies of the world have govt spending in the early/mid 20s. Including of course, “communist” China!

    Also, a distinction between Japan and the US – Japan didn’t have the sort of unemployment issues the US has had. And. They weren’t spending several hundred billion on war while trying to recover.

  • BK

    TPC, I know you are American so I applaud you for trying to be patriotic.

    But I see this as particularly flawed point of view.

    Japan’s unemployment rate has never been as high as in the United States right now….so that tells me that Japan’s budget deficits were sufficient enough to support employment, whilst the U.S. has failed here. Japan’s budget deficits have consistently been high and they only once genuinely tried to rein it in and then when they saw the consequences they immediately backtracked.

    As for deflation, it has actually been very beneficial to consumers as for most (given the low unemployment rate) it has actually boosted spending power.

    The real estate bubble was bigger in Japan, so how come the U.S. hasn’t handled the situation better?

    To me all the evidence points to Japan handling the situation much better than the U.S. ….with almost 9-10% unemployment I’m not sure how you could even begin to contemplate making that conclusion!

    Just my 2 cents

  • Bond Vigilante/Willy2

    Remember july 2008 ? When the share price of Fannie Mae collapsed ? Fannie mae was specificly meant as a vehicle to sell US mortgages to (foreign) investors. That was precisely the moment when foreigners started to agressively sell their Agency paper (=US mortgages). Then the Treasury had to step in. Otherwise the US mortgage market would have collapsed completely already back then in 2008. I clearly remember that in that same month Hank Paulson tried to talk (foreign ?) investors into buying Agency paper. And the lack of foreign demand for US mortgages took down Lehman Bros. as well. And you’re still trying to convince me the US (in its capacity as a net debtor nation to the rest of the world) is not at the mercy of its creditors ? Yes, the US is a currency issuer, so it can postpone its own demise for a while but for me it’s clear what the future holds in store for the US.