MMT's Godfather Says the US Government Is Spending Like a Drunken Sailor

Inflation & Rates

Warren Mosler, the intellectual godfather of Modern Monetary Theory (MMT), shares insights on the intricate relationship between inflation and interest rates. He challenges the conventional belief that higher interest rates curb inflation, suggesting instead that they can contribute to inflation through the interest income channel 1. This perspective is gaining traction as more people question the efficacy of interest rate hikes in the current economic climate 2. Mosler explains, "The interest rate itself has had this effect on the price level for a long time that I've observed" 3.

   

Growth & Deficits

Mosler also examines how interest rates impact economic growth, highlighting the unusual situation of a 7% budget deficit during economic expansion with low unemployment 4. He argues that such high deficit spending, akin to "drunken sailor" levels, is unprecedented outside of economic downturns 5. Mosler notes, "It's over 1.2 trillion I think annually. We just passed 100 billion for the month" 4. This environment, he suggests, supports strong economic growth, despite recent indicators of potential weakening.