Monetary Realism

Understanding The Modern Monetary System…

Europe – Still In Denial

Warren Mosler cites several articles showing that European leaders are still in denial over what needs to be done in Europe. The problem in Europe is still quite simple.  Because there is no floating currency there is a natural competitive imbalance between trade deficit and trade surplus nations.  This exists in the USA as well among the states, but it doesn’t result in periodic solvency crises because the Federal government disburses 20% of state funds directly to the states each year.  Of course, that mechanism doesn’t exist in Europe even though the ECB is currently avoiding the worst case scenario by allowing budgets to be filled without default.  And the austerity measures aren’t helping this process – they’re creating a positive feedback loop as we continue to see in Greece and their now monthly “rescues”.

I’ve long said that Europe needs to go fully federalized and quickly into the direction of a US of Europe.  I still think that’s inevitable.  The big question mark is how big that US of E will be and whether they’re going to let these peripheral nations be part of what is increasingly becoming an unsustainable relationship (as is).  My guess is that Germany would love to toss out the dead wood, but they can’t do that just yet without blowing up their own banks.  So round and round we go.  Where she stops nobody knows….


Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering asset management, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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97 Responses

  1. Cullen Roche says

    Don’t take this the wrong way, but I don’t seen anything new or different there than what has already been said. But thanks for taking the time to compile all of this.

  2. JJ says


    I asked a few MMTers the following questions and got responses from Warren Mosler, Bill Mitchell, Dan Kervick, Tom Hickey and Mitch Green.

    1. Do you think that MMT might be compatible with small government and low taxes, or is it inherently biased towards big government and high taxes? (I’m assuming that MMT would always involve some form of the ELR/JG if it were to be fully implemented).

    2. Does MMT require a degree of nationalisation (i.e. of banks/ corporations) and strict regulation, or is it compatible with no nationalisation and a hands-off approach to regulation?

    3. Would you say that MMT economists have different political and ideological positions, or are you all more or less the same?

    4. Do the main MMT economists have different understandings of what MMT is or of how it could be implemented?

    You can read the responses (some short, some longer) here:

    Warren Mosler/ Bill Mitchell:

    Dan Kervick/ Tom Hickey/ Mitch Green:

  3. vincecate says

    I agree that MMT is too extreme with their view that the government can force whatever money they want on people. On the other hand, there is some truth to it. In the early 1930s the Fed only had $0.40 in gold for every $1.00 in paper money and people were taking out gold. The people were really rejecting the paper money. If even 40% of the dollars were turned in the Federal Reserve system would have been out of gold and bankrupt. So the government outlawed gold. This is a rather heavy handed move. In particular when the constitution says states can only use gold and silver money. But the government did it and got away with it. And they saved the paper money.

    On the other hand there were hyperinflations where France killed people who violated price control laws and they still could not fix prices. And many cases of hyperinflation where eventually people rejected the government money.

  4. Andy says

    That was me I think but you have misquoted me slightly but it was after your ‘we know unemployment works’ comment. Anyway water under the bridge.
    I must admit though I can’t help but be impressed with your persistence.

  5. Cullen Roche says

    Yes. See our about us page. We totally disagree with the state theory of money.

  6. Michael Sankowski says

    Check out this page and take a look at the comments.

    from November 2011.

  7. vincecate says

    I say the reason Bolivia got hyperinflation is they printed money to fund a large deficit. I say they stopped getting hyperinflation when they stopped printing money to fund the deficit. What reason do you say for Bolivia? If that reason applies to many other places, why did those other places not get hyperinflation? Your explanation can’t just be “there was instability in government” since not everywhere that has instability gets hyperinflation. What reason do you give for the hyperinflation stopping in Bolivia?

  8. vincecate says

    So does MMR not like the MMT way of explaining that taxes provide demand for a currency?

  9. Cullen Roche says

    Why don’t you start your insufficient demand for currency by sending me your paper notes? I am in the business of collecting them from people like you who see no need for them. :-)

  10. Cullen Roche says

    I think once this dust settles MMRists and MMTers will realize that we are indeed friends. We’re like the friends who just got in a drunken brawl. Once we wake up in the morning we’ll remember that we’re friends again. I’m still waiting to wake up though. Hell, I might still be involved in a fight if some of the commentators on other sites are any indication! I did deserve to be “laid out” according to some MMTers so maybe that’s in my immediate future! :-)

  11. vincecate says

    Cullen Roche
    I’ve been pointing out your errors for years. You don’t seem to understand that hyperinflation is more than a monetary phenomenon. It’s always caused by exogenous events like losing a war, corruption, regime change, foreign debts, crashing production, etc. None of which are occurring in the USA.

    American won the revolutionary war and still got hyperinflation. Bolivia did not have any war. Not everyone that loses a war, has corruption, foreign debts, etc gets hyperinflation. So those things alone can not really be said to cause hyperinflation. Why can’t we agree that your different exogenous events are just different ways to get a government to where the combination of spending and taxes are at levels that make insufficient demand for the currency?

  12. AK says

    Why we can’t all just be friends and agree that the ability to tax, and productive capacity are both inherently connected and thus equally important?

    A sudden and massive loss of productive capacity & capital will mean that there is way too much money out there in comparison with the real goods base. This could theoretically be remedied by the imposition of a massive tax to shrink the monetary base – but practically by that stage, the government has lost the power & legitimacy to do that. Hence hyperinflation.

  13. Cullen Roche says

    I’ve been pointing out your errors for years. You don’t seem to understand that hyperinflation is more than a monetary phenomenon. It’s always caused by exogenous events like losing a war, corruption, regime change, foreign debts, crashing production, etc. None of which are occurring in the USA.

  14. vincecate says

    Also, I have a blog at:
    I appreciate any feedback. I think I am just looking for the truth. If you can find any errors of fact or argument I do want to know.

  15. Dan M. says

    I tried to read the first few paragraphs of that. All I can tell you is it is incredibly, obviously, horribly biased stuff. I will try to read more later just to humor the Austrian argument.

  16. vincecate says

    Hyperinflation takes debt over 80% of GNP and deficit over 40% of spending, then people not wanting to buy bonds. After the war the US had a budget surplus. They did run a deficit during the war, but after cutting back the military the deficit was gone.

  17. Dan M. says

    Wasn’t Great Britain 140% of GDP after WWII, and the US 110% of GDP?

  18. vincecate says

    Confirmation bias

    Yes. This is clearly why with 100+ examples of hyperinflation when debt gets over 80% of GNP so many MMT/MMR folks look at Japan, the one example that has lasted awhile after passing this cutoff without printing like crazy, as if it were the norm.

  19. Deus.Ex.Machina says


    “Confirmation bias (also called confirmatory bias, myside bias or verification bias) is a tendency of people to favor information that confirms their beliefs or hypotheses. People display this bias when they gather or remember information selectively, or when they interpret it in a biased way.”

  20. vincecate says

    The Japanese have been exceptional savers, even in the face of low interest rates. But if they stop giving their savings to the government then they will get hyperinflation. I don’t think anyone else has lasted anything near as long as Japan after getting debt over 100% of GNP. The US does not have anything close to the savings rate of Japan in the last decade. Do not expect the US to last so long.

  21. Deus.Ex.Machina says

    In 2001 Japan had a debt of 136% of GDP and more recently over 200%. Friends there tell me there has been no sign of any troublesome inflation let alone hyperinflation. More like deflation.
    Vincent, you can keep singing the same old tune, but that does not make it true.

  22. vincecate says

    As long as people keep buying the bonds there is no hard ceiling on debt. The problem comes when people just cash in the bonds as they come due and do not buy new ones. Then the monopoly issuer of the currency can not limit how much money it creates. For every bond that comes due it must create more money. If trillions are coming due it gets monetary diarrhea.

    Now I understand that MMT/MMR think it does not matter if a government monetizes the debt. But in reality it does matter.

  23. Ben Wolf says

    Please show me empirical evidence of hard ceilings on debt for nations sovereign in their own currencies. Where you from, boy?

  24. Ben Wolf says

    I had no idea. Thank you for whacking me in the head repeatedly until I figured it out :)

  25. vincecate says

    This is where MMT/MMR really fails. They don’t look at history. Historically if a country has debt over 80% of GNP and deficit over 40% of government spending and then people stop wanting to buy their bonds, they get hyperinflation. That MMT/MMR does not fit reality should make you understand the theory has a problem. Reality is real experimental results. In reality it does matter when the people stop buying the bonds. Imagine the USA. Right now the monetary base is something like $3 trillion and debt like $15 trillion. Like half the debt is due in the next year (short term stuff). If people stopped buying the monetary base could get an extra $7 trillion in one year, going from $3 trillion to $10 trillion. Historically when you get this kind of thing you get hyperinflation.

  26. Dan M. says


    You don’t get it. If they don’t earn .6% interest on their cash, they’ll all look at each other and en-masse release those dollars in a flood into the US economy, demanding our goods & services, putting people back to work.

    You can’t imagine the destruction that will ensue.

  27. Dan M. says

    Thanks, Ben… I’m kind of outclassed here so I like when I can contribute and not just confusedly try to keep up with the conversation.

  28. Ben Wolf says

    “Yes, people holding bonds at 1% and 2% can en masse decide not to roll them over.”

    Who cares? You keep laboring under the assumption that it matters whether people want to buy our bonds when the government does not need their money in order to function. It sells bonds as a reserve drain and nothing more. Let them not roll their bonds over, big deal and good luck to them stuffing their cash under mattresses.

  29. Ben Wolf says

    Thanks for saving me the trouble of writing that. Nice response.

  30. Dan M. says


    Of course people can dispense of their bonds/cash… the key question is WHY WOULD THEY if they’re not already? Currently, foreign countries are still buying $500 Billion per year of our currency with their goods. Our bonds are currently paying 0%-2% for the most part… if they want to save in US bonds at super, super low rates, what is not rolling back QE going to accomplish?

    “Stupid monetary/fiscal policy” would be doing something besides what the economy needs at the moment. Right now, we are in a balance-sheet recession and NEED more dollar in our domestic economy. Stupid policy is letting your trade deficit outpace your fiscal deficit for 11 years and expecting things to fire back without significant deficits in our current recession. Stupid policy is being deathly afraid of inflation during a balance sheet recession when everyone’s deleveraging. Stupid policy is being afrait of hyperinflation in the most free, stable, and productive economy in the world.

  31. Pierce Inverarity says

    Actually, MMR does have equations to explain these things. Over at Pragcap a couple of months ago, beowulf was kind enough to walk us through what kind of deficit spending the Federal government might target with the current account deficit being what it is (among other factors). If he has time, maybe he’ll reprint it here, because I think it would do you a world of good to understand that MMR deals in operational realities and mathematics that you seem to want to sweep away with generalizations about “printing”.

  32. vincecate says

    Yes, people holding bonds at 1% and 2% can en masse decide not to roll them over. It happens time and again. Basically people realize that is a bad deal and not as safe as they thought. They realize this when inflation is clearly higher than the interest rate they are getting. They realize they are better off buying some “inflation hedge” or even just extra cans of tuna.

    The unstable government may be a cause or a result of the currency losing buying power.

    What ratio of spending/taxes would you count as a “stupid monetary/fiscal” mistake? Is it stupid for a government to spend 1.5 times what they get in taxes? Is it stupid to spend 2 times what they get in taxes? Is it stupid not to understand that inflation might not come for 4 years after you printed money? Does MMT/MMR explain these things? If MMT/MMR does not explain these how could getting them wrong be stupid?

  33. Cullen Roche says

    If MMT were to frame a discussion on hyperinflation as being the result of a socialist and corrupt dictator then it might reasonably scare people into thinking that MMT’s pro-govt agenda is taking us in that direction. Not necessarily Zimbabwe, but in relative terms. It’s not an unreasonable position.

    MMT is pro government. Pro state. “MMT is inherently progressive.” Which is fine. I’m not against you guys having a very explicit political position. But don’t try to hide it as though MMT is compatible with Austrian economics or small govt because it’s not. So own what you are and stop trying to obscure it. I was misled for a long time (partly due to my own fault) into believing that MMT is some apolitical and non-ideological perspective of the way the world works. I was probably even guilty of hoping I could influence the core MMTers into buying my apolitical approach. Clearly, that was wrong. That’s fine. I made a mistake there and I own it. But the truth about MMT is that it is a very tightly balled up theory with a very specific policy agenda. That’s cool. Most of economics is that way. But just own it rather than calling it “macroeconomic reality” or trying to portray it as something it’s not.

  34. JJ says

    Ok, I sometimes use exaggerated language to emphasise a point – something you’re occasionally guilty of too. In both cases it’s probably why people get annoyed sometimes.

    “If you twist the argument in just the right way then you can ease people’s fears over a socialist govt seizing the means of production and cratering the economy.”

    “I probably would have mentioned the fact that it was a corrupt socialist regime that drove the economy into the ground. Of course, this doesn’t exactly mesh well with the MMT ideal of “bringing the state back to center stage.”

    Why doesn’t this mesh well?

    You have repeatedly insinuated a relation between MMT and coercive authoritarianism since the JG fracas. In these latest comments you suggest that Mitchell wants to downplay the ‘dangers of dictatorial socialism’ (indeed, the dangers of mass-murdering brutal socialist dictatorship) as focusing on these could make him and his “ideal of bringing the state back to centre stage” look bad. Why would that be then?

  35. Cullen Roche says

    Okay. Mitchell nailed it. He got it all right. Better?

  36. JJ says

    He does say that the regime was made up of “evil idiots”.

  37. Cullen Roche says

    I didn’t say that MMT policies would turn us into Zimbabwe. In fact, my position over the years has been explicit about that. I also never said that I thought Mitchell was malevolent or dictatorial. I also never said MMT was about a desire to bring about a dictatorial socialist big government dystopia.

    What I did say was that Mitchell didn’t exactly tell the full story in order to downplay the negative effects of a socialist and corrupt govt.

    I really don’t know why I bother responding to a single MMTer. I am surely a masochist.

  38. JJ says

    Ok, but I don’t understand why you think that an MMT policies would have anything to do with what happened in Zimbabwe. You seem to support many of them.

    My ‘even-handed’ comment related to his treatment of the post-2000 meltdown. I said that I thought your two views had a lot in common, and that he wasn’t pushing an tax-fixated argument, far from it.

    I agree that his analysis of 1990s is lacking. Though it follows a simple standard account, it only looks at GDP growth and inflation and ignores other significant problems. These problems must have contributed to the severity of the subsequent collapse so a fuller analysis should incorporate them. I’m not sure their inclusion would necessarily weaken the MMT analysis however. This holds that govt deficit spending cannot outrun growth in production and productive capacity without potentially serious consequences, and that govt spending can always be inflationary and ineffectual if it is carried out incorrectly.

    Mitchell describes himself as an anti-authoritarian left-libertarian, even though he advocates large scale government deficit spending and bank nationalisation. I think he sees plutocratic dominance by finance as more of a threat to democracy and freedom at present than ‘big government’.

    If any of his policies were ever to get a chance of being implemented they would still have to go through the grinder of the democratic process. There is no ruthless MMT dictator that can force its ideas on the world. All Economists can do is come up with analysis and ideas and try to get them accepted. I’ve yet to hear an MMTer denounce democracy, even though many would like to see the current system reformed. In my experience, right wing libertarians constantly denounce democracy and want to take the vote away from people, in favour of a set of immutable ‘natural laws’ that can never be altered by anyone.

    So what I don’t get is where you see all of these malevolent dictatorial shadows lurking behind MMT. Where do you see the real connection between MMT and Zimbabwe’s example of “brutal mass-murdering dictatorial ‘socialism'”?

    Surely you know that there is a vast gulf between people who might describe themselves as leftwing or progressive or ideological (i.e. Wray the other day) and Robert Mugabe? Or do you see one as a slippery slope to the other?

    Are Mitchell’s policies so socialist in your view that if they were ever implented, it wouldn’t be long before we found ourselves in Zimbabwe’s position?

    BTW Kelton’s phrase argues that the chartalist way of thinking brings the state “centre stage” as it refutes the metallist arguments about the nature and history of money. Under the metallist story, the govt plays a minor role, but chartalists argue this is historically inaccurate and doesn’t represent the reality of the monetary system. The phrase does not indicate a desire to bring about a dictatorial socialist big government dystopia in which we all find ourselves on the road to serfdom.

  39. Dan M. says


    You’re right, there are a lot of ways, but you seem to completely misunderstand “Money printing.” If most of our debt is paying less than 2% interest, that means that people our holding our debt not for the interest, but the safety. Do you really think the same people holding our bonds at 0%-2% are going to reject them en masse if they are QE’d and they now hold 0% cash? Think about this… explain this… because this is the crux of the issue.

    The AIDS analogy was way off. Simply put, usually hyperinflation involves more than just stupid monetary/fiscal mistakes… it often involves a very unstable government, foreign denominated debt (often as a result of losing a war), and harsh reduction of productive capacity.

  40. Cullen Roche says

    Sure. And being a proponent of full employment, one might also describe an environment of 50% unemployment as “reasonable” in an attempt to downplay the corruption, hardship and atrocity caused by a socialist regime. But I am the one obscuring the facts, right? Right?

  41. Cullen Roche says

    Fair enough. I am just stating my claim that an analysis of the Zimbabwean economic performance as being “reasonable” or the implementation of the land reforms as “poor” are vastly misleading claims that can be seen as a potential attempt to obscure the real facts. If I were going to present a 3,000 word article about Zw I probably would have mentioned the fact that it was a corrupt socialist regime that drove the economy into the ground. Of course, this doesn’t exactly mesh well with the MMT ideal of “bringing the state back to center stage” so you can see why I am skeptical of his presentation. I don’t think I am being at all unreasonable here….

  42. geerussell says

    The situation in Zimbabwe has largely arisen from the controversial land reallocations which sliced up their largest export and domestic form of productivity into the hands of the agriculturally incompetent.

    If I were using the power of imagination to frame the writer for ideological bias I’d express shock that this mass murder was described as merely controversial then proceed to speculate about how the writer cleverly phrased it to play down Mugabe’s atrocity in order to further his own agenda.

    I’d be completely off-base in doing so but that’s just how easy it is to pluck a quote out of context, zero in on a word and use it to unfairly indict someone’s motives. It’s a practice best avoided.

  43. Cullen Roche says

    Ah. I just assumed you didn’t want to be connected to your insult laced rant from last week. Which I had to delete because it was so disgusting. Apologies for jumping to conclusions though! :-)

  44. JJ says


    He states that the Zw govt is a sovereign currency issuer, but then qualifies that statement by indicating that it might lose that sovereignty in the face of competition from the dollar if it can’t maintain demand for its own currency by maintaining an adequate tax-collecting system. That’s how I read it. We already know that Mitchell considers tax to be the way that govt establishes demand for its currency.

  45. JJ says

    Sorry, new name from now on. Trust me, no coordination as far as I’m aware.

  46. JJ says

    “I am just pointing out that his article is written in a specific way so as to alleviate certain fears pertaining to govt, socialism, etc. Which it achieves by not focusing on those facts.”
    You read the article in this way as you are concerned with the dangers of big government and socialism, and you see the fact that these subjects are not explicitly addressed as being evidence of an attempt by Mitchell to quietly ‘hoodwink’ the reader. But that is your interpretation which reflects your particular concerns. As I said, the article analyses the causes of Zimbabwe’s economic meltdown. The fact that it does not explicitly state certain things that you think should have been stated is worth noting, but it does not invalidate the analysis. If you had written the article you may have concluded that Zw’s collapse was simply due to “brutal socialism”. But you see Mitchell does something other than this – he actually provides a detailed analysis of what happened. He criticises everything the government did, whilst acknowledging that these “catastrophic” government actions ultimately had origins in earlier injustices inflicted by the previous colonial regime and left festering until 2000.
    By the way, the reason I am defending Mitchell here is not because I slavishly believe everything that he says, but simply because I believe that your comments are incorrect.

  47. Ramanan says

    “I only responded because it seemed to me that Mitchell’s views were being unfairly portrayed. Maybe I should have treated your comments as throw-away lines to be ignored. But it would appear that your unfair appraisals of MMT economists and their views is becoming both more strident and more frequent.”

    Well thanks for responding. My question was genuine. I always notice some line or the other thrown in which seem to have no direct relevance. Don’t ask me to quote but next time I consciously notice, I will let you know. That said, in my recent debate was directly quoting a line which is quite inaccurate.