Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots Podcast.
Speaker 3: I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 2: Tracy, you know, there's that theory people say it from
Speaker 2: time to time about in different contexts, different schools of thought,
Speaker 2: and kind of gets dismissed as crankishness sometimes that higher
Speaker 2: rates can be a contributor to inflation.
Speaker 4: Yes.
Speaker 3: Yes, And actually I'm hearing this more and more interestingly enough.
Speaker 3: So you used to hear, you know, little rumblings of
Speaker 3: it every once in a while, but I swear in
Speaker 3: the past two or three months, a lot of people
Speaker 3: have been talking about this, And I guess the basic
Speaker 3: idea here is there's always been some question about the
Speaker 3: efficacy of interest rates in the current inflationary environment. So
Speaker 3: if you think back to the twenty twenty period, the
Speaker 3: idea that we had all these supply disruptions, lots of
Speaker 3: snarls in transportation and logistics, what are interest rate hikes
Speaker 3: really going to do in that context? Right? Yeah, And
Speaker 3: some people even argue that higher interest rates are detrimental
Speaker 3: for that kind of inflation, because you make it harder
Speaker 3: for people to build out capacity. Yeah, but what's happening
Speaker 3: more recently, and I think you're hearing more talk of
Speaker 3: this is the idea that higher interest rates in and
Speaker 3: of themselves can contribute to the inflationary impulse through the
Speaker 3: interest income channel.
Speaker 4: Yeah.
Speaker 2: Absolutely so. Right, there's a bunch of people that are
Speaker 2: on treasuries and then they get a payment I guess
Speaker 2: every month, and that is income into the economy, and
Speaker 2: when you're fighting inflation, that's the more so. I think
Speaker 2: that's one of the arguments for how higher rates can
Speaker 2: be inflationary. But then there is this sort of like
Speaker 2: there is the more are read upon view that you mentioned,
Speaker 2: which is that higher rates can constrain investment and contribute
Speaker 2: to less housing and that has an inflationary impulse in
Speaker 2: a time of housing shortage. That seems to be a
Speaker 2: little less controversial. The connection is clear, but I think regardless,
Speaker 2: like I think, Okay, here we are in July twenty
Speaker 2: twenty four. Inflation has come down a lot. There's still
Speaker 2: many stories that could be told a lot about the
Speaker 2: last four years, and I don't think there are any
Speaker 2: really economists who have like nailed this cycle with some
Speaker 2: theory or whatever that it's like, Yep, they explained how
Speaker 2: it's all going to work. There are many this period.
Speaker 2: Whatever we've experienced over the last four years will be
Speaker 2: debated and argued about, and what role did higher rates
Speaker 2: have and bringing down inflation or why the will be
Speaker 2: debated by economists for like one hundred years.
Speaker 4: Probably.
Speaker 3: I find this aspect of our life right now simultaneously
Speaker 3: exhilarating and terrifying. So it's great that we're learning about
Speaker 3: how the world works. It's also terrifying that we still
Speaker 3: aren't entirely sure how interest rates work and what impact
Speaker 3: they actually have on the economy. But I am very,
Speaker 3: very interested in digging into more of this argument the
Speaker 3: interest income channel here and the actual like push and
Speaker 3: pull of higher interest rates on inflation. I think we
Speaker 3: should talk more about it totally.
Speaker 2: Well, I'm really excited. We do indeed have the perfect guest,
Speaker 2: someone we've never had on the show before, but he's
Speaker 2: someone who we get a lot of requests for on
Speaker 2: Twitter on the Outlaws Discord, someone we probably should have
Speaker 2: had a long time ago. We are going to be
Speaker 2: speaking to a Warren Mosler. He's he's an economist, former
Speaker 2: investment manager. He drives fast race cars in the Virgin Islands.
Speaker 2: Currently he's on a bike trip in Croatia, a very
Speaker 2: cool life. He is also the originator of what has
Speaker 2: come to be known as modern monetary theory. So Warren,
Speaker 2: thank you so much for coming on outlaws.
Speaker 4: Good to be here and enjoyed listening to the introduction.
Speaker 4: How do we do at all?
Speaker 2: How do we okay, we're done here? Why do you
Speaker 2: give us your Yeah? Thanks, that was great. What do
Speaker 2: you give us your summary? So someone said, people, okay,
Speaker 2: higher rates cause inflation. I think there's even you know,
Speaker 2: there's like a new Fisherian school that I think the
Speaker 2: Turkish president subscribes to. How would you des characterize what
Speaker 2: that means or what's going on?
Speaker 4: Well, I look at what is okay, look to the numbers,
Speaker 4: I look at the data, and I try and make
Speaker 4: sense of it, just like everyone else. And my narrative
Speaker 4: has been different from everyone else that's released up until
Speaker 4: recently from listening to you, and it's nothing more than that.
Speaker 4: Where to start? I wrote my first paper on this
Speaker 4: and I think nineteen ninety seven called the natural rate
Speaker 4: of Interest is zero. So it's not something new to
Speaker 4: me and myself and my partner Cliff Viner. Back in
Speaker 4: the nineteen eighties, we always used to muse about how
Speaker 4: the best indicator of what M two growth would be
Speaker 4: is live or because the interest rate itself determines the
Speaker 4: money like growth as it was measured back then. You know,
Speaker 4: there's been there's been institutional changes since, but this was
Speaker 4: back in the eighties, and so the idea that, you know,
Speaker 4: the interest rate itself was instrumental in how the price
Speaker 4: level moves over time. I'll notice I'm going to avoid
Speaker 4: using the word inflation rate. I may say inflation indicators
Speaker 4: from time to time, but that is the whole word,
Speaker 4: and term has gotten so confused by the way it's
Speaker 4: been used. You know, if tomatoes go up, that's tomato
Speaker 4: inflation or something, right, instead of just the price of
Speaker 4: tomatoes going up. That I it's not informative the way
Speaker 4: I like it to be, So excuse me for not
Speaker 4: using that word. Maybe you know as much as you
Speaker 4: all do. Yeah, So the interest rate itself has had
Speaker 4: this effect on a price level, you know, for a
Speaker 4: long time that I've observed. Okay, nineteen eighty that's forty
Speaker 4: five years, right. Something interesting happened in this cycle compared
Speaker 4: to prior cycles. Now in prior cycle is like in
Speaker 4: two thousand and eight. I was saying back then that
Speaker 4: the rate cuts, the BERNANKI rate cuts were probably not
Speaker 4: going to do much for the economy, if anything, because
Speaker 4: cutting the rates from five and a half to zero
Speaker 4: or whatever it was a time removed something like four
Speaker 4: hundred billion dollars a year of interest income from the economy,
Speaker 4: lowered the deficit by four hundred billion from what it
Speaker 4: otherwise would have been. And all that income and those
Speaker 4: net financial assets were no longer being added. So I
Speaker 4: was looking at a very sluggish recovery. I didn't see
Speaker 4: the stimulus packages being large enough to cause a particular boom.
Speaker 4: It was plenty large enough for decent growth, but not
Speaker 4: any kind of a runaway inflationary boom or anything like that.
Speaker 4: And I can recall being at the FED at a meeting,
Speaker 4: private meeting with a guy named Dave Wilcox who was
Speaker 4: talking about quantitative easy and how he didn't think would
Speaker 4: be inflationary. I said, yeah, I'm not so much worried
Speaker 4: about not being inflationary. But with the FED buying all
Speaker 4: these securities, okay, they were buying securities that had higher yields,
Speaker 4: they were paying for them with reserves, adding reserves, which
Speaker 4: is fine. It was changing the duration of the government holdings.
Speaker 4: But it went from you know, the Fed was now
Speaker 4: earning the high interest rates and the market was earning
Speaker 4: those zero percent or whatever they were paying on reserves.
Speaker 4: At the time, it was very low. And I said,
Speaker 4: you know, they're effectively taking ninety billion dollars a year
Speaker 4: of interest in come out of the economy. That might
Speaker 4: have been half a percent one percent of GDP at
Speaker 4: the time. I thought, for that reason, quantitative easing would
Speaker 4: probably slow down the economy at that point in time.
Speaker 4: And you know, that's kind of what happened.
Speaker 3: So initially prove it, you kind of looked at it
Speaker 3: from the opposite side of where we are today. So
Speaker 3: the idea that que was sucking right, rather than higher
Speaker 3: interest rates.
Speaker 4: Adding, and that it was based on the yield curve
Speaker 4: at the time and the duration of government you know,
Speaker 4: everything at the time, it was a and the data
Speaker 4: seemed to play that. And I don't know if it's
Speaker 4: just confirmation by some hypart, but it looked at me
Speaker 4: like that's what happened, and we did have this sluggish economy,
Speaker 4: and that was partially the reason that the depth SIT
Speaker 4: wasn't large enough, partially because the interest Now I'm categorically
Speaker 4: against using a positive interest rate policy to increase DEPSIT
Speaker 4: spending to support an economy because it's so obscenely regressive.
Speaker 4: When they raise rates, you know, the only thing they
Speaker 4: do is pay interest to people who already have money
Speaker 4: in proportion. I'mers, they already have, okay, and you increase
Speaker 4: depths A spending that way.
Speaker 2: Just to be clear, you may say that lower rates
Speaker 2: or CTE or whatever, that they're not particularly stimulative, but
Speaker 2: that's very different than saying, oh that a good form
Speaker 2: of stimulus would be higher rates.
Speaker 4: Yeah, I'd hather have low rates and a tax cut. Yeah,
Speaker 4: you know, then high rates and attacks increase, right.
Speaker 2: Sure, So let's bring it to now.
Speaker 4: But back then, here's the point. Back then, the debt
Speaker 4: to GDP held by the public was something like thirty
Speaker 4: or thirty five percent, So a one percent rate hike
Speaker 4: or in those cases, the rate cup but a one
Speaker 4: percent change in rates, a rate hike would have added
Speaker 4: maybe thirty five basis points of income to the you know,
Speaker 4: percent of GDP to the economy. Because the debt to
Speaker 4: GDP was like thirty or thirty five percent. This time
Speaker 4: around it's one hundred percent roughly, you know, debt to
Speaker 4: GDP held by the public. Yeah, so a one percent
Speaker 4: increase in rates two and a half years ago ultimately
Speaker 4: increased interest payments by a full one percent of GDP,
Speaker 4: three times the impact of the prior cycle. So here
Speaker 4: I am saying, look, if I thought this had an
Speaker 4: impact before, now it's really has an impact. Okay, Now
Speaker 4: it's three times larger than before. This is going to
Speaker 4: be far different than anybody can imagine. And raising rates
Speaker 4: this time around is going to have a strong supporting
Speaker 4: effect on aggregate demand, you know, keeping unemployment down, you know,
Speaker 4: total employment growing, that type of thing. And at the
Speaker 4: time they increase the rate, the Fed was ranged with
Speaker 4: criticism for engaging in policy that was going to cause
Speaker 4: unemployment to go up to fight inflation. Remember that, Yeah,
Speaker 4: of course. Well, and I'm going no, they've got it backwards.
Speaker 4: This is going to bring unemployment down, This is going
Speaker 4: to bring total employment up. This is going to cause
Speaker 4: strong positive GDP growth, not a recession. Every forecast was
Speaker 4: for recession for what years, right, they were just ignoring
Speaker 4: this fiscal impact of this increase in depth at spending. Now,
Speaker 4: the only thing I could rationalize why where they get
Speaker 4: where they're getting this from is that they must have
Speaker 4: had in their deep in their model somewhere, a zero
Speaker 4: propensity to spend interest income. Right, no matter how high
Speaker 4: you raise rais, no matter how much interest you pay, there,
Speaker 4: nobody's going to spend a dime of it, and so
Speaker 4: you don't have to worry about it. And that's why
Speaker 4: they look at the primary deficit when they talk about
Speaker 4: emerging markets. They don't even count the interest income expense, right,
Speaker 4: That's all I could come up with this to why
Speaker 4: they would ignore that.
Speaker 3: Champel, can we talk a little bit more about I
Speaker 3: guess the consumption avenue of the interest income channel, because
Speaker 3: I will fully admit that it was very nice in
Speaker 3: circa twenty twenty two to finally earn positive interest on
Speaker 3: my bank account. I'm an elder millennial, so that had
Speaker 3: basically never happened to me before. However, I wouldn't necessarily
Speaker 3: say that because I was earning, you know, two to
Speaker 3: five percent on my savings that I went out and
Speaker 3: bought a bunch of additional things, and of course a
Speaker 3: lot of that was offset by the increased cost of living,
Speaker 3: increased price level for not using the term inflation. So
Speaker 3: how do you see that aspect of it playing out?
Speaker 3: People are earning more income, but does that actually translate
Speaker 3: into more demand?
Speaker 4: Yeah, and that's that's a good question, and that's a
Speaker 4: micro question. You know what, you look at what all
Speaker 4: the individuals who are getting it to pension funds get
Speaker 4: treasury security, you know interest, How does that translate into
Speaker 4: aggregate demand? Foreigners get a lot of interest, you know what?
Speaker 4: I hear all this that look, none of this interest
Speaker 4: is going to get spent, and so it doesn't matter.
Speaker 4: You're wrong, We're going into recession. The interest rate effects
Speaker 4: on you know, borrow wars is going to dominate, and
Speaker 4: that's going to take down the economy. And the answer
Speaker 4: is you can only look at the data and see
Speaker 4: what happens. We can both come up with a narrative
Speaker 4: of what we think the propensities to consume a ount
Speaker 4: of interest income, but we're not going to know until
Speaker 4: after it happens. And I looked at in prior cycles,
Speaker 4: the data was telling me that it's not zero, that
Speaker 4: there's a substantial amount that directly or indirectly does get spent.
Speaker 4: But that's all it is. It's a view looking at
Speaker 4: the macro data, looking at what GDP did versus what
Speaker 4: it was expected to do, looking at how the rate
Speaker 4: cuts help the economy or didn't help the economy, you know,
Speaker 4: based on what their models expected, right, and the same
Speaker 4: way those rate cuts didn't help the economy as expected
Speaker 4: back in two thousand and nine, Ish is telling me
Speaker 4: it was that four hundred billion a year of you know,
Speaker 4: income that was cut out was having a dampening effect
Speaker 4: on spending. Goes back to under Bush in two thousand,
Speaker 4: two thousand and one, when we hit that recession, they
Speaker 4: dropped interest rates to one percent and nothing happened. It
Speaker 4: didn't help. And I was actually in a meeting with
Speaker 4: Andy Carr Andrew Card, who was chief of staff at
Speaker 4: the White House in two thousand and two February March.
Speaker 4: And I'd gotten that meeting because in my car company,
Speaker 4: two of the people on the board of directors were
Speaker 4: ex engineers, one General Motors, one for a New Card personally,
Speaker 4: he was an engineer at GM, and when I talked
Speaker 4: to him about the interest income than the same way
Speaker 4: I'm talking about it to you. They said, you got
Speaker 4: to talk to Andy and set up this meeting. You know,
Speaker 4: I went to the White House. Meeting was in the
Speaker 4: West wing, and the first thing I did was just
Speaker 4: what I said to you, and what look in the
Speaker 4: economy itself when when they lowered interest rates. Okay, it
Speaker 4: helped borrowers, but it hurts savers. You know, into the
Speaker 4: penny for every dollar saved, there's a dollar borrowed in
Speaker 4: the economy. Banks have loans and deposits and their equal
Speaker 4: or somebody made an arithmetic mistake, you know, I assets
Speaker 4: and liabilities, and so you know, when you lower rates,
Speaker 4: you're just shifting income from one eneity to another. And
Speaker 4: the only way that can have an effect is that
Speaker 4: if there are differences in the propensities to spend interesting
Speaker 4: income of those two. But at the macro level, because
Speaker 4: of the public debt, when you lower rates, you're cutting
Speaker 4: the size of the depths that you're cutting total interest
Speaker 4: income in the economy. I said, I think that effect dominates,
Speaker 4: and looking at what happened in the last year in
Speaker 4: two thousand and two, you know, I wouldn't expect Race
Speaker 4: to do anything. And Carter looks at it. He goes,
Speaker 4: He says, yeah, why would anybody think that's going to work?
Speaker 4: And he says and he goes, oh, look what does work?
Speaker 4: Then I explained fiscal side, where when you spend more
Speaker 4: than the tax that is a direct ad of income
Speaker 4: and financial assets. And when you increase deficit spending proactively,
Speaker 4: any economist who pays to be right it's going to
Speaker 4: revise his forecast upward for the economy. And he says, well,
Speaker 4: how much do we need? I said, well, I think
Speaker 4: it's probably seven hundred billion annually back then, which was
Speaker 4: maybe about five percent of GDP. He says, well, we
Speaker 4: don't have much time doing it, and he said, oh,
Speaker 4: you better get started. It was got a nice note
Speaker 4: back from it was very nice. A week later, the
Speaker 4: President was asked about the deficit and he said, look,
Speaker 4: I don't look at numbers on a piece of paper.
Speaker 4: I look at jobs which came right out of our meeting.
Speaker 4: And after that. I don't know if you remember those days,
Speaker 4: but they passed every tax cut you could imagine, including
Speaker 4: retroactive tax something we never had before. People were getting
Speaker 4: tax refunds from taxes from previous years. And they passed
Speaker 4: every spending bill. They could get through Congress trying to
Speaker 4: get this deficit off to save the economy, and that
Speaker 4: included prescription drugs for medicare. So I'll take personal responsibility,
Speaker 4: even though that wasn't disgusting meeting or you know, for
Speaker 4: good government, spending all that money on prescription drugs definitely
Speaker 4: got up to two hundred billion by the third quarter,
Speaker 4: which was about my reign target number, you know, seven
Speaker 4: hundred million for the year. The economy turned around, and
Speaker 4: it didn't cost him the election. So you know, I've
Speaker 4: been on this for a while, so it's all been
Speaker 4: from a narrative and then watching the data.
Speaker 2: So true, mainstream macro economists have this concept that they
Speaker 2: call fiscal dominance, and yeah, that sounds like what you're describing.
Speaker 4: We're a little bit yeah yeah h.
Speaker 2: So basically yeah, so close enough. So I actually like,
Speaker 2: maybe I'll try to get you in trouble with some
Speaker 2: of your MMT friends here. But it sounds to me
Speaker 2: that from a policy like look, if dead to GDP
Speaker 2: were currently at ten percent right now, very very low,
Speaker 2: and you raise rates that you have some constraining effect
Speaker 2: on borrowers, and yes, you do have this interest increase
Speaker 2: in the interest income channel. But it's not that big
Speaker 2: of a deal because there just aren't many coupon payments
Speaker 2: at all that are going.
Speaker 4: Out right, exactly right.
Speaker 2: But where we are right now, is it safe to
Speaker 2: say that the size of the debt is a problem
Speaker 2: that we are in fiscal dominance, and that the size
Speaker 2: of the debt constrains the ability of monetary policy to
Speaker 2: be a balancing force in a time of inflation.
Speaker 4: More than that, I've made it backwards. It takes it
Speaker 4: away now. I had had a discussion with Paul Krugman
Speaker 4: a few years ago, and that's when he and Stephanie
Speaker 4: Calton were going at it with back in dueling editor.
Speaker 4: Remember that, Yeah, yeah, And I said to him, I said,
Speaker 4: what's you know, what's wrong with the job guarantee? You know?
Speaker 4: And he says, well, if you deficit spend for the
Speaker 4: job guarantee, the deficit could get so large that if
Speaker 4: the FED tried to raise you know, if we get inflation,
Speaker 4: the FED won't be able to use interest rates as
Speaker 4: a tool because the interest in you know, expense will
Speaker 4: be so high that that itself would cause inflation. Now,
Speaker 4: he was using that as an argument against the job
Speaker 4: guarantee and he made my argument and I said to him, yeah,
Speaker 4: I agree with you, I said, but I think we're
Speaker 4: already there for all practical purposes. And the debts GP
Speaker 4: was lower than but you know, it was at least neutral,
Speaker 4: that that interest rates were a tool. And he disagreed
Speaker 4: with me, and that's fine, And I said, in any case,
Speaker 4: you know, I support, as you know, at permanent zero rate,
Speaker 4: in which case it's moot. You know, you could spend
Speaker 4: for job guarantee without worrying about whether rate raising rates
Speaker 4: is going to do anything. And now, because you're not
Speaker 4: going to do it, you're going to just leave him
Speaker 4: at zero. But the point was he that was his
Speaker 4: new Keynesian the position out of the new Keynesian model,
Speaker 4: and it was a standard Nukenesian position yours, you know,
Speaker 4: not that long ago. You remember them all talking about
Speaker 4: anti deficit talk and how the interest payments are, you know,
Speaker 4: are unsustainable and all this stuff. By unsustainable, they always
Speaker 4: mean inflation shared, right, you know, say it in their
Speaker 4: first phrase. But that's if you drill down on them,
Speaker 4: that's what they get to. But in the last couple
Speaker 4: of years, when I asked them again two years ago.
Speaker 4: It's like, no, I don't think we're at that level.
Speaker 4: I still think that FED can raise rates to fight inflation.
Speaker 4: I said, okay, you know, we'll see. So this is
Speaker 4: this is in the new Canesian model. You know, it's
Speaker 4: just arithmetic that at some point the deficit gets high enough,
Speaker 4: the public deck gets high enough so that when you
Speaker 4: raise rates and pay more interest, you do call the
Speaker 4: interest itself cause inflation. Now, let's look at how high
Speaker 4: the deficit spending is. CBO's latest number shows seven percent
Speaker 4: of GDP, right, yeah, and I think that's just treasury.
Speaker 4: I don't think that includes FEDERI mints. So maybe it's
Speaker 4: seven and a half or something. Okay, Now, have we
Speaker 4: ever had anything anywhere near a seven percent budget deficit
Speaker 4: during an expansion? With the unemployment it's like four percent,
Speaker 4: you know, kind of record low levels. No, the only
Speaker 4: time we've gotten anywhere near this highest countercyclically when you
Speaker 4: have a collapse and then tax revenues fall off and
Speaker 4: transfer payments kicking kick in because unemployment's high. You know.
Speaker 4: Then we got to eight or nine percent in two
Speaker 4: thousand and nine, and we got to I don't know
Speaker 4: what the number was of COVID maybe fifteen percent, but normally,
Speaker 4: if you look at eight the budget DEFs, it was
Speaker 4: down to something like one percent of GDP, and that
Speaker 4: was low enough to allow the high price of oil
Speaker 4: and the other catalysts to trigger, you know, a major
Speaker 4: collapse in the financial sector, not a seven percent deps.
Speaker 4: Seven percent is like drunken sale or level of government spending.
Speaker 4: And out of that four percent is the interest expense.
Speaker 4: It's over one point two trillion, I think annually. We
Speaker 4: just passed one hundred billion for the month.
Speaker 3: So yeah, go ahead, Oh no, sorry, go on.
Speaker 4: Yeah. So look, we're right now that the depth sit
Speaker 4: seven percent in GDP, four percent of which is interest expense.
Speaker 4: Without the interest expense, if they left rates at zero
Speaker 4: would have been trending towards zero and the depicit would
Speaker 4: have been down at you know, two three four percent
Speaker 4: something still high, but not like it is now. And
Speaker 4: that to me is like it's it's unthinkable that that's
Speaker 4: not going to support a strong economy. Now, what's interesting
Speaker 4: is in the last month we've there's been a little
Speaker 4: bit of a bump in the numbers. Right the Fed
Speaker 4: Atlanta is down to one point seven percent GDP, growth's
Speaker 4: still not a reception or anything, and everybody's now looking
Speaker 4: for this collapse and FED rate cuts and everything else.
Speaker 4: And I'm sitting here, going, how can this be with
Speaker 4: a seven percent pro cyclical budget depicit? It doesn't It
Speaker 4: seems like an absurd assumption that we could have any
Speaker 4: kind of substantial weakness or really any kind of a
Speaker 4: sustained weakness in the price level. So but you know,
Speaker 4: for the last few weeks, maybe a month's, a couple
Speaker 4: of months. You know, it's certainly been plenty of indicators
Speaker 4: around the edges that things a week in and it
Speaker 4: may turn out, you know, I'm completely wrong, we have
Speaker 4: a total economic collapse with a seven percent deficit, and
Speaker 4: I can I'm seventy five this year. You'll never hear
Speaker 4: from me again, right, Well, see what happens.
Speaker 2: A good hedge, the age hedge in the long run?
Speaker 4: Where right? Right?
Speaker 2: In the short run? Out answer for any Yeah, I.
Speaker 4: Don't know what's going to happen, but I'll bet I'll
Speaker 4: be the first one to tell you that I'm just
Speaker 4: totally caught out by a recession with a seven percent deficit.
Speaker 4: You know, unless we get one hundred and fifty dollars
Speaker 4: oil or something like that. But as in some other shock,
Speaker 4: you know, I don't see how that much could be
Speaker 4: spent without GDP being strongly positive, unemployment being very low,
Speaker 4: and price pressures. Now, the other interesting thing is this
Speaker 4: one hundred billion a month only translates into about a
Speaker 4: three and a half percent of the Treasury debt as
Speaker 4: interest payment, whereas FED fundraise five and a half five
Speaker 4: and three a's, which means and T bills are somewhere
Speaker 4: around there five and a quarter five and three a's,
Speaker 4: which means that as rollovers continue, as time goes by,
Speaker 4: the depthit expands, that number is going up. Okay, even
Speaker 4: if they just leave rates alone, it will get to
Speaker 4: five three a's, you know, asseptotically, but it'll get there.
Speaker 4: And so that we're getting more and more of this,
Speaker 4: and the CBO's deficit forecasts are showing deficits higher than
Speaker 4: six percent. Put it to the future like this is
Speaker 4: like going to be interesting. That to me is at
Speaker 4: least six seven percent nominal growth. And if you think,
Speaker 4: you know, price level is going to be I don't
Speaker 4: know what you want to use PCE or something two
Speaker 4: and a half. That's that's four and a half real, Right,
Speaker 4: that's a pretty strong number. More likely you will get
Speaker 4: two to three reel and the rest will be you know,
Speaker 4: price level changes just one of the channels where the
Speaker 4: interest rate normally are. Over time, I've just noticed over
Speaker 4: fifty years they're changing the price level. The rate of
Speaker 4: inflation gravitates towards the Fed's policy rate. Over time they converge,
Speaker 4: and so with the five and a half percent rate,
Speaker 4: five and three's rate, you'll see CPI gravitating towards that
Speaker 4: interest rate, you know, towards that number five five and
Speaker 4: a half. Not in day one, you can go once
Speaker 4: without it, but over a longer periods of time, and
Speaker 4: you can think of that something like a stock split,
Speaker 4: you know, or a stock dividend where if you just
Speaker 4: pay all more shares you're getting, you know, all is
Speaker 4: equal to the value of this of an individual share goes
Speaker 4: down by that amount. Right, So if you have a
Speaker 4: two for one stock split, the price of the stock
Speaker 4: falls in half. If you're paying out five and a
Speaker 4: half percent a year on the public debt, which is
Speaker 4: the net financial assets in the economy called the net
Speaker 4: money supply in the economy, you're expanding it at five
Speaker 4: and a half percent a year through a payment of interest.
Speaker 4: There's nothing on the supply side, it's just a distribution. Then.
Speaker 4: I've just observed that over time price level gravitates upward
Speaker 4: by about that amount, and there's you know, plus or minus.
Speaker 4: So those are my expectations going forward. And if you
Speaker 4: notice CPI has leveled off at about three, you know,
Speaker 4: a quarter percent or something. It went up with COVID,
Speaker 4: it came down and then sort of leveled off. It's
Speaker 4: been going sideways here and that's about at the interest rate.
Speaker 4: You know, the effective rate on treasuries last year was
Speaker 4: about three and a half whatever it was. So to me,
Speaker 4: that's not a coincidence. It's not a surprise. It doesn't
Speaker 4: have to happen. It could have been different, you know,
Speaker 4: But it's kind of like the midpoint of my expectations
Speaker 4: as to what's going to happen with the price level. Now.
Speaker 4: PCE is a different thing, right, that includes substitution. If
Speaker 4: the price of stake goes up until people eat chicken
Speaker 4: instead but spend the same amount, you know, then there
Speaker 4: hasn't been any increase in the PCE.
Speaker 3: Just to be clear, we're recording this on a day
Speaker 3: that I've incurred something of a substantial head injury, and
Speaker 3: I was in the emergency room until late at night.
Speaker 3: But did I just hear the godfather of MMT say
Speaker 3: that large deficits can be a problem. Is that what
Speaker 3: you just said? I feel like I might be hallucinating that.
Speaker 4: Well, the deficit itself is just an accounting residual. But this,
Speaker 4: you know what the spending in any given year, Any
Speaker 4: spending has consequences. You know, if they decided to spend
Speaker 4: trillion dollars to buy eggs, they're going to drive up
Speaker 4: the price of eggs. Right. So if the government's spending
Speaker 4: on a you know, our government spends on a quantity
Speaker 4: constrained basis, Let's say they decide what they want to
Speaker 4: buy and then pay whatever they have to to buy it.
Speaker 4: That that can drive up It does drive up prices
Speaker 4: or down price. You know, all the time. That's constantly
Speaker 4: changing relative value in the act of all kinds of things.
Speaker 4: You know, there's no way about that. And we have
Speaker 4: course of taxation, right and the tax structure affects prices
Speaker 4: and affects things. So if we have right now major
Speaker 4: tax credits for solar for example, I think I get
Speaker 4: a forty percent tax credit for installing solar, So I'm
Speaker 4: putting solar panels in the USVII. The electricity is forty
Speaker 4: five cents to kill one, so it's pretty easy calculation,
Speaker 4: you know, so that I want to put in without
Speaker 4: that tax inteative from the government. So I figure it's
Speaker 4: probably not just me. So I talk to people at
Speaker 4: accounting firms, major accounting firms. Are you seeing tax time
Speaker 4: people doing this? They go, oh, yeah, We've got our
Speaker 4: own partnerships and structures where you can put money in
Speaker 4: and participate in this solar tax credit. You know. So
Speaker 4: who knows how large is open end tax credits getting
Speaker 4: and what it's affecting. So, yes, governments spending, but government
Speaker 4: fiscal policy is entirely distributional between tax liabilities and spending.
Speaker 4: It's pushing and pulling, you know, everything everywhere. It's it's
Speaker 4: it's a major determined it's it's a it's a large
Speaker 4: part of the command economy, and it's a command economy,
Speaker 4: you know, to the extent that it's there. If the
Speaker 4: government decides it wants jet planes, it's going to get
Speaker 4: jet planes right right through the tax structure to the
Speaker 4: spending structure. The pre market would not be producing jet
Speaker 4: planes without the government ordering. Right. It's everything caters to
Speaker 4: these you know, forces of government that are just on
Speaker 4: us all the time. So it's not that I'm in
Speaker 4: favor of them, but I'm just recognizing them and what
Speaker 4: they do.
Speaker 2: It sounds like, so you did you use the term
Speaker 2: drunken sailor which you think you could. Yeah, I'll go
Speaker 2: at the headline of this episode. It sounds like the
Speaker 2: issue is so a lot of spending. Yes, that creates
Speaker 2: a lot of The more spending, the more demand, prices
Speaker 2: go up. And then it's.
Speaker 4: Sound spend if you spend that market price. If you spend,
Speaker 4: you spend based on a at a fixed price. If
Speaker 4: you say, look, I'm going to spend this much for labor,
Speaker 4: you can't drive prices. You might not get any but
Speaker 4: you're not going to drive prices up that might get
Speaker 4: the government order.
Speaker 2: The government orders tanks and jets, and it also guarantees
Speaker 2: uh social security recipients a certain a certain fixed level
Speaker 2: of inflation or price level adjusted consumption.
Speaker 4: And then we become agents. We become agents because I
Speaker 4: guess SoC security of the government. You know, with no
Speaker 4: restrictions on what we do when we spend it.
Speaker 2: But it basically yeah, but it basically sounds like it's
Speaker 2: that mix of sort of conventional macro thinking in which
Speaker 2: high rates is uh deflate disinflationary plus the high levels
Speaker 2: of government spending that seems to be the cocktail for
Speaker 2: both higher upward pressure on the price level. And it
Speaker 2: sounds like over time worsening higher price level because there's
Speaker 2: a compounding effect.
Speaker 4: Yeah, and that's the situation at the moment. It doesn't
Speaker 4: have to be that way, but that's what I see
Speaker 4: happening right.
Speaker 3: Now in that context. And you sort of touched on
Speaker 3: this before, but I would love to hear a sort
Speaker 3: of like play by play guide here, But what should
Speaker 3: the Central Bank be doing in the current environment where
Speaker 3: we do have high fiscal deficits that might end up,
Speaker 3: you know, constraining them.
Speaker 4: So if they cut raise to zero tomorrow, then the
Speaker 4: CBO would scored as like twenty trillion of reduced you know,
Speaker 4: fiscal spending, budget cutting or whatever over twenty over ten years,
Speaker 4: probably you know, like the largest spending cut in the
Speaker 4: history of America at times ten, just by cutting rais
Speaker 4: to zero, all right, And that's got to have a
Speaker 4: well unless you assume none of that's kind of get
Speaker 4: nobody's going to change their spending because of the one
Speaker 4: point two trillion of income has been taken away. But
Speaker 4: you know, looking at the numbers I'm looking at, that's
Speaker 4: going to have a massive deflationary bias to it. It's
Speaker 4: going to be taking away all that income and all
Speaker 4: those next financial assets from the economy. It's going to
Speaker 4: be a staggering like creation of fiscal space. Let's say,
Speaker 4: I don't know how you want to put it, but
Speaker 4: just a major deflationary event. And that's not even under consideration.
Speaker 4: That's it would be considered a major inflationary event. Right.
Speaker 4: That's why I look at all the people that have
Speaker 4: looked at Japan with there's zero rates and forecasts like
Speaker 4: hyperinflation or the end went through one sixty big deal, Right,
Speaker 4: The inflation rates are lower than ours and it didn't
Speaker 4: go up and they kept zero race the whole time,
Speaker 4: but they're so forecasting hyperinflation, so they've got this bias
Speaker 4: that the low rates are going to a rate cut
Speaker 4: like that would be inflationary when it's the opposite.
Speaker 2: Well, actually, did you brought up Japan, you know, for
Speaker 2: all you know, I started really paying attention to this
Speaker 2: stuff in the mid two thousand. Yeah, you know, I
Speaker 2: heard all the tales of the widow maker trade and
Speaker 2: everyone betting on that hyperinflation and how it never happened.
Speaker 2: In recent years, Japan has seemed like the rest of
Speaker 2: the world, if for a substantial inflationary impulse, still low
Speaker 2: by international standards, but the side the stock of the
Speaker 2: national debt in Japan is very high, as we all know.
Speaker 2: And now they actually for the first time and forever,
Speaker 2: have actually seen inflation again, not that high, but again
Speaker 2: historically by Japanese standards. Is there a pump mix right
Speaker 2: now for Japan? Is there a risk that I don't
Speaker 2: know about hyper inflation? Kind of seems unrealistic that actually,
Speaker 2: if they follow conventional macro thinking and could hold rates
Speaker 2: up or move rates up to fight this inflation, that
Speaker 2: some of these disaster scenarios might actually emerge with the
Speaker 2: size of the.
Speaker 4: Debt ironically, ironically, they entirely embrace conventional macro theory, and
Speaker 4: the reason they're keeping rates down is they're worried that
Speaker 4: they might not actually be out of deflation, and so
Speaker 4: they've got to keep rates down to ensure that the
Speaker 4: inflation stays. You know, somewhere towards two. They just had it,
Speaker 4: you know, numbers from Tokyo or something that showed to
Speaker 4: lower rate and they're all panicking about a deflation. So yeah,
Speaker 4: they're there for the wrong reason, so to speak. But
Speaker 4: they're there, so we have the data. But yeah, okay,
Speaker 4: does that answer your question?
Speaker 2: But if they were to raise at some point there's like, oh, no,
Speaker 2: the inflation is not you know, if they were to raise,
Speaker 2: could that create some real unfortunate dynamic feedback loops given
Speaker 2: the stock of the.
Speaker 4: Yeah, if they ever decided to raise rates to do
Speaker 4: something with their debt to GDP, you know, they'd be
Speaker 4: throwing gasoline on the fire the way we have, except
Speaker 4: you twice as much. Yeah.
Speaker 3: Wait, can we talk a little bit more. So we've
Speaker 3: obviously been focused on the interest income channel for good reason,
Speaker 3: but can we talk a little bit about the credit channel?
Speaker 2: Yeah, this is important.
Speaker 3: Yeah, and the impact of higher rates there because the
Speaker 3: standard economic theory is that rates go up and that
Speaker 3: makes the cost of credit. That increases the cost of
Speaker 3: credit for businesses, and so they cut back on their
Speaker 3: spending and investment. How do you view that component of
Speaker 3: interest rate function?
Speaker 4: Well, their clients of the businesses are getting flooded with
Speaker 4: interesting and come and buying their output at whatever price
Speaker 4: they need, which includes what you need to you know,
Speaker 4: for investment, to keep up your output right and to
Speaker 4: train your personnel and do whatever else you need. You know,
Speaker 4: their prices are at levels where they're sustainable, where they
Speaker 4: can pay interest expens if they need to. And so
Speaker 4: we're seeing you know, three it's not this quarter, but
Speaker 4: we've seen you know, three and four percent GDP numbers.
Speaker 4: Now first and second quarter seems to be a little
Speaker 4: bit weak. I don't know if there's something in the
Speaker 4: seasonals that aren't quite fully sorted out, but and might
Speaker 4: prove me wrong, but I think, you know, the first
Speaker 4: quarter was one point four right due to inventory selling
Speaker 4: off inventories because they believe the economy wasn't going to
Speaker 4: be strong, so they didn't replace their inventories. Now they
Speaker 4: have to replace them. We'll see what happens in the
Speaker 4: second quarter. But anyway, so that's a narrative you had,
Speaker 4: but the data hasn't. It hasn't played out because the
Speaker 4: income of their clients has been high enough to buy
Speaker 4: their output at a price that they like, you know,
Speaker 4: that they're comfortable with. They've had good pricing power and
Speaker 4: covers these added expenses from the interest expenses and interest
Speaker 4: related expenses that you were talking about. But like it,
Speaker 4: so if you're spending enough, is throwing enough gasoline on
Speaker 4: the fire. Yeah, you're it's going to burn.
Speaker 2: But like so just on the private sector side a
Speaker 2: little bit more like as you know, one of the
Speaker 2: key themes that you talk about is these are distributional
Speaker 2: questions or the effects of a lot of these policies
Speaker 2: are distributional. And you mentioned maybe economists think there's no
Speaker 2: propensity to consume interest income, and maybe there's some good
Speaker 2: reasons for that because it's you know, most the wealthy
Speaker 2: people own the treasuries and banks and stuff like that.
Speaker 2: But in there's consumer credit, there's cars. We know that
Speaker 2: housing has slowed down. It does. Housing has slowed down substantially.
Speaker 2: It does seem like there are many parts of the
Speaker 2: US economy.
Speaker 4: Yes, yes, they have there a loss that they.
Speaker 2: Have responded to these higher rates by.
Speaker 4: Yes, fishing their activity. Yes, there are winners and losers.
Speaker 4: If you just look at the losers, you could maybe
Speaker 4: conclude by projection or confirmation bias, that the whole country
Speaker 4: is losing. But it's not. It's just shifting to different areas.
Speaker 4: You know. Rolls Royce has like a I don't know,
Speaker 4: two three four year backlog of sales, right, yeah you would, yeah, yeah,
Speaker 4: I read it in the Wall Street Journal. I yeah,
Speaker 4: in bloom I'm in Bloomberg. I read it on Bloomberg.
Speaker 3: Yeah, thank you.
Speaker 2: What are you driving these days?
Speaker 4: What? What?
Speaker 2: What race car are you in driving these days?
Speaker 4: I've been driving a twenty fifteen Nissan Leaf for electric
Speaker 4: car for a while, you know, because on the island
Speaker 4: you can't thirty five mile hour speed limit. And uh,
Speaker 4: but what do you drive on the track. I haven't
Speaker 4: been on the track since I turned us for the
Speaker 4: last since I turned fifty two, I think, okay, so
Speaker 4: you know I haven't. I don't race on the track anymore,
Speaker 4: got it. But I used to drive things at burn guests.
Speaker 4: I have my own cars, you know. I had the
Speaker 4: Mosler Empty nine hundred, which I would run on track days.
Speaker 4: I never ran it real races. I used professional drivers,
Speaker 4: you know, but in amateur racing I would drive it,
Speaker 4: and I would drive our consotly ers. I used to say,
Speaker 4: these cars can win races even with me driving.
Speaker 2: We should another episode, can we Would you ever come
Speaker 2: back to talk about when you had a race car
Speaker 2: your car company? Sure, Oh yeah, that'd be fun, that'd
Speaker 2: be really This looks like a sweet the Mosler empty.
Speaker 2: This is beautiful.
Speaker 4: How many of them?
Speaker 2: This is a beautiful car.
Speaker 4: There were fifty or sixty and you know I stopped
Speaker 4: making the empty nine hundreds in I don't know, ten
Speaker 4: fifteen years ago. But so there's still racing, So I
Speaker 4: can the Spanish GT and the British GAT. They're still
Speaker 4: winning races, you know, against the latest and greatest, and
Speaker 4: you know the car is twenty years old, so there's
Speaker 4: still a top performance car in the world where they
Speaker 4: let them run.
Speaker 3: So just going back to interest rates for a second.
Speaker 2: Moving away, it seems way more boring now than I know.
Speaker 3: I know this question is inevitably going to like fall flat,
Speaker 3: but it does feel like we're sort of talking about
Speaker 3: the economy is not a monolith. So you have these
Speaker 3: interest rate sensitive portions of the economy like housing, yes,
Speaker 3: that that are affected by rate rises, and then you
Speaker 3: have pockets that are more insensitive and maybe we don't
Speaker 3: have the balance of those two things exactly right, or
Speaker 3: maybe traditional economics hasn't done a good job of taking
Speaker 3: like those individual portions of the economy and netting them
Speaker 3: out into a cohesive picture of the actual effect of
Speaker 3: interest rates on them.
Speaker 1: How do you like?
Speaker 3: I guess this has always been sort of a criticism
Speaker 3: of MMT, But how do you take those disparate ideas
Speaker 3: and sort of make them into a useful theory of economics?
Speaker 3: Does that make sense?
Speaker 4: Yeah? Well, look, the whole composition of GDP changes all
Speaker 4: the time, and it's driven, as I touched on before
Speaker 4: quite a bit, by fiscal policy deciding what the government wants.
Speaker 4: So if the government wants more solar panels, puts a
Speaker 4: big tax credit, unlimited tax credit, we'll see how large
Speaker 4: that is, you know, when it's smoke clears. But I
Speaker 4: think it's gonna be a lot larger than anybody realized.
Speaker 4: If you notice government revenues have been flat in a
Speaker 4: booming economy, that's never happened. It's got to be tax
Speaker 4: credits of some sort of you know, working out there.
Speaker 4: So the composition is going to follow the money. And
Speaker 4: if the money's going to those you know, earning interest,
Speaker 4: then that's where the composition is going to go. And
Speaker 4: you'll see more high end purchases, You'll see more things
Speaker 4: that sort that group of people. There'll be you know,
Speaker 4: all kinds of investments in that direction, and that's what
Speaker 4: we're seeing. So again, it's about following the money, and
Speaker 4: the government policy directs to a large extent, where the
Speaker 4: money goes. And right now we've got over a trillion
Speaker 4: dollars a year going to interesting, which is more than
Speaker 4: defense and more than Social security and everything else.
Speaker 2: Right, I just have one last question, and this is
Speaker 2: more in the category of Warren Mosler lore rather than
Speaker 2: it is in interest rates. But we're in the studio
Speaker 2: right now, and I looked up and I saw on
Speaker 2: Fox Biz, which we have on TV, Art laugherers on there.
Speaker 2: Isn't it true like you were like friends with him?
Speaker 2: Isn't there some story with you and Art where like
Speaker 2: you had some important insight that led you to MMT
Speaker 2: thinking from a chat with Art.
Speaker 4: Well, I was looking for somebody to write up what
Speaker 4: became soft currency economics interesting. I wrote. This was in
Speaker 4: nineteen ninety three, and I went to my ex boss
Speaker 4: an that Janata from William Blair, and he sent me
Speaker 4: over to Rummy. Don Rumsfeldt was his nineteen fifty four
Speaker 4: Princeton roommate. They were on a football team and wrestling
Speaker 4: team something together, and they'd been good friends. So I
Speaker 4: had a meeting. I called his office and he was
Speaker 4: real busy. The only time he had was an hour
Speaker 4: in the steamroom at the Racket Club in Chicago, so
Speaker 4: I went out and met him there. So we're sitting
Speaker 4: in our towels in the steamroom going through softcurt see economics,
Speaker 4: and he then gave me a list of his economists
Speaker 4: that he thought would be a good place for me
Speaker 4: to go. And our Laugher was on that list, and
Speaker 4: his guys were like Paul McCracken and Samuelson. I mean,
Speaker 4: these were not anybody on my rollodecks. And I contacted
Speaker 4: a few of them, and Laugher agreed to do it
Speaker 4: in exchange for twenty five thousand dollars would help me
Speaker 4: write this thing, and he assigned Mark McNairy. So I
Speaker 4: got to know Art a little bit, and because we
Speaker 4: talked quite a bit on these things, and it turns
Speaker 4: out he's an ex university a Chicago professor, and he
Speaker 4: knew all this stuff. He knew learner and functional finance,
Speaker 4: and you know, long before I met any of the
Speaker 4: academic and you know, he agreed with it. He signed
Speaker 4: Tom Nugent to cover me because he was always looking
Speaker 4: to do business. I went to a little conference where
Speaker 4: he was and he got up to talk and he said,
Speaker 4: I'm going to give the talk on money, and I'm
Speaker 4: going to tell the money story. He says, And Tom
Speaker 4: and Warren and he points to us disagree with me,
Speaker 4: he said, and they're right, and I'm wrong, but this
Speaker 4: is the way I tell it. And he went and
Speaker 4: told the story about how banks take in deposits and
Speaker 4: make loans, you know, completely backwards. And then hesus a
Speaker 4: talk and look at him, like what was that. He says, well,
Speaker 4: you know I told everybody you were right and I
Speaker 4: was wrong. He said, like, what do you want? It's like, okay,
Speaker 4: So I don't know what's going on with our laugher.
Speaker 4: But he did say the the problem with the laughter
Speaker 4: curve was it only worked at the very extremes. So
Speaker 4: he was very like, you know, reasonable about everything. You know,
Speaker 4: he's a very easy guy to talk to, and you
Speaker 4: know self deprecating in many ways, and you know, you know, yeah,
Speaker 4: it worked out well. Mark was very good and he
Speaker 4: wrote and I edited, He wrote and I edited. Did it.
Speaker 4: We came up with the soft currency economics thing, and
Speaker 4: it didn't help. I thought having Laughter's name on it
Speaker 4: and whatnot might give it more attention, more media attention.
Speaker 4: But I don't think it made any difference. But you know,
Speaker 4: they say you have to kiss a lot of frogs,
Speaker 4: and that was just one of those, one of those times.
Speaker 2: Lauren Mosler, so great to have you on. I swear
Speaker 2: we will. I would honestly love to do an episode
Speaker 2: just about Mosler Automotive and just talking about the business.
Speaker 3: I just want to hear a day in the life
Speaker 3: of Yah.
Speaker 4: Well, okay, so Joe, I mean got in my FOD.
Speaker 4: We met at a dinner UMKC maybe or some.
Speaker 2: Yeah, I was, I was at UMKC.
Speaker 4: Okay.
Speaker 2: I think it was twenty fifteen. No, it couldn't have
Speaker 2: been twenty fifteen, twenty twelve or twenty thirteen.
Speaker 4: That sounds right. Yeah, it's long ago. I don't remember.
Speaker 2: Those were fun days. Yeah, so great to finally have
Speaker 2: you on the podcast and enjoy Sure you're going to
Speaker 2: be vacationing neck.
Speaker 4: Okay, thanks, take care.
Speaker 2: Tracy, the godfather of MMT, says the government is spending
Speaker 2: like drunken sailors and that it's created it's contributing to inflation.
Speaker 3: I'm still not entirely convinced that this isn't like a
Speaker 3: hallucinary output from your forehead from my head injury. But wow, okay,
Speaker 3: I mean, I do think it is not hard for
Speaker 3: me to envision a world in which companies pass on
Speaker 3: higher interest rate costs to consumers. We've talked on the
Speaker 3: show about companies passing on higher input costs and things
Speaker 3: like that. So that part of it I can believe.
Speaker 3: And the other part that does seem intuitive to me
Speaker 3: right now is this idea of a tiered economy where
Speaker 3: people who do have a lot of financial assets and
Speaker 3: are earning a lot of income on those financial assets
Speaker 3: do spend on certain things like, as Warren mentioned, luxury
Speaker 3: items like a lot of that makes intuitive sense.
Speaker 2: So definitely, And look here's where like I think I
Speaker 2: would need more exploration. So there are aspects of it,
Speaker 2: like clearly interest income is a real thing, more deficit spending,
Speaker 2: which more interest income entails is on the net, going
Speaker 2: to be stimulative at the margin. But rich people or
Speaker 2: people with financial assets also just care about the price
Speaker 2: of their financial assets.
Speaker 3: Oh yeah.
Speaker 2: And so when we did see, you know, they really
Speaker 2: jacked up rates aggressively in twenty twenty two, and stocks
Speaker 2: did decline, And I think stock prices probably influence real
Speaker 2: estate prices. They've certainly, you know, we haven't had a
Speaker 2: housing crash, but real estate in many realms has been stagnant,
Speaker 2: or if you're in multifamily or commercial real estate, then
Speaker 2: you probably have seen some price declines in the And
Speaker 2: so I do think that like that is an offsetting factor.
Speaker 2: And then I also think that while it's certainly true
Speaker 2: probably that the propensity to spend interest income is not zero,
Speaker 2: it is probably somewhat low, given that we're talking about
Speaker 2: people who already have a lot of money and income,
Speaker 2: Whereas the propensity to spend among people who are paying
Speaker 2: high interest rates, either through car payments or credit card payments,
Speaker 2: et cetera, is probably much higher and therefore impaired by
Speaker 2: higher rates. So while I certainly get the theory and
Speaker 2: I think there's probably something to it, I still like
Speaker 2: would need more a little bit more convincing that the
Speaker 2: distributional effect of this change in spending is on net inflationary.
Speaker 2: But it's interesting ideas.
Speaker 3: Absolutely, I think that's a really fair assessment. And I
Speaker 3: think like the composition of wealth matters. So you can
Speaker 3: say that there are all these treasuries in the world.
Speaker 3: I can't remember the exact number, but like thirty trillion
Speaker 3: dollars or something like that, and people earn income on
Speaker 3: those treasuries, but each individual person is probably not holding
Speaker 3: a pure treasury portfolio, as you say, like personal wealth
Speaker 3: will be comprised of real estate, which is affected by
Speaker 3: higher interest rates, stocks which also go up and down
Speaker 3: depending on interest rates. And so yeah, it seems like
Speaker 3: there's there's a sort of like net or sorry, there's
Speaker 3: a compositional complexity there that we still need to work out.
Speaker 2: And speaking of financial assets that go down, the treasuries themselves,
Speaker 2: Oh yeah, because you learn the first day you joined
Speaker 2: Bloomberg when rates go up, price goes down.
Speaker 3: That's right. We should start adding that into all of
Speaker 3: our news stories again, like we used to, just to
Speaker 3: hammer the second.
Speaker 2: Yields up price it done. I also just really like
Speaker 2: I I do want to do an episode on Warren
Speaker 2: Mosler lore because he kind of seems like a really
Speaker 2: cool guy who has a fun life.
Speaker 3: We should we should go to the island, and go
Speaker 3: to the island.
Speaker 2: Those the mostly Mt nine hundred looks absolutely sick. Have
Speaker 2: you not look at that?
Speaker 4: Up?
Speaker 2: I'm not a car, but that's a sick looking car
Speaker 2: that you built. Yeah, yeah, there's no joke like that
Speaker 2: is a sick looking car.
Speaker 3: The one on Wikipedia is a very bright greer.
Speaker 4: It's beautiful.
Speaker 3: Okay? Should we leave it there? Should we stop admiring
Speaker 3: the cars and leave it there?
Speaker 4: Let's leave it there? All right?
Speaker 3: This has been another episode of the Odd Loots podcast.
Speaker 3: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2: And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 2: Follow our producers Carmen Rodriguez at Carman Arman dash Ol
Speaker 2: Bennett at Dashbot and Keil Brooks at Keil Brooks. Thank
Speaker 2: you to our producer Moses on Them. For more odd
Speaker 2: Lots content, go to Bloomberg Odd Lots, where we have
Speaker 2: transcripts of blog and a newsletter and you can chat
Speaker 2: about all of these topics. Twenty four to seven in
Speaker 2: our discord a lot of MMT fans in there, so
Speaker 2: it'll be interesting to see how they react. Go to
Speaker 2: discord dot gg slash out Lots and if.
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