Mosler: Monopolists are price setters, whether they know it or not!

Comment: ICYMI, here's my Pieria post disagreeing with Martin Wolf's full reserve banking proposal.

Mosler: So best to let the monopolist set price and let quantity adjust... ;)

Mosler: Today regulation means Gov is ultimately in charge of 'money supply'- banks 'price risk'.

Mosler: Saudi's still price setter after all these years.

Mosler: And euro/$ price action is as if the ECB already is buying $? Via Belgium?.

Mosler: That is, 'loan volume' is the intersection between credit worthiness and price' sorry

Comment: Demand and supply at work. If AQR deals with supply (downward curve shift) we will have a positive effect on credit cost and size.

Mosler: My take- demand is the intersection of credit worthiness (lending standards) and price; supply today not a macro constraint.

Comment: And it is now subject to legal challenge. How much longer will markets believe a CB statement that has no Govt backing?

Mosler: Don't know but their price stability mandate demands it. Euro has no value without it.

Comment: Saudis have virtually no control of oil price with current oversupply. Long market support using passive fund leverage is now over.

Mosler: They've got you fooled, mate and playing into their hands. They post prices and let refiners buy all they want at the set price.

Comment: Do you really think that's how the oil market works?

Mosler: Yes, simple point of logic beyond dispute, monopoly supplier at the margin is a price setter. Micro 101.

Comment: They are price taker, not price maker. They base prices directly or indirectly on Brent/BFOE price. Macro 101.

Mosler: That is price setting and monopoly pricing is covered in micro 101 ;)

Comment: BFOE benchmark is direct for NWEurope buyers, & indirect for other buyers where physical price is linked by trader arbitrage.

Mosler: True and all in the context of saudi price setting.

Comment: Saudis set differentials - not prices. North Sea oil producers set p against very limited q.

Mosler: And it's my understanding north sea producers sell their entire output at the best price they can get = definition of price taker.

Mosler: Yes, setting that differential per se drives price up or down. Only q takers can do that.

Comment: Brent/BFOE, which they don't control, sets all Saudi prices directly (NWE) & indirectly (others). Saudis only allocate destination.

Mosler: You confuse price setting decision and reaction function. Saudis set p and let q adjust Brent is mkt determined by price takers.

Comment: It's not a different point. It's THE point. Entire 80m bpd & not Saudi fraction - is priced against BFOE & has been for a decade.

Mosler: 80 is the q sold at best price. Saudis sell to residual demand at their price without q limit. They post p and let mkt decide q.

Comment: That's how the market has been working for at least 10 years. Prior to that, the Saudis did have some price-setting capacity.

Mosler: They have total price control until demand exceeds their capacity or demand falls to where their output isn't needed.

Mosler: Saudi q has been steady 9-10mbpd for quite a while indicating relatively steady demand at their price.

Comment: They have control over allocation. They abdicated control of price to BFOE complex a decade ago & have ceded swing production to US.

Mosler: They may have switched to pricing via setting a diff to an index, but that is not abdicating price control, it is exercising it.

Comment: Price went $80 to $147 to $35 to $80 inside 18 months. What's the market like when the Saudis are NOT in control?

Mosler: The Texas railroad commission set price via quotas until that excess capacity ended in around 1971 or so and Saudis took over.

Comment: Saudis - Goldman/BP before that - used prepay for greatest market manipulation in history. Makes Hamanaka look like corner shop.

Mosler: We agree a Saudi price/diff hike/cut causes price to go higher/lower, right? Time to move on?

Comment: Do you know prepay? It is a promise by a producer which he will accept in payment for production. It's neither debt nor derivative.

Mosler: Point? Mine remains- Saudis are swing producer as long as they have excess capacity and ability to sell less at their price.

Comment: Based on my analysis, I predicted current collapse 3 years ago before US shale oil was a factor. Did anyone else?

Mosler: Several weeks ago I wrote posted that the Saudis best move was to cut price to bankrupt the high cost producers then safely hike.

Comment: Since when did the Saudis produce BFOE?

Mosler: That was a response to your comment about a change in pricing policy. Doesn't matter for my point that they necessarily set price.

Comment: Not necessarily. It is quite possible for producers to sell forward at a discount. Rosneft & Sinochem have a >$85bn prepay deal.

Mosler: Of course but that's not evidence of a physical glut but a shortage of physical or they would sell physical at the higher price.

Comment: Disagree, as you know. BFOE price is set by BFOE supply & demand, not Saudi.

Mosler: Exactly! the rest are price takers. Only Saudis set price/diffs and let q adjust=price setter.

Comment: Disagree, as you know. BFOE price is set by BFOE supply & demand, not Saudi.

Mosler: Exactly! the rest are price takers. Only Saudis set price/diffs and let q adjust=price setter.

Mosler: Any coincidence that the price of oil in rubles hasn't changed much recently? ;)

Comment: Katie Couric and the Net Petroleum Exporter Myth.

Mosler: Wrong about 'supply and demand- the Saudis as 'supplier of last resort' simply cut price.

Comment: My baseline scenario is that the Fed raises rates in June.

Mosler: That presumes the oil price cut firms the economy rather than weakening it ;)

Mosler: You mean of course rationing by something other than price ;).

Comment: Perhaps tax credits to incentivize GHG emissions instead?

Mosler: Perhaps other, non price/non regressive, forms of limits on end user 'consumption'/'sharing' like with cars.

Comment: Is supply or demand behind the slump in oil prices?

Mosler: How about monopoly price setting....

Comment: Indeed. Back to the good ol' question: how much of the oil price drop is due to supply and how much due to demand?

Mosler: 100% due to Saudi price setting.

Comment: Watch a video of our Dialogue with the Fed on the impacts of plunging oil prices.

Mosler: Wrong! It was simply the Saudis cutting price.

Comment: Is there a link between oil prices and inflation expectations?

Mosler: As if inflation expectations are what matters when the currency is a public monopoly and gov is price setter.

Comment: Goldman Lowers Crude Call to $20 as Glut Persists.

Mosler: They still don't know Saudis set price and let output adjust?

Comment: Over the last 3 months, #nfp has averaged just 167k. YTD job gains are 198k vs 238k last year at this time.

Mosler: Any lingering doubt that the oil price collapse was an unambiguous negative for the US economy as discussed? ;)

Comment: Dollar’s Surge Against Other Currencies Weighs Down United States’ Economy.

Mosler: No, its the drop in global oil capex from the price collapse

Comment: Fed doesn't have the tools to deal with asset price bubbles, acc to the Fed itself.

Mosler: Worse, employment and price stability aren't a function of interest rates, at least not the way they believe.

Comment: Seems to me this whole "debate" about nfa, equity reval, etc., is about Godley/Lavoie models, not mmt. I side with G/L there, btw.

Mosler: There has been no dispute with 'Soft Currency Economics' or with 'Full Employment and Price Stability' which specified NFA.

Comment: Four Ways the Oil Price Crash Is Hurting the Global Economy http://bloom.bg/1LiMPms

Mosler: Pretty much what i said at the time of the price collapse? ;)

Comment: U.K. economy slows in the third quarter, but the data is unlikely to ruffle Bank of England officials.

Mosler: It has decelerated since the November oil price collapse/global capital expenditure collapse.

Comment: Fed Raised Rates Without a Hitch, and It Only Took $105 Billion but we're probably talking more like $1T a day soon.

Mosler: For the Fed it's always about price, not quantity, with floating fx/non convertible currency.

Comment: My latest post on inflation. A basic overview of concepts for the general public.

Mosler: There's a bit more to it as the currency itself is a public monopoly and Gov therefore price setter etc ;)

Comment: FB comment from Steven Hail.

Mosler: Tell Steve 'inflation' is a function of price paid by Gov.

Comment: Let Y=MV/P and assume (change in M)=G-T (assuming bonds constant) and neg relation between U & Y and you've got it.

Mosler: Yes, define M as G-T, but with M then a public monopoly Gov is 'price setter' for P.

Mosler: Yes, oil price declines have been a big whopping negative, but it's about the related capex spending collapse, not interest rates.

Comment: The question is not why oil prices have fallen, but why they have not fallen further.

Mosler: Hint: Saudi price setting....

Comment: My (implied) critique of your business card model: Chartalism and stock-flow consistency.

Mosler: All valid outstanding tax credits have value as long as tax liabilities exist. And Gov. is price setter.

Mosler: Since the time when the Texas Railroad Commission started putting quotas on output to support its target price? ;)

Mosler: Aka the golden years that ended when the US no longer had excess capacity and Saudis did and became the new price setter?

Comment: SANDERS: What about free college? DEVOS: There's nothing in life that is truly free.

Mosler: We are paying the price for treating education as an expense rather than as the investment that it is.

Mosler: Since today's currencies are Gov. monopolies, Gov. is necessarily price setter, so they are all necessarily 'manipulated' via Gov. policies.

Comment: Raised Rates:U said interest income is higher so its inflationary, why did we have a recession in 81-82 when rates were raised?

Mosler: Maybe the Carter budget surplus of 1979 was the more powerful force? Coupled with yet another oil price hike?

Comment: Especially nice to see him casting doubt on the obsession with inflation expectations!

Mosler: It's the 'default explanation' when you don't realize the currency itself is a case of monopoly, and government is thereby price setter.

Comment: MMT - School of thought or set of personalities? Semantics or substance?

Mosler: Left out the fact that the currency is a simple public monopoly so the state is necessarily 'price setter'.

Comment: WTI ripping into a seasonally weak period.

Mosler: Saudis are price setter.

Comment: But if the central bank just sets rates in the model, isn't that the definition of public monopoly? I will admit, this is a type III error on the part of academic economists. Right but for the wrong reason.

Mosler: And yes, mainstream recognizes the CB as monopoly supplier of reserves and therefore price setter of the interest rate.

Comment: Would love to here people's thought.

Mosler: Not to forget the currency is a public monopoly = state is price setter etc.

Comment: A Job Guarantee is not about working for Tesco’s. It’s about working for Govt within your local community for a living wage on ur own schedule. It’s about workers security but also about social purpose & prosperity of the nation& no one could ever call it “money for nothing”.

Mosler: It's about promoting the transition from unemployment to private sector employment and at the same providing superior price stability.

Comment: It's phenomenal how the left wants the #jobguarantee to meet some purity test of policy effectiveness, a standard never applied to any other progressive policy (tanf, snap, EITC, etc), ignoring the wholesale structural improvements the #JG makes to labor markets & people's lives.

Mosler: Try promoting it as a transition job designed to promote the transition from unemployment to private sector employment, and at the same time function as a superior price anchor... ;)

Comment: So many JG critics seem to think technical details come first, ignoring all the literature in public policy, biz strategy, etc.--i.e., fields that do change implementation on a regular basis.

Mosler: Me too. And there are other people who value the core monetary aspects of JG who are also voters, such as transitioning people from unemployed to private sector employment and enhanced price stability.

Mosler: Please find me a single place where an MMT economist has “argued that countries should push for trade deficits.” I’d be shocked if such a thing exists. Our views on trade have been very nuanced.

Mosler: From 'Full Employment AND Price Stability' 1997, where I explained how a trade deficit provides for beneficial policy options: This understanding allows policy makers the option of taking advantage of the benefits of being a net importer. For example, an increase in net imports that results in the loss of private domestic employment will immediately result in an increase in the number of government $12,500 workers. This increases government spending (and the budget deficit) which may result in other industries hiring workers away from the government. If the pool of $12,500 ELR workers is deemed by the electorate to be too large, taxes can be cut or public spending increased until the number drops to the desired level. The public would associate higher trade deficits with an increasing standard of living, lower taxes, and other such benefits,

Comment: You would think that MMTers would be psyched that the US is getting BOTH huge tax cuts & massive spending increases, but the silence in the MMT 'academic' community has been deafening. Perhaps the #FAKEMMT 'scholars' should have gotten their PhDs in politics instead of economics.

Mosler: The guaranteed transition job, as I've termed it, is to promote the transition from unemployment to private sector employment, as all studies show private sector employers prefer to hire people already working, and also to provide a superior price anchor.

Comment: The FRED Blog: Iran’s crude oil exports fell sharply in 2012-15 amid U.S. sanctions. So, why did global oil prices remain relatively stable?

Mosler: Because Saudi’s set price.

Mosler: Paul Davidson is 88 today- happy birthday! 20 years ago he read 'Soft Currency Economics' and demanded I write 'Full Employment AND Price Stability', working with me continuously to get it right for publication in his journal. The rest is history! ;)

Mosler: The state sets the policy rate at 0 and offers a state funded transition job to all takers to both facilitate the transition from unemployment to private sector employment and enhance price stability, and adjusts fiscal balance to minimize the # of transition workers.

Mosler: It also functions as a 'reverse split' to reduce the number of shares and thereby elevate/manipulate the nominal share price (without changing market cap), to the benefit of any management compensation that's based on share price.

Comment: I get asked about #MMT (modern monetary theory) all the time and I recently was asked again by a patron of my show (#EconomicUpdate) on Patreon: "Please explain what is MMT, and more importantly, what it isn't."

Comment: I'm a fan of your work, but 1. MMT's insights precede the advent of digital money (my research expertise is on digital fiat currency), going back to ancient Mesopotamian accounting: https://imtfi.uci.edu/files/docs/2013/hudson.pdf; 2. There is a lot of post-capitalist potential in MMT, as we demonstrate in our @curaffairs podcast (connecting most obviously to Marx's theory of labor certificates in Critique of Gotha Programme), and 3. You know @StephanieKelton and could get her.

Mosler: And the JG provides for a superior price anchor than today's unemployment policies. That is, the JG is an anti inflation policy that at the same time supports output.

Comment: Today we are launching our new blog space: Long Read For our opening publication we are delighted to present an article by PhD student @PhilArmstrong58Modern Monetary Theory and a Heterodox Alternative Paradigm.

Mosler: Except it's officially mainstream with publication in a leading mainstream economics journal! Journal of Policy Modeling | Vol 39, Issue 2, Pages 185. Maximizing price stability in a monetary economy. Warren Mosler, Damiano B. Silipo.

Comment: Nothing has been more exciting than the last week. It's unbelievably riveting to watch #MMT and #AOC come together to defend a Green New Deal and a Job Guarantee.

Mosler: Yes, because the Job Guarantee is a superior price anchor to unemployment, the economy can be run that much 'hotter' to get the GND done.

Comment: MMT puts price stability at the core of its approach. It guards against inflation *ex ante* by insisting that the budgeting process itself evaluate inflation risks *before* appropriating any new spending without offsets.

Mosler: And opens the door for superior price stability vs current policy, by replacing unemployment with an employed labor buffer stock policy popularized as the Job Guarantee.

Comment: Again, price stability of what? Because if you're not counting everything that money can be spent on, then you're not quantifying the real consequences of money creation.

Mosler: In a market economy you only need to set one price and let the rest reflect relative value. That's what the JG wage does and my point is that it does it better than unemployment.

Comment: Exactly! I wrote about this regarding IP from Job Guarantee labor, but logic also applies more broadly. If research in science and useful arts is financed by public money, the fruits of that research should be made available to the public.

Mosler: The JG serves public purpose as a superior ("anti inflation") price anchor vs unemployment while removing most of the negative externalities of unemployment.

Comment: I see. Thanks! I've now written a short piece trying to capture this point (corrections welcome): https://medium.com/@alexanderdouglas/what-i-think-mmtist-should-say-b904e4013ed4

Mosler: You did say only MMT recognizes that the currency itself is a simple case of a public monopoly, and monopolists are price setters, etc? ;)

Mosler: From a pure monetary perspective, the purpose of JG is to provide a superior anti inflation price anchor when compared to unemployment, by facilitating the transition from unemployment to private sector employment. Who is against that???

Comment: Yes. And would just emphasize Nathan's point: there is more to MMT's inflation-fighting toolkit than solely raising taxes. The emerging consensus, following Mason/Jayadev and then Barro, to reduce MMT to Lernerism is pernicious and false. MMT was talking Minsky before most.

Mosler: And the MMT 'inflation-fighting tool kit' begins with the Job Guarantee which immediately provides the monetary system with a superior price anchor than today's unemployment, as it facilitates the transition from unemployment to private sector employment.

Comment: It's an accurately descriptive theory of finance with a poor theory of value. Sheikh's critique of it is pretty clear - and I've been engaged with MMT critically since 2008. Knowing what it is does not equal having to agree with it.

Mosler: MMT is the only credible, logical theory of value- the currency itself is a public monopoly and monopolists are price setters, whether they know it or not.

Comment: If the deficit exactly repeated period after period, the price will get higher and higher, but no inflation because total consumption is higher and higher?

Mosler: Depends on supply side- what's offered for sale at what price- etc.

Comment: “[Tarullo] was particularly doubtful about the weight inflation expectations play in rate-setting policy, given the ‘range and depth of unanswered questions’ about how they are formed and measured.”

Mosler: Powell and the rest continue to be entirely wrong. They fail to realize the $ is simply a public monopoly and monopolists are necessarily prices setters, not price takers. :(

Comment: I think @wbmosler argues that it was mainly the deregulation of the gas industry that did it.

Mosler: On a look back, that and the recession from tight 'real' fiscal due to inflation cut global oil demand to where the Saudis couldn't sufficiently cut production to keep the price from collapsing.

Comment: I tend to partially agree with Catherine's points on external constraints & exorbitant privilege. Willem's hang up is less fx regime, more QTM. Can there be too much money? Yes. Does ELR have an automatic inflation stabilizer built in? Yes. Does Weimar apply to MMT? No.

Mosler: Buiter agrees the currency is a state monopoly, but doesn't agree it is therefore and necessarily 'price setter' whether it knows it or not. ;)

Comment: How is it so easy for so many econs to 'forget' that 'printing money' at ZIRP is not inflationary IN THEIR OWN MODEL? Did they all miss Krugman's bazillion op-eds on HIS (i.e., not Keynes's) 'liquidity trap'?

Mosler: He misses MMT 101: The currency is a public monopoly, and thereby price setter. :(

Comment: The first candidate to recognize Medicare for All is a deflationary event that not only doesn't beg a tax increase, but, to the contrary, is what 'pays for' the rest of the progressive laundry list, leapfrogs to the head of the class.

Mosler: Likewise for the first candidate to recognize that the Job Guarantee in the first instance provides for superior price stability vs unemployment, thereby adding to fiscal space crucial to 'paying for' the GND, free higher education, etc. etc

Comment: I find no compelling economic, political, moral arguments for using the unemployed to stabilize prices. Guaranteeing the right to decent work to all is long overdue. Fed's key responsibilities are regulatory/supervisory, not hitting the 'right' # of jobless people.

Mosler: And because an employed labor buffer stock provides superior price stability vs unemployment... ;)

Comment: Sticking with the car metaphors (which is up @wbmosler alley)...how long before they realize the steering wheel was never connected to the pinion gear and the automatic stabilizers have been steering all along.

Mosler: And how about carrying on this debate in the context of an employed buffer stock, which we know is a superior price anchor vs unemployment, because employers don't like to hire unemployed workers, etc. etc

Comment: When China was buying its own currency on the market to keep it propped up against the dollar, that was manipulation of the currency. China STOPPED doing the manipulation, let it float, and the free market dropped its value against the dollar. That is the opposite of manipulation.

Mosler: Furthermore, since all currencies are public monopolies, and single suppliers are necessarily 'price setters', all currencies are necessarily 'manipulated' via fiscal policy and institutional structure in general. That is, the perceived idea of 'free floating' is inapplicable.

Comment: Yes I agree. Looser fiscal policy also useful.

Mosler: Exporters are Marx's capitalist. They have no interest in the well being of the domestic economy. They just want cheap labor and other inputs to profit from foreign sales. When exporters are in control, the domestic macro economy pays the price.

Comment: Attempting to manage inflation on the backs of the unemployed is insane and unjust. This is why we need a federal jobs guarantee.

Mosler: And worse, the JG is a superior price anchor vs unemployment. There is no logical reason to not implement a JG asap!

Mosler: The currency is a public monopoly. With floating exchange rate policy, the Fed is 'price setter' for interest rates, not 'price taker.' Inflation expectations per se don't alter interest rates. Only with fixed exchange rate policy, interest rates are 'market determined.'

Mosler: So has anyone ever even considered 'price paid by Governmen?' ;)

Comment: I'm not sure why one would want to focus on the instant something happens. The question is what happens next? Is the bank penalized? (Yes) How will the bank react? (It will contract its loan portfolio to remain in compliance.)

Mosler: Just saying that central banking/"offsetting operating factors" is always about "price" and not "quantity.

Comment: Trump is practically begging for impeachment. Give it to him, already.

Mosler: Little kids just naturally probe for limits. The financial sector calls it 'price discovery'....

Comment: Someone didn't understand this is the @mmtconference. The FIRST thing we learn is spending doesn't necessarily lead to inflation. (Well, that's actually the second thing. The first is taxation and spending aren't directly correlated).

Mosler: With the currency a public monopoly, the price levels is necessarily a function of prices paid by the state- the 'money monopolist'- when it spends.

Comment: Question: What do people mean by "capital flight" in this context? They can't mean the departure of paper money (which is replaceable at zero cost). Do they mean the departure of human capital (w/ no scope of importing their brilliant services produced from abroad)?

Mosler: It's generally about selling dollars and buying fx, often via selling US financial and real assets and selling the dollar proceeds to buy fx denominated assets. The first order consequences are a falling dollar and deflationary price pressures, as indifference levels shift.

Comment: Time for all governments to establish permanent #JobGuarantee programmes as a way providing workers with local, stable, and living wage employment. A humane and flexible answer to the massive negative externalities of unemployment.

Mosler: And a superior 'price anchor' vs unemployment for promoting price stability, of course! ;)

Mosler: You're trying to prove monopolists aren't price setters? ;)

Comment: That assumption is in my models. Not sure what you think falls in place though. It's just standard monetary theory.

Mosler: Monops set 2 prices 1. own rate= policy interest rate set by Fed as single supplier of net reserves 2. terms of exchange for other goods and services= price level is necessarily a function of prices paid by Gov. spends=source of price level.

Mosler: So is the concept of monopolists being price setter vs price taker in question?

Comment: The idea that money has value because it is mandated as a way of paying taxes has a long history in monetary general equilibrium theory dating back to Ross Starr.

Mosler: Doesn't recognize that as sole supplier of money to pay taxes, Gov and it's agents are price setter?

Comment: If Amazon decides to pay 10x, it will also have price pressure. This has nothing to do with being monopoly supplier of base money.

Mosler: Amazon at best can cause a shift in relative values, while the Gov can permanently shift the general price level.

Comment: Also empirical, but it means, for openers, that inflation expectations aren't the cause of inflation, and that it's Gov spending policy+institutional structure that turns relative value stories into inflation stories (not that it isn't necessarily 'good policy' to do just that).

Mosler: Assuming a market economy, it follows the Gov need only set one price and let market forces work such that prices reflect relative value. That's what fixed fx policy is about. With today's floating fx policy, the de facto 'price anchor' is unemployment (rather than gold), etc

Mosler: The dynamics of a monopoly are a clear point of logic as per all mainstream texts. Monopolists are price setters as by definition there is no competition, etc. How they do it is a matter of policy.

Comment: Many great points here, though personally am not ready to abandon "monetarism" as my provisional theory of (trend) inflation.

Mosler: It's never too late... ;) Models say competitive mkts clear and imperfect competition causes unemployment. NK's say its sticky wages, etc. Keynes and I agree it's the gov/monop restricting supply/deficit spending to offset unspent income. Therefore price level= f(prices paid by monopolist)

Comment: Islm is applicable to fixed fx, but you have to stretch and redefine terms, etc. to try to make any sense of it with floating fx.

Mosler: Fixed fx gives you that price formation story.

Comment: The point of the job guarantee is not about efficiency. It’s about guaranteeing people economic participation that provides them with an income. There’s much to do that we are neglecting. But Even if that job was digging holes and filling them up again. You’d still see a benefit.

Mosler: And it would still promote the transition from unemployment to private sector employment, thereby providing a superior price anchor/more price stability than unemployment.

Comment: Does @CraigGlasgow2 agree or disagree with the following statement. "Spending on the Job Guarantee is, like all spending inflationary, which means to stay within limits the JG may need to be reduced in times of high inflation?"

Mosler: Don't forget JG Gov/monopolist spending is on a price constrained basis which prevents deflation and doesn't cause inflation by definition. And a shrinking JG pool "automatically" evidences increased demand.

Mosler: How about a pool of fixed wage labor available for hire? Buffer stock policy/price stabilization and all that?

Comment: The MMT insight - which is literally what created it as a body of theory - is that a JG can be used as a buffer stock approach to stabilise wages. Saying the JG is not part of the theory just says that you don’t understand the theory.

Mosler: Because employers don't like to hire the unemployed, but prefer instead to hire people already working, the JG promotes the transition from unemployment to private sector employment, thereby establishing a superior price anchor/buffer stock vs unemployment.

Comment: But that’s a cop out answer, and the financial system would not have survived for centuries if some totalitarian asshole agency was running around bullying the banks. So what’s the bank’s incentive in the QE exchange?

Mosler: It's entirely voluntary, based on price. The Fed announces it's a buyer, and asks for offers. Securities are bought and sold constantly, generally without the Fed, which is in this case 'just another buyer' as far as the seller is concerned.

Mosler: Trump is like the market concept of 'price discovery' and as seen in toddlers as he can't help but 'push' until something stops him.

Comment: There's been very little use of the Fed's emergency lending facilities. Does this mean they are/were ineffective? If one never uses the guard rails on a narrow treacherous trail, does this mean they're ineffective?

Mosler: For most all things Fed, it's about price, not quantity.

Comment: Tying policy to labor force participation would give a more accurate assessment of inflation risks and distance to full employment than just focusing on the unemployment rate.

Mosler: Recognizing the currency is a public monopoly and therefore the state is 'price setter' would also be helpful, as would recognizing rate hikes impart an inflationary bias through interest income and forward pricing channels.

Comment: What’s your view on the Volcker shock and inflation thereafter?

Mosler: Fiscal tightened/public debt falling in real terms triggered recession, oil demand collapsed/oil price collapsed bringing down inflation and Carter's dereg of nat gas made it safe for utilities to convert keeping oil demand down.

Comment: How can setting the floor for wages with a #JobGuarantee be more of a "wage suppressor" than keeping the value of unemployed labor at zero?

Mosler: Simple! Employers don't like to hire unemployed, instead preferring to hire people already working. It's about keeping your buffer stock marketable/liquid for it to effectively resist price increases.

Comment: First of all, thank you very much for your reply. Without an increase in the interest rate and with a lot of Argentinian pesos circulating, what measures would you think should be taken to lower inflation?

Mosler: Start by cutting the local currency policy rate to 0. Then examine the source of the price increases, including loans to SOE's and 'insiders' that 'count' as deficit spending and result in the selling of those funds for fx.

Comment: I agree. Every "job guarantee" that does not reduce to people being allowed (and able) to create their own "jobs", "jobs" they believe to be valuable for themselves and the community, will end up in creating duties to fill BS-jobs that are bureaucratically administered.

Mosler: It's about using today's unemployment policy as the price anchor or adding a (voluntary) JG as a price anchor, leaving current unemployment benefits as they currently are.

Comment: Has the Phillips curve flattened? Our new paper concludes: Not really. It has always been flat.

Mosler: The $US is a monopoly, Gov is price setter, price level necessarily=f(prices paid by Gov), game theory says P curve not applicable.

Comment: Ms. Kelton’s response also misses the crux of Erik’s question. Economics 101 tells us that when you increase the supply of something, the value of each individual unit of that thing falls. Why would this basic economic concept not hold true for money?

Mosler: The currency is a monopoly so gov is "price setter."

Comment: Is this saying that it was the 'hyper-enlarged' deficits that contributed to the hyperinflation? It also mentions failing to balance budget [revenue... failed to keep in step with its spending].I don't think this is in line with the rest of the document? Maybe further clarify.

Mosler: The point is that the higher prices paid are the redefining/devaluation of the currency. And the paying of the higher prices contributed to gov facing further price increases that gov again decided to pay. It's the paying of the higher price that redefines/devalues the currency

Comment: Especially, since this is the last paragraph before the appendix and so be the last thing in the readers mind! Otherwise, there is danger of this being used as a something to knock MMT. "...See, even MMTers say that deficits caused hyperinflation".

Mosler: When Gov spending-deficit or otherwise-is via paying the higher prices, that spending redefines/devalues the currency. So it's about Gov spending at ever higher prices-gov spending not price constrained- vs price constrained Gov spending.

Mosler: Epic mania madness: Bitcoin soars skyward as 'fund managers are panic-buying to keep up' with Paul Tudor Jones.

Comment: The value of bitcoin is also rising because nation-states are developing mining facilities "as a strategic sovereign reserve asset".

Mosler: Central Bank of Venezuela apparently buying as well, which adds to their Bolivar inflation. Same with gold buying. Price is as high as it is due to central bank buying, which they do 'off balance sheet' as it doesn't count as Gov spending, but as a CB asset purchase.

Comment: This is why hyperinflation usually emerges. Non-sovereign debt can be a factor but doesn’t have to be. If a sovereign prints more money but the private sector produces nothing of value from it all you have is more money chasing the same level of goods and services.

Mosler: The answer to the source of the price level is here: https://t.co/5Kcrd8QkYX?amp=1

Comment: You can start with something simple like oil whose value has moved in a $100/barrel range over the past 10 years and whose price is literally dictated daily by trade.

Mosler: Saudis have been swing producer/price setter.

Mosler: For openers, the Job Guarantee is meant to facilitate the transition from unemployment (workers not in the private sector) to private sector employment, which reduces the size of government and provides for a better price anchor than today's unemployment policy. Next question?

Comment: For the record - Warren and I are on the public record (2001) as saying the continued issuance of public debt is unnecessary and should be discontinued. That certainly would change the CB-Treasury relationship.

Mosler: Yes, and for all practical purposes the US Treasury limiting new securities to 3 month bills does the trick within current institutional structure. Please forward to Janet, thanks, and remind Congress to mandate a permanent 0 rate policy and a JG to enhance price stability.

Comment: A policy variable means the central bank can set it by market-making. Which points to supply/demand factors in setting yields, not expectations. What am I missing?

Mosler: The Fed is the sole supplier of reserves, therefore 'price setter.' It can set the entire term structure of 'risk free' rates but elects to only set overnight rates and let the term structure reflect anticipated future rate settings and 'technicals' of institutional structure.

Comment: If energy dereg broke inflation’s back, why does history attribute it to Paul Volcker? I seem to recall you implying that Volcker exacerbated inflation.

Mosler: That and tight fiscal that caused the recession cut oil demand by maybe 15 million bpd, causing the price collapse.

Mosler: Seems shifting tax liabilities from income and sales tax to property taxes would dramatically reduce price pressures from non residents and investors and it could be drafted so residents pay about the same as they do now. Plus lower compliance costs= higher real wealth.

Comment: Invoking the limits argument in bad faith, or just badly, has also stoked the equally bad idea [emanating particularly from MMT] that there are no limits, or no practical limits, that taxes don't fund Govt spending, and that you can use the printing presses and not worry about it.

Mosler: There are no nominal limits in that spending is a matter of crediting accounts. The real limit to spending is what is offered for sale with a price tag in your currency.