Episode 209 – The Recurring Saga of the Debt Ceiling with Rohan Grey

Macro N Cheese – Episode 209
The Recurring Saga of the Debt Ceiling with Rohan Grey
January 28, 2023

 

[00:00:05.880] – Rohan Grey [intro/music]

The language of the part that Director Diehl published, section 5112K. The Treasury Secretary may, in their discretion, mint and issue, that is to say, not only make it but make sure it gets into circulation, platinum proof coins of whatever denomination and whatever amount that the Treasury Secretary wants.

[00:00:29.690] – Rohan Grey [intro/music]

I didn’t come from Australia to become a Democratic Party apparatchik. I’m not even a Labor Party apparatchik in Australia. I have no loyalty to any of these people. I came here because I’m sick of America hurting my country and people around the world. Amen.

[00:01:42.120] – Geoff Ginter [intro/music]

Now, let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

[00:01:43.140] – Steve Grumbine

All right. This is Steve with Macro N Cheese. For those you don’t know, it’s that time of the year again. It’s debt ceiling time. It’s a time where politicians act in very serious way and they wring their hands about very serious issues about the national debt, which is a joke. It’s a crock, it’s a bunch of bullshit. But the way the laws are written on the books right now, it gives the veneer of legitimacy.

It gives them this weak sliver of legitimacy that the average person doesn’t know enough to defend against. I’m hoping we can bring an end to that, today. So Janet Yellen is talking about how the Fed is going to do some extraordinary measures to keep the government paying its obligations ahead of what’s expected to be a big fight to raise the borrowing cap.

And so, without further ado, I’m going to bring on my good friend and guest, associate professor from Willamette University. That would be none other than the Rohan Grey. Welcome to show, sir.

[00:02:42.930] – Rohan Grey

Hey, thanks for having me.

[00:02:44.440] – Grumbine

Absolutely. I probably screwed that up. How do you say? Is that Willamette?

[00:02:48.800] – Grey

I was told, as an Australian who often mispronounces people’s names to my partner’s great chagrin, that it is pronounced “Will-amet dammit, Janet.” So if you like Rocky Horror, that’s the way to remember it. But that’s what I’ve got in my head every time I accidentally, almost mispronounce my own school’s name.

[00:03:04.010] – Grumbine

All right, so with that in mind, you and I just did an interview about cryptocurrency and a look back and see at how MMT fared during the pandemic. Today’s discussion, I guess Rohan, we should break down the whole hubbub about the national debt and the debt ceiling and how they play this game. And then we should get into solutions. So why don’t you set the stage for what this annual rite of passage seems to be.

[00:03:32.770] – Grey

Yeah. There’s a very complicated and convoluted process in Congress to get the budget to a point where the executive branch, most notably the Treasury, is then responsible for actually executing that spending. If you think about your 6th grade social studies, Congress is supposed to have the power of the purse. The President is supposed to be the executive.

But what you actually end up having is a situation where Congress on one hand will say, spend a certain amount, but then we’ll have a secondary set of instructions to the President or the Treasury Secretary about how to effectuate that spend. It’s like me saying, on one hand, I want you to go to the grocery store and pick up some stuff for the party.

On the other hand, I want you to use this car and not that car. And when you go, you have to go refill it at the gas station before you go, et cetera. There are two separate sets of instructions, and the President is supposed to – or the executive branch is supposed to – honor both. The challenge that comes up is when there seems to be, when it gives the impression of, an inconsistency between those instructions.

It’s like I said, I want you to go to the supermarket and we live on an island, but I said, you can’t take the boat. What are you going to do? You’ve got these two contradictory instructions. So in this situation, what that contradiction appears to be is that Congress has said you have to spend a certain amount. That’s already happened. They passed the budget.

There are checks that are due to go out. There are people that have a legal claim to receive money. There are contracts that have been entered into that people are expecting payment from. There are things that fall under the 14th amendment of the Constitution that says that the president shall take care not to bring the debts of the government into question.

These are the debts we’re talking about here. Not just the national debt, not just Treasury debt, but every spending commitment that we have to make. So that’s already happened. Now, where the inconsistency appears to be is that Congress has told the executive branch three things. One, you can’t raise any more taxes. Everybody knows how hard it is to raise taxes in America.

We can’t raise taxes no matter what. Half the Democrats won’t do it and all the Republicans won’t do it. Two, you can’t unilaterally cut spending. We already promised it. That happened last year. The money has been locked in. People are expecting their checks. There’s going to be hell to pay if we don’t spend. But three, and this is the crucial part, that you can’t issue more government debt beyond a certain ceiling.

And so the assumption is that when those three are inconsistent with the amount of spending we have to do, that is to say the taxes equal 100. The debt limit gives us space to issue another 50 in debt. So that’s 150. But the spending we have to do is 200. Oh, no! What are we going to do? The math doesn’t add up!

And this is where we get into this moment where people think, people argue, that this creates essentially a crisis moment where unless Congress goes back to the drawing board, unless it changes one of those variables, there is an impossible situation that the executive branch has been put in. The executive branch is being told to do things that it can’t do.

[00:06:23.290] – Grumbine

When they talk about someday you got to pay the piper. And the United States government is not like you and I paying our debt. Well, you probably could create currency out of thin air, but it would be questionable whether anybody would take Rohan Grey currency. I mean, I probably would because I think you’re a nice guy.

[00:06:39.710] – Grey

It’s certainly not as many people as take the US dollar, that’s for sure. At least not until I have 200 military bases around the world and a permanent seat on the UN Security Council, and then the primary funder of the IMF and the World Bank, and have the largest economy in the world and the bread basket of the northern hemisphere, etc.

So, yeah, I could make my own money. Hyman Minsky famously used to say, anyone can create their own money. The challenge is to get it accepted. And the US has a pretty good argument for why their money is going to be more accepted than almost everybody for the foreseeable future.

[00:07:06.410] – Grumbine

Before we get through this, explain exactly how the United States government, which creates its own currency, generates, quote, unquote, debt.

[00:07:17.690] – Grey

Yeah, and so I’m going to be one of those annoying law professors and slip around the question to start answering it, which is to say, in order to understand what is debt in that story, we have to start with what is money? And what is money in this situation is, first of all, it’s something you can use to pay. But in specific context of the money that we use today.

The money that we’ve used for 5000 years since we started having governments with laws and institutions that enforced things on tablets and stuff that was bigger than just a kinship based society where if you have a problem, you actually know everybody’s name and you have favors and things. If you’re in a society larger than that, where there is stranger relationships governed at a distance through legal institutions and through writing specifically, money is a debt.

Money is a promise by the government that they will take it back from you in exchange for relief from legal liability. Legal liability sounds like a complicated word. Its most basic form is taxes. The tax man. The Beatles got a song about it. There’s only two things in life that are certain death and taxes. The idea that the government can put a gun to your head, for better or worse.

And I think there are often very good reasons to have taxes, including for the fact that I think the taxes are the corrective on property rights. How do we stop billionaires? Only half of Montana.[inaudible 00:08:28]  We tax it back away. The price of having property rights is that you have to submit yourself to collective taxation. So why do we have those kinds of things?

Well, there’s all sorts of reasons why we might impose taxes, but also we have things like fees and fines. If you want to use a certain government service, we might make you pay that. In early religious societies, it might be a religious tithe, right? You put 10% towards the church, which was also the government. But in my world as a lawyer, where I actually experienced this most interestingly, most nuanced way is things like contract law disputes.

You go to court and the court says, all right, you’re wrong, they’re right. You have to pay them some money. What you have to pay there, the court will determine what’s acceptable and what isn’t. You want to pay them in Chuck E Cheese dollars. The court say that’s not good enough. You want to pay them in your dollars because you’re a sovereign citizen.

Not good enough. There’s a whole episode of Better Call Saul where he’s trying to do legal representation, and the guy wants to secede from the union. He offers him dollars with his face on it, and Saul’s like, oh, that’s a shame. I’m not going to be able to work with you. So the idea of what money the court will accept in enforcing court judgments is part of that “taxes drive money” thing.

So what money is there is a promise to accept it back. And that sounds weird, because when we think of a debt, we normally think of having to pay something we don’t already have. If I have $100 debt, I have to find $100 out there so that I can pay the debt. When the government has a debt, they are promising to give you either another version of their same money or accept it back.

So, to give an example, if you look at $100 bill, it actually has the word note on it. Note sounds like something you write to your relatives saying, oh, sorry, I bought some milk. I’ll be home in 15 minutes. But in the legal world, a note is a form of debt. You go and buy a car, you get a car loan, it’ll say note on the top. You have a mortgage, it will be a mortgage note.

It’s a technical term for a debt instrument. So a Federal Reserve note is a technical debt instrument. Why it’s weird for us—why we don’t think of it as debt—is two things, I think. One, it doesn’t pay interest. Most of us think of debt as something that pays interest, right? The reason you hate your credit card debt is because it’s mounting interest every week.

If it wasn’t mounting interest, it would just be money you could pay whenever you’re ready, who cares? Or if it didn’t have regular repayment requirements. So one part of it is we’re not used to thinking of zero interest debt. But of course we’ve had interest rates at close to zero for almost ten years. If you were buying three month Treasury bills, which are part of the national debt, part of the public debt, anytime between about 2011 and 2016, you are probably getting close to zero interest on that.

And the other thing that is unusual is we don’t think of money normally as having duration. That is to say, normally if I’ve got money in my pocket, I can pay it now. Whereas what does a three month bill say? Three month Treasury bill, it says in three months this will be worth $100 that you can pay now. You can store it, you can put it in your pocket, you can trade it to somebody else who wants to hold on to it too.

But it’s sort of like buying a flower that hasn’t germinated. You don’t get to actually see the flower until the three months are over. Now, the problem with that framing is—government debt: even though it’s got maturities and there are all different sorts, it’s sort of like choose your size. You want a small soda, a medium soda, a large soda. Do you want three month debt? Do you want one year debt?

Do you want five year debt? Do you want ten year debt? The thing about it is you don’t have to hold it for the whole time. That’s the magic. That’s the secret that most of us don’t really think about. You can sell that debt tomorrow, maybe you won’t get the full face value, maybe you have to pay a little bit of a cost for being early. But it’s almost like having a savings account.

Nowadays, if you put money in a savings account, you’re not actually locked in for the the entire time. You just have to pay a penalty if you want to get it out again. But the benefit of locking it in is they say “we’ll give you more interest if you hold it the whole time.” So it’s this benefit trade off. The more duration you have, the more you can earn. More interest.

But it’s a smooth spectrum. So the cash that we hold in our pocket, the best way to think of it is “zero interest, zero maturity” debt. And then you go to the next one on the list and it’s three months, a little bit of interest debt. One year, a little bit more interest debt, et cetera, et cetera, et cetera. Most of us don’t have the luxury of living in a world where we can put millions of dollars away for 30 years.

That’s why most of us don’t think up there. So who is thinking up there? Rich people, banks, investors, hedge funds, pension funds. For them, the debt money, the money that we think of as the national debt is the money that they spend most of their time dealing with. You think somebody who manages a pension fund of $300 billion is worrying about single dollar bills, about quarters and pennies?

God, no. They don’t care. They care about what we might think of as high denomination money—money that you’d get pieces of paper back in the day, and now it’s, of course, all digital entries on a computer screen that would be worth a million dollars, $10 million. This new Netflix show, Kaleidoscope, is about them stealing bearer bonds from the last time before bearer bonds became illegal.

They had this whole little bit in the show and they said you used to be able to get pieces of paper from the government that were worth a million dollars. They made them illegal in the 80’s. Now it’s all online. It’s all through the Fed’s account system, but there were still some left over from that period. And if you can get them, it’s like walking around with a million dollar note, as long as you can wait for 30 years until it comes due or you can sell it to someone else in the meantime.

So the national debt, the way that I think about it, is high value money in a savings account. And what are you promising to pay? What does the repayment look like? It looks like shifting your money. When you take that $100 million of debt and turn it to $100 million of cash, it looks like shifting it from your savings account to your checking account. That’s it.

So most people are going to freak out when they hear that and they think, well, aren’t you monetizing the debt? Suddenly there’s $100 million more money in the economy. Doesn’t that mean that people are going to be buying stuff and bidding down the prices of goods and services? And the answer is, of course not. Do you think Bill Gates, who’s a billionaire, goes out every day and goes, I want to buy all the milk in the economy?

No, he buys as much milk as you and I need for his coffee, and that’s it. So if suddenly he woke up and his financial advisor called him and said, oh, I’ve sold $50 million of your Treasury securities for cash. Now you have $49 million in cash. He goes, wow. Great. I can go buy $49 million worth of milk. No, he’s going to buy as much milk the next day as he did the day before.

So when we think about inflation, it’s not about how much money is in the economy, it’s how much is being spent on specific stuff. And usually the rich who are investing in these kinds of assets, it’s in the part of their investment portfolio that they’re not spending on consumer goods. They’re not spending on this stuff. So what are they going to do?

They’re going to invest it in another form of Treasury debt. They’re just going to reinvest it the next day or in the stock market or in some other country’s debt. So the act of monetizing the debt is a shift in quality of the instrument. It’s going from green money to red money, but it’s not shifting the quantity of assets.

[00:15:24.430] – Grumbine

What does it mean, green money to red money for the lay people out there?

[00:15:28.040] – Grey

Sure. So I usually use that example because most of the money in America is green, but in Australia, we have different colors for different bills. The $5 note was purple. The $50 note, it was yellow. $100 note, was green, et cetera. So if you take $100 bill and it’s a promise, it’s a legal debt to the government, and you say, hey, I’d like to cash in this debt, what are they going to give you?

Five $20 bills. Ten $10 bills. A hundred $1 bills, 400 quarters. And when you need to pay taxes, they’re all good as each other. They’re all good as each other. They’re not going to deny you that. What you realistically do is deposit it at the bank and then pay from the bank account. So what does it mean to take a million dollars in Treasury debt and redeem it?

You go and you take your million dollar piece of paper, which is now virtual. There used to be a piece of paper that looks exactly like $100 bill, but bigger with some more text on it. You take your million dollar piece of paper to the bank and what do they give you? $100 bills. $50 bills? $20 bills. It’s the same thing. $100 bill is a promise to pay $100 of whatever kinds you want.

$100 of Treasury debt is a promise to pay you $100 of whatever kind you want in three months. That’s all. But not even actually in three months because you could sell it tomorrow and that person would wait and the next person would wait. And ultimately, who buys up all that Treasury debt when no one else wants to buy it? The Federal Reserve.

So there’s no point where you’re left holding Treasury debt that’s got 30 years duration and you desperately want to be able to turn into cash, and you can’t. There’s no world where that happens. You might not be able to get the price you want. You might be annoyed at that penalty rate for withdrawing your savings account.

You might feel real stupid that you bought something that you now have to sell faster than you thought you would. You not going to make as much money as you were hoping to, but there’s never a moment where you’re holding on to money. That’s called a 30 year debt. And you go, oh, no, I need to be able to buy an ice cream. I can’t do it. The Federal Reserve is always there. The final analysis to turn that debt instrument into a cash instrument you can use to make consumption payments tomorrow.

[00:17:33.570] – Grumbine

So when you’re looking at the national debt in terms of the debt ceiling, what are we talking about in that framework of what you just laid out, what exactly is it that is happening? We’ve got contracts forward, but something I didn’t hear you say that I know that is in there is the automatic stabilizers.

[00:17:53.610] – Grey

Yeah.

[00:17:54.440] – Grumbine

This money is being spent regardless, whatever it is, these automatic stabilizers are adding to the debt, are they not? This is new money being spent.

[00:18:02.910] – Grey

So yeah, there’s two ways that Congress passes budget spending. One is every year. And the other is you put in a thing that says this will automatically spend this amount according to certain conditions. They’re both Acts of Congress. Congress has to pass the bill in both situations. But in one it’s a time limited spending. It’s like me saying I’ll give you pocket money for one year and we’ll reassess, versus me saying you get this every year as long as you keep doing your chores or as the more chores you do, the more I’ll pay.

So they are both forms of spending but one is baked in and it would require Congress to repeal existing laws and the other expires and requires Congress to spend again for it to keep going. And so when you have these debt ceiling moments, what’s actually happening is all the stuff that’s going to keep happening has already been spent but that other stuff may actually not get to be reauthorized.

But secondly, then we get to that question of how you actually execute it. So if the money stops flowing, both of those crash, you might prioritize them differently, et cetera. So this is where it gets to the debt ceiling limit. And thank you for that question. Once we start from that idea that there is not just two categories money and debt, that there is in fact a whole bunch of categories where the word money and debt, you could apply to all of them.

They’re both… they’re yes money, they’re yes debt. We can use those two words interchangeably depending on which context makes most sense for us. And to give one example of that, I had a friend who worked in the Treasury Department at Goldman Sachs. The Treasury Department in Goldman Sachs’s job is to basically manage the internal cash account at Goldman Sachs when they need to make payments, etc.

It’s that account. And I said to him, you’ve got probably tens, millions, hundred millions in that account every day. Yep. And when you call it cash account, does that mean you have like a bank account? Like you and me? He said, no, of course not. We have a Treasury account. We have an account for three month Treasury bills.

I said, So when you use the word cash you’re talking about three month Treasury bills. Yeah. So that word that you and I, the average person might be, well, money is the opposite of debt. Well, that’s not how the financiers think. That’s not how the bankers think. That’s not how the hedge fund managers think. For them, cash is debt, debt is cash.

It just depends on what they’re talking about. You say, hey man, how many $10 bills have you seen the last year? They say, what’s a $10 bill? I have my black Amex and I have the Treasury bills that I work with at work. What’s a $10 billion? So the point about the debt ceiling is the debt ceiling is a cap on a specific kind of instrument. But there are caps on all kinds of instruments.

They’re just different things. And we don’t call them the debt ceiling. So, for example, in the 1860s, during the Civil War, Abraham Lincoln famously passed a law establishing the creation of greenbacks. They were U. S. Treasury notes. They look like Federal Reserve notes. You can look them up on the internet.

They look almost identical to Federal Reserve notes. But they were issued by the Treasury and they were not backed by anything. They were redeemable for other forms of government money so you could take them in and redeem them for something else, but they weren’t intrinsically backed by something. There wasn’t some certain amount of gold sitting in a vault that they promised you could access on demand or anything.

At that time they put a cap in of 300 million, which is a lot of money in 1860, but not very much money today. It’s enough money to maybe help you win a war in 1860 against slavery, but it’s not very much money today. That law is still on the books. That means tomorrow Treasury Secretary Yellen could issue $300 million of printed bills that would look almost identical to Federal Reserve notes and send them into circulation.

In fact, those kinds of bills were being made into circulation until about the early 1970s. And if you look up the Treasury’s website, they say, we stopped issuing them. Why? Not because it was inflationary, but because it was obsolete. It was unnecessary because Federal Reserve notes were already in existence. They were doing the same job.

It’s like two people in the same company, both sending out the same email, don’t worry, I’ll handle it. That’s all. That was the only reason they stopped. But that 300 million dollar limit is still on the books. And you could call that a ceiling too. You could say there’s the government security ceiling and there’s the greenbacks ceiling, and both of them are equally identical in their function.

That is to say, both of them. Tell the Treasury Secretary you have as much discretion as you want up until this limit. But once you hit that limit, if you want to issue more monetary instruments into the economy, find another kind you’re tapped out here. And another example you might think about this is if you play Monopoly, you get the box, and there’s the $500 notes and $100 notes, and blah, blah, blah, blah, blah.

By the time you get to the end of the game, everybody’s filthy rich because they’ve been going around a bunch and got hotels everywhere. You’re dealing in, like, thousands of dollars at a time. Someone’s got, like, $5 penalty. Who cares? It’s a joke. So what are the notes that are most important at that point in the game? It’s the high denomination notes.

You’ve moved away from the five dollar ones and the one dollars. That’s some early stuff when you’re a level one player killing critters in the forest. You’re doing the big guys now. Seinfeld used to joke about paracetamol. A regular strength is out. Extra strength is all that everybody wants. Maximum strength. Find the strength that’s going to kill me and walk it back a little bit.

So high denomination bills are more important because we’re dealing with bigger amounts of money, but they are functionally otherwise the same thing. So you’ve got your debt ceiling limit, which applies to Treasury bills, Treasury notes, and Treasury bonds. The only difference between these three, apart from some technical design things, is that T bills are usually one year or under.

Notes are between one year and ten years, and then bonds are above ten years. It’s your classic McDonald’s small, medium, large. That’s it. And then that limit is very high. It’s 25 trillion, whereas the limit for greenbacks is 300 million. So you look at them and you don’t even notice that there’s a little tiny sister sitting next to them. Now, coins, which are also a form of monetary instrument, are also different.

Again, interestingly enough, the Mint is the oldest monetary institution in the United States government. It was its own separate entity. It only became part of the Treasury a little bit later. It was one of the first acts that Congress passed after the Constitution was ratified was to establish the Mint. And it existed for over 100 years before the Federal Reserve was established.

When the Federal Reserve was established, they didn’t say, we’re finally taking the power away from those bastards in the Mint. They said, we’re going to establish a new institution on top of existing institutions. We’re going to share the money power. In fact, there was an institution in between those two called the Bureau of Engraving and Printing, which is where they print the paper currency.

So you had metal coins, and then you had the paper money institution, and eventually you had the Federal Reserve. Each of them added onto the other. They didn’t take any powers away. So the Mint, differently from the ones issuing the greenbacks or issuing the Treasury debt, has never been restricted in the amount of coins it can issue. There’s never been a cap.

There’s never been a total amount. In fact, the opposite. Every year the mint sends. A report to Congress and says we minted this amount of coins this year. And Treasury says good job. And if they mint more, Treasury says better job, great job. And they say we found a way to sell even more coins out there this year. And they go, nice work. And the reason they like it is because the Mint makes a profit.

They make a coin that costs cents to make and they sell it for a dollar and they send that money back. And this is all an accounting gimmick. This is all an accounting game. There’s a leftover from an era when you actually had gold backing money and those kinds of things. But it gets recorded on the government’s budget just the same as tax money. If the Mint earns $500 million that’s the equivalent of some tax out there that earns 500 million. There are taxes that earn some fraction of that that we have huge fights over in Congress. Remember the Soda tax in New York?

[00:25:39.760] – Grumbine

Oh yeah.

[00:25:40.620] – Grey

Almost lost Mayor Bloomberg his election. We’re not talking about $75 billion of taxes on this stuff, and yet the Mint is just making profit on issuing coins and sending it back and nobody even bothers to look.

[00:25:54.530] – Grumbine

Are coins debt too though?

[00:25:56.710] – Grey

Well that’s the thing. Coins are debt in that legal sense that the government is promising to accept them back in payment. They are a tax credit. They are a legal liability credit. They are the same thing in the Monopoly game as the get out of jail free card. And in that respect they are an obligation of the government. They are obligated to accept it back.

It creates a legal commitment from the government to you that if you choose to speed, which you shouldn’t, it hurts people. But if you do and the police catch you and they fine you, you can give these coins over and avoid going to jail and the government has to accept those coins. They can’t say well we fined you but really we hoped you wouldn’t be able to pay so we could throw you in jail.

Which is something they have done in the past. For the record, they used all sorts of pretext to throw people in jail. Create a debt you can’t pay, throwing people in jail, you got that coin, you can walk away. Now it’s weird to think of paying a debt with hundreds of coins. I worked in family law. There were situations where the men who hated their ex wives would try to pay alimony in quarters and stick your middle finger up, and the courts will often not accept that for obvious reasons not to do with legal tender.

But in this situation the coin is a debt, but it’s not counted under the debt limit. Why? Because the debt limit is not actually a limit on all debt. It’s a limit only on Treasury securities. And this is the real thing. This is why I started with the greenback comparison. Everything has its own limit. Everything has its own constraints built into the legislation that enables it.

Congress says you can do X with these limits. You can do Y with these limits, you can do Z with these limits. So if coins don’t have that limit, what do they have? Most coins have a limit on the denomination, so rather than a quantity limit, they have a quality limit. Rather than saying you can issue a million dollars of coins, they say you can issue as many coins as you want, but they have to be quarters or dimes or nickels or Susan B. Anthony dollar coins.

That has been true up until 1997 when the director of the US. Mint, a man named Philip Diehl, who before that was the chief of staff to the whole Treasury Department, and before that was the staff director of the Senate Finance Committee. So he was a consummate insider.

[00:28:09.360] – Grumbine

You talked to this guy, didn’t you?

[00:28:11.160] – Grey

We’re good friends. We go back. He’s a very interesting guy. He also was one of the first people in the 90s thinking about issuing a privacy respecting digital cash instrument when nobody was talking about it. And I think he’s still probably light years ahead of where most of the debate is today among central bankers.

So he was thinking of that because he was at the Mint, and he said, we don’t want to know what people do with their coins. We’re not spies. We’re not government surveillance agents. We make the coins and you use them. So if we’re going to be going into the digital world, we need to make the digital equivalent of a coin and give it to you, and you can use it.

We need to think about privacy. He was saying that in 1995 so he’s a visionary guy in a lot of different ways. Anyway, he passed an act at that point that was sponsored by the Republican head of the subcommittee on coinage in the Financial Services Committee, a guy named Mike Castle, Republican. And the idea was that he wanted to issue more platinum coins.

And at that point, platinum coins were mostly a commemorative item or an item for bullion investors. People who wanted to buy platinum, wanted to store it in a nice way. And in fact, after making that law, the United States has become the leading exporter of platinum in the world. So he was wildly successful with that.

But the reason Mike Castle liked it was you sell one of these coins, it costs $100 worth of the platinum value. You sell it for 1000, you make $900 in profit, and you send it back to Treasury. So these are austerians. These are people who want to balance the budget. Not my friends, not yours either. But they liked the Mint because it allowed them to make money for the government without raising taxes or issuing debt.

That was literally the goal. Now, did they imagine that you could take it this high? Of course not. But they knew that the point of giving the Mint more powers to make coins was to make seigniorage revenue. That difference between the amount that it costs to make the coin and the face value that you get, and that that was a source of revenue for the government.

Just like selling bonds and just like raising taxes. That three way trilemma, that impossible trinity that we talked about at the start. You have to spend a certain amount, you can’t raise taxes and you can’t issue more debt. What are you going to do? Coins. coins, coins. It’s sitting there the whole time. When there was only one set of footprints in the sand, it was the Minting authorities. Right. That idea.

So that Coinage Act in 1997 was not a huge fanfare. It wasn’t saying we’re going to finally turn the whole government into a minting agency again. We’re going to go back to 1788 again. Party like it’s continental republic. It was an attempt to expand existing coin services. But the Director of the Mint was very visionary and he liked to have discretion. I don’t know if you’ve ever liked that football movie called The Replacements with Keanu Reeves.

[00:30:54.700] – Grumbine

Oh, yeah. My team, Washington. Yes.

[00:30:58.530] – Grey

Yeah. So Gene Hackman has this line in that where he said, winners always want the ball when the game is on the line. I always love that line, but that’s the kind of guy that I think Director Diehl is. So he’s sitting there going, I have a chance to write a new law. I have the chance to create a whole new kind of coin. How much do I want to limit the Mint.

I don’t want to limit the Mint very much at all. The Federal Reserve doesn’t have any limits. The Federal Reserve can make trillions out of thin air as long as it’s consistent with the broader objectives of the government and the institution that creates them. So I’m going to make this coin statute very clearly open ended.

And the language of the part that he published, section 5112K, says that the Treasury Secretary may, in their discretion, mint and issue, that is to say, not only make it, but make sure it gets into circulation. Platinum proof coins. And the word proof there means it’s very shiny. It looks nice. It doesn’t have to be only for collectors. It doesn’t have to sit in a vault somewhere. It can go into circulation.

There have been proof coins in circulation. In fact, Director Diehl actually had a certain commemorative coin where one out of every hundred was really shiny. It was a collector thing to see if you can find the shiny one, and they would issue them all out. Platinum proof coins of whatever denomination and whatever amount that the Treasury Secretary wants.

So that was the law that was passed in 1997. It sat there dormant it was used only for the selling to investor kind of coins. But when 2011 came up, a number of lawyers and others said, well wait a second, this law allows the Mint to make a coin that could be very large value. Doesn’t have to be a trillion dollars, that was just a very striking messaging.

[00:32:35.580] – Grumbine

Marketing.

[00:32:36.590] – Grey

Marketing. That’s right. And it’s worked phenomenally successfully as marketing. But the point was just like you can make $40 million of Treasury debt, you can make $40 million of these coins. And at the point at which the normal budget system is working as it’s intended, fine. If it starts breaking down, well, you can break glass in case of emergency and call the Mint up and say, hey, I normally wouldn’t ask you to do this, but these people are absolutely crazy and they’re threatening to shut the government down.

And I am literally at the point now as Janet Yellen has just said today, where we are using extraordinary measures to prevent government default. We’ve got arsonists on the Republican side who are holding their own party to ransom, let alone the rest of the government, let alone the rest of America. And I don’t want to violate the Constitution because my job as a Treasury Secretary is to make sure that the debts get paid, that the money goes out.

I can’t issue more taxes. That’s a core Congressional power. I can’t unilaterally start raising taxes on people; that’s not a Democratic state. People went to revolution in England over the right to control who gets to tax how much. Not the king, not the president. Congress. So I can’t raise taxes. I can’t just ignore the debt ceiling. It’s on the book saying don’t issue more debt.

If I issue more debt, I am openly violating the Constitution and can be impeached. And God forbid we start violating the Constitution on our side, it will lose all the moral high ground for when we call out the terrorists on the other side. So what are my choices? Well, I have to find whatever’s available, whatever’s possibly available to avoid those outcomes, if possible. And the coin is there.

So that’s why I think the coin is very, very effective, is because given the choice of catastrophic default or politically catastrophic impeachable, openly unconstitutional behavior, what’s the big sin of the coin? It sounds silly. That’s it. It doesn’t sound serious. John Kenneth Galbraith, probably the most famous liberal economist of the 20th century, wrote a book called Money: Whence It Came and Where It Went.

In that book he said the process by which money is created is so simple that the mind is repelled. For something so important, a greater degree of mysticism seems appropriate. So his point is you get there and you’re like, that’s it?They’re like, yes. Are you sure? Are you sure it’s not more complicated than that? There’s not this sort of machine going beep beep beep, and complicated statistics and stuff?

No, it’s that simple. And if you’re a very smart person, if you’re a very serious person, if you’re a President who is a Constitutional Law Scholar at Harvard Law School, or if you’re the Chairman of the Federal Reserve who’s been writing papers about statistical models with complicated algebra. The idea that this is so simple that your five year old might get it while you still have a squeamish thought; that’s really hard to swallow.

Have you ever seen that Simpsons meme, where it’s Principal Skinner, and he said, Am I old and out of touch? No, it’s the students who are wrong. Your five year old says, can’t we just make some money? Am I just stupid? Is it really that simple? No, it must be seven layers of 11th dimensional chess. More complicated.

[00:35:47.170] – Grumbine

The Rube Goldberg.

[00:35:48.950] – Grey

Yeah, that’s right. Confusing Rube Goldbergism for rigor. Confusing unnecessary complexity for intelligence.

[00:35:56.010] – Grumbine

Oh, yeah.

[00:35:56.850] – Grey

Thurgood Marshall used to famously say, simplicity on the other side of complexity. That’s where genius lies.

[00:36:16.490] – Intermission

You are listening to Macro and Cheese, a podcast brought to you by Real Progressives, a nonprofit organization dedicated to teaching the masses about MMT or Modern Monetary Theory. Please help our efforts and become a monthly donor at PayPal or Patreon. Like and follow our pages on Facebook and YouTube. And follow us on Periscope, Twitter, Twitch, Rokfin, and Instagram.

[00:37:07.530] – Grumbine

So, to take care of this debt ceiling issue, which comes up every single year. The idea of minting, a trillion dollar coin, which is the hashtag. If you guys go out there on Twitter and look up #MintTheCoin, you will find a lot of references, a lot of really good tweet threads, many by Rohan.

[00:37:29.430] – Grey

Mintthecoin.org is my little pitch. We have a website up there, and I’ll make a plug for an event coming up at the end of this. But Mintecoin.org is the informative website with as much as I can put together to help people understand this in a serious way.

[00:37:42.420] – Grumbine

So, hypothetically, I’m the Treasury Secretary, and I tell the Mint?

[00:37:50.560] – Grey

Yeah, the Director of the Mint. That’s right.

[00:37:51.100] – Grumbine

Do they already have the design of the coin, or is it a blank coin? How does that process occur?

[00:37:56.490] – Grey

Yeah, it’s a great question, and some of the information about that is also up on the website if you want to look into more detail. But Felix Salmon, the journalist, interviewed Philip Diehl about this, actually, and has an article from Axios last year. The link is up on the website where basically Director Diehl said, we mint thousands of platinum coins every week.

So we already have the cast, we have the dies, et cetera. What we would need to change is a small amount on the face of the coin. Just replace the $100 or $1,000 with one T. That’s it. And that could happen in a matter of hours. We would do it with the plaster cast. We would take the plastic cast and put it in the metal cast. We’d make the metal cost and mint the coins that started to be minting.

[00:38:31.910] – Grumbine

Please tell me that coin’s teeny weenie. Not big.

[00:38:35.330] – Grey

Well, the law says whatever specifications the Treasury Secretary may want, some of the other laws say it has to be this amount of inches. It has to be this grade. Again, Director Diehl was very smart, gave himself a lot of discretion, or gave the Mint Director a lot of discretion that way. So it doesn’t have to be big. This is one of the first misconceptions that you’ll often hear, and I get it intuitively.

But this is one of the things you have to break your thinking about this, which is you think, well, trillion dollars. It must involve a lot of metal. Do you know what the metal content in a dollar coin is? Do you know if it’s worth a dollar? Of course not. That’s not the point. Why is it worth a dollar? It says a dollar on it, and it has the President’s face on it. That’s why.

[00:39:11.150] – Grumbine

And the government will accept it back for a dollar.

[00:39:13.720] – Grey

That’s right. The government will accept it for the face value. They call it nominalism. That’s why a piece of paper is worthless. And you put $100 at the top and have the Treasury Secretary sign it’s worth exactly $100 in the courts. The piece of paper might not be worth $100. Well, that’s bad quality paper. It’s not that kind of really nice paper that they make in Thunder Mifflin or something.

So it’s about the face value. It’s not about the metal content. But because of that, yes, you don’t need a massive coin. Now, I like the symbolism of a big coin. I think having a big coin actually be, in fact, a big coin. I like that. But I also know we’re an ecological crisis and at this point minting a huge amount of platinum just to make the statement’s a bit of a dick move.

So my suggestion is, what we do is mint a really big paper mache coin, get a really kind of big artistic coin, and then we roll it from the mint to the fed. And then when we get there, we take out a sledgehammer and we just bash the hell out of it.

[00:40:04.990] – Grumbine

Fred Flintstone?

[00:40:06.130] – Grey

Yeah, that’s right. And there’s a tiny little coin inside. There’s a tiny little coin in there. You break the whole thing. There’s a lot of candy. There’s a lot of chocolate coins, and there’s  one real coin. And like Charlie and the chocolate factory, we get all the kids in DC to come. They all get to have a chocolate coin. And the one who finds a trillion dollar coin hands it over to the Federal Reserve.

There’s a big ceremony. We take a lot of cameras, and then we put that coin in a nice glass case, and we put it in the Smithsonian. And we teach this moment, as a moment when America first of all got past all of those myths about the gold standard and finally put this deficit terrorism to bed with the white supremacy that goes with it.

And that would be a lovely lesson that we could teach kids at the Smithsonian next to the space station and the Constitution, all that kind of stuff. So it doesn’t need to be a massive coin. We can have a nice big symbolic massive coin moment, but the coin itself can be a very small metal coin.

[00:40:52.430] – Grumbine

One of the things that I wanted to talk about, because us from the MMT community have talked about these things for years and trying to bring this out to a larger community, especially in real time, as it’s breaking out on public stage, the questions that needlessly keep coming up year after year sound the same. But there’s one thing that you in particular were instrumental in.

This is going back to your time with the positive money folks in the UK and the whole concept of debt free money. The humor of the concept of debt free money. We’ve just explained that the whole point of money is the debt of the issuer, that it will accept that back. That’s the debt. I’ve had Randy Wray talk extensively about destroying the AMI myth of debt free money. We had Spencer Veale came from that positive money side. He has even had a conversion to the MMT world.

[00:41:46.390] – Grey

It took me a while, but Spencer was open minded enough to keep learning.

[00:41:49.620] – Grumbine

Yes, that’s right. But we’ve got people that keep bringing it back. And we just said coins are still the government’s liability. It’s still debt. The idea of bonds being a form of debt is a different type of debt. You spend a half hour explaining the different tranches of debt. My question to you is this – when talking about the Dennis Kucinich’s of the world, money cranks of the world, they have a stranglehold on some on the left side.

And it’s a little depressing because these are allies, people that would be right there front row, fighting with everyone to bring about a proper workers revolution. They’re your friends, they’re your allies within the 99. Can you help me bring them into the fold on this? Because you spent years working that angle.

And now we’ve got Delman Coates of Our Money, who was of that positive money AMI world himself, and left and came over here. They still have different ideas about possible credit creation, but they’re not counter, they just have prescriptions. They like to address various things. Can you take us through that?

[00:42:57.160] – Grey

I think part of the way I think about this and this is sort of one of the differences, I think, between economics and legal context is in the law. There are a huge amount of right wingers in the legal academy and the legal profession. I don’t get along with all lawyers. I like to think that we can all talk a common language, though, which is to say, even when I disagree with them, we’re talking about the same law, we’re talking about the same rule.

We have entirely different take on it, but we are not actually forming so disparate camps that we are actually in separate departments. The heterodox econs and the regular econs. At Sydney University where I went, I studied Heterodox Econ, they had a separate department of Political Economy because they were kicked out of the Economics department.

The economics department was over in the business school and the Heterodox Econ School was with the School of Arts and Sciences with International Relations and sociology and stuff. They can barely talk to each other. The regular econs, when they tried to read MMT papers, they were like, we don’t understand it.

We don’t know what they’re talking about because they don’t use the same math that we do, and we can’t read this stuff without math. I’m like, it’s English, what do you mean you can’t read it? Anyway, the reason I say that is because I think it’s important to try to work out, first of all, where we are talking past each other and then work out once we are talking about the same thing, where the disagreements lie.

That’s the first thing. And then the second thing is, I think it’s important if you really want to actually work with these people, you really want to bend them on side to work to understand what their concern is. That doesn’t always work. It doesn’t always get you over the line to consensus. But it does mean that when you start by assuming that people are complete fucking idiots, usually they’re not going to want to take the time to prove that they’re not.

So in this situation, what are we actually talking about here? I think we’re talking about a couple of things. First of all, the idea that we have to issue debt to spend is wrong. MMT says that. Do we even need to issue government debt to continue spend? No. There are reasons why for securities markets, for government investors and things, there might be practical reasons to not get rid of it overnight or to replace it with something else.

But we don’t actually need it for funding purposes, certainly not for fiscal policy. So the idea that we could just use newly created money, et cetera, is consistent. Now, what MMT would say is that difference is not as big as they think. Technically, we’re already kind of doing that. We already money finance our spending, et cetera.

But this is where I think we can do a little bit to meet them halfway. It would still be cleaner and simpler to move to that other thing, even though it’s not much functional differences, it’s a lot more conceptually simpler, and we can admit that without losing anything on our side. So that’s the first thing. Second thing is, if they like the coin and we like the coin. Fine.

Let’s all move to coin financing. Simpler again, one big coin. Throw it in the Fed, as we said. The third thing is, and this is where I think it’s really important, what they really mean, in my opinion, even if they don’t realize they mean this is my attempt to sort of reconstruct them in a steel man version. I think what they hate is they hate interest paying obligations.

They hate positive interest rates and they hate the idea that every time we want to fund anything, we have to sell government securities to primary dealers in the financial system who then get to exercise this moment of leverage and call the bond market able to scream default or scream we don’t like what the government’s doing. James Carville, Clinton’s economic adviser, famously said, when I die, I want to come back as the bond market because you can intimidate everybody.

I think they don’t want that anymore. I think they don’t want people to think that there’s some fundamental difference and they probably might think that the MMT approach is too confusing. Oh don’t worry, Treasury Securities are the same. If you just understand central banking operations and blah blah blah. It is complicated. It’s complicated.

We can admit that to ourselves because we didn’t design it. It’s not our system. Is it necessary to be that complicated or could we simplify it down to a five year old and still keep the functionality? And then if we could, then let’s work on that together on the same page, on that front. Now, the reasons why and the motivations and certainly I think some of this it’s all a big central banker conspiracy thing.

Gets really kind of close to antisemitism and they need to take some responsibility for, not themselves, but the broader milieu in which those rhetoric tropes are deployed. It is not as unvarnishly positive, their framing. I just admitted some of the negatives with our framing. Some of the negatives with their framing is it gets dangerously close to that antisemitism shit and it gives the impression that if you solve the fiscal thing there, all of these other problems to do with the financial architecture will be fixed too.

But why I think it’s not okay to simply say, hey, if we just minted a coin we have debt free money or if we stopped issuing debt is because it’s not actually about the debt. It’s about the interest rate. And what in a world with interest on reserves which we are in now since 2008 in the United States and the rest of the world was there long before that, is a world where if you only create newly created money, there’s no Treasury debt at all in the economy.

Tomorrow, the government runs a trillion dollar deficit next year that’s a trillion dollars more reserves in the banking system minus a few that stick out there in cash. Most of us do not keep all our money in cash. It gets deposited in a bank. The bank takes the money to the Fed. The Fed credits the bank’s account and keeps the cash or burns it or whatever else, sends it back to the Treasury.

So most of that money is sitting in your account as a deposit and then the bank itself that gives us those deposits is sitting that real reserve government guaranteed money at the Fed. If the Fed wants to pay an overnight interest rate on that, what does it do? It pays a positive IOR rate, interest on reserves rate. That rate can be whatever percentage rate it wants.

In recent years it’s been pretty close, around the same rate paid on three month Treasury bills. So you can have debt free money but still interest costing money. You can have debt free money but still interest expenses on your government spending. You have not got to the point where you’re not paying a percentage privilege for the right to issue money.

How do you stop doing that? You have to change the monetary policy regime. You have to go to the Federal Reserve and say that system you have, that theoretical framework that you have that says you can adjust inflation by moving the interest rate up and down, that needs to stop. Or if it is going to continue, you need to find a way to do that where you can charge a positive interest rate to people who borrow but not pay a positive interest rate on government liabilities.

You need to split those two parts of the interest rate mechanism which are currently joined at the hip. And you can do that. There are ways to do that. Europe has been looking at some of it dual rates they call them, but we aren’t even talking about that. And certainly most of the AMI positive money people aren’t talking about that. So if we really want to stop paying interest, the answer is to have a permanent zero interest rate monetary policy regime.

And separately, if you want to clarify and simplify public spending, yes, we can switch to seigniorage funded revenue. But those are not the same things. And as long as the Dennis Kucinich NEED Act supporters of the world conflate those two things, in my opinion they are not actually as technically sophisticated as they think they are and that’s why they’re not being taken seriously in financial market circles while we are.

[00:49:40.970] – Grumbine

And so Randy Wray going back before 2010 even saying that the government should stop issuing bonds, period. This is an anachronism from the gold standard era. We don’t need to do this anymore, let’s get rid of it. Mosler stood firmly on a zero interest rate policy, or ZIRP. Every MMT person that I know of has consistently taken the stands that these things are just free money to the rich, that we need to stop doing this or not even so much that we need to stop that we should stop, we could stop.

There’s no functional reason for doing it other than maintaining a positive interest rate. And so get rid of that and we can get rid of so much of the bullshit. But let me just state for the record what I am hearing and what I understand, and maybe you can tell me where I’m wrong on this, is that the interest payments made during this attack on inflation were actually net infusions of cash into the economy. New money paid through up to the rich. And that money doesn’t trickle down. That money goes in the FIRE sector on stock buybacks.

[00:50:48.230] – Grey

Some of it. I want to be clear, there’s also the money that goes to pensioners.

[00:50:52.370] – Grumbine

Yes.

[00:50:52.880] – Grey

And it’s very important not to ignore that because fixed income investments are what a lot of retirees and others live off of. And so for them, low interest rates were a squeeze on their daily checks that they’re living off. That’s actually a really important argument for pension reform so that the FIRE sector that you’re describing doesn’t get to hold them in front of them as hostages and say we need positive interest rates because these poor little old lady grandmas are not getting their pension checks. They’re right to an extent, but they’re cynical and deceptive about the way that they’re right. They’re using that as a cynical shield.

[00:51:26.590] – Grumbine

Go over to Social Security for a minute. While not technically part of the national debt in any way because of the authority to pay being through the trust fund, isn’t it possible that we could make the monies in the Social Security trust fund pay 100% interest on those things and wipe the whole damn thing out?

[00:51:46.760] – Grey

You could make the Social Security trust fund pay however it wants. And of course the fact that there even is a trust fund is itself a stupid accounting gimmick, right? FDR said this explicitly when he set it up. He said this is bad economics but good politics. If they think that they’re paying in, then they’ll be less willing to give up on it. But it’s not that we need them to pay in.

We literally just went off the gold standard. He knew exactly how the government’s money worked. He just won a world war or he’s about to win a world war. He knows that you can spend. So yes, you don’t need to make the trust fund the way that we do and you certainly don’t need to have private pension funds on top of Social Security.

You could just fold them back in and not make them something that has to be buying Treasury securities at all or investing in Treasury securities at all. And this is why people like Paul Ryan at the height of their power in 2011 – 2012, what are they trying to do? They’re trying to go the opposite direction. They’re trying to take that Social Security fund and make it even more private make it able to invest in even more risky assets, even more private assets, because then the people selling those assets can make bank.

[00:52:47.270] – Grumbine

We often get comments like, MMT offers no structural monetary reform policy proposals and therefore runs cover to the status quo. It, of course, is the AMI type nonsense. But I know for a fact that even if you don’t love Mosler, Mosler put up his reform that he would do.

[00:53:05.610] – Grey

He begins every talk with a page of his proposals. I appreciate that he is always oriented towards change first. He explains stuff only when he has to. Look, I love the guy in many respects. I’m not here without him. He changed the world with his ideas and the force of his will, but he also likes to go play tennis. He’s in retirement. He’s had a whole life. He doesn’t do this work unless he feels compelled to.

And so when he starts everything with that one slide, if everyone in the room is in agreement, I think he’d go home. Why waste more time convincing anybody? The rest of the slides that try to get you to the point to agree that we should change the system. Of course he’s got practically oriented reform. And if you listen to the way that people in the financial sector talk about his reforms, they’re scared shitless of him because he is not cutting any corners.

He is not mincing words. He would eliminate half of the banking sector overnight if you put him in charge. His favorite political document is Hobbs’ Leviathan. You think he’s not going to exercise power? My God.

[00:54:01.550] – Grumbine

We constantly have people ask us to have a live debate with monetary reformers. Rohan, I have video of you at the Democracy conference in Minnesota, we paid for you to go out there.

[00:54:11.820] – Grey

I was on no sleep. It was terrible. Yeah.

[00:54:13.820] – Grumbine

You went out there and you talked directly within the Zarlenga community.

[00:54:18.980] – Grey

I’ve had lunch with Zarlenga for 2 hours. I’ve talked to Jamie, who is their kind of lawyer in residence, for hours. I’ll do another debate anytime they want, but I’m not going to waste my time and keep having the same debate. And I’m certainly not going to do it with people who I don’t get any impression they know what they’re talking about. So, yeah, you will come to me. You send me your best. I’ll give you 2 hours and we’ll put it up online. I’ll do it a month from now.

[00:54:41.850] – Grumbine

We constantly have people comment that Warren Mosler is a banker and a hedge fund guy.

[00:54:47.580] – Grey

If you don’t think there’s such thing as a class trader, I don’t know what to tell you. Engels was a factory owner. Do you want to say that he wasn’t a Marxist? Do you want to say he wasn’t a leftist? Make the case. I accept that you should be inherently skeptical of bankers. I’m inherently skeptical of bankers. There are times when I disagree with Mosler about things.

And I think it is because he’s probably more susceptible to banking interests than I am. Not bankers in general, but for example, when I proposed giving everybody a government bank account, Warren’s line was why do we need that if the banking system already works? And I said, I don’t want public private partnerships running public goods. And he said, I’m fine with that.

That’s an actual ideological disagreement about him being a banker. I’m not saying that to besmirch him. He says that in public about that issue. I accept that that’s a disagreement in part because he doesn’t see a problem with that public private partnership model and I do. But he’s not fucking corrupt about that stuff. He’s not taking money from Janet Yellen or from Christine Lagarde.

My God. There are reasons why he, like everybody, is a victim of his context. But the context is not that he is in the interests of Wall Street for the very basic reason that they hate his proposals. They like his insights because they can make money off it, but they do not want to give him any power over them.

[00:55:53.910] – Grumbine

Right? Macro n Cheese, our podcast has gone every single week now for four full years. A single episode every Saturday morning at 08:00 a.m. Probably 80% of those interviews are done with MMTers providing not only policy proposals, but an understanding of the way the world works; addressing hardcore issues. You guys have had more seminars explaining potential proposals.

Ndongo Samba Sylla in Africa, talking about reform there to reforms in Canada. We’ve had countless people both in Europe and in North America, all around the world. Every one of the MMTers I know has been focused on reform and there’s countless policies. So to tell somebody to debate and talk about it, how about this?

Go watch some of the videos. Go listen to some podcasts, read some white papers, and then after you’ve done your homework, we’ll have a talk. Because almost every critique of MMT that I’ve ever seen has been done in absolute shit faith. It’s been a garbage critique.

[00:57:00.370] – Grey

In the last two and a half years, I and my colleagues have put out a bill establishing public banking at state and local level, establishing a digital cash instrument, establishing a job guarantee, changing the way that the federal government finances its spending around mint the coin both in legislation and through legal claims.

Right now that we’re trying to push to get the executive to do, we work with antitrusters around price regulation. My master’s thesis was integrating MMT and intellectual property to build a system to fund the arts and intellectual property related and creative intellectual pursuits. Those are some of the program proposals that we’ve put out there just from the stuff that I do.

And all of our colleagues have this stuff. Stephanie Kelton has gone further into this stuff than almost any heterodox economist of our generation. So I think it is in bad faith. And then the other part of that is this attack on the entire movement by attacking one individual in it, is not even coherent on its own terms, unless you want to make the claim that all of us think the same way as Warren.

And I just told you I have disagreements with him, and I know others have disagreements with different parts. Even Bill and Warren, who go back some of the earliest, have disagreements with each other about some of this stuff. Bill would get rid of the entire private banking system and replace it with public banks, and Warren wouldn’t.

[00:58:08.370] – Grumbine

I would too.

[00:58:09.600] – Grey

Yeah, me, too. Me, too. I wrote a bill saying that we should do that. When we just wrote a whole new monetary policy report all about how we can use credit controls without interest rates that was funded by Our Money specifically to get to this P-ZIRP plus something else kind of framework. But the other person, I think, that really needs to be in this conversation is William Black, because there is no way to understand MMT without Bill Black.

He was one of the first lawyers long before I was just a green behind the ear student. He was out there as a law and economics professor who had previously been a senior financial regulator, who had put bankers in jail. More bankers went to jail in the savings or loan crisis than in anything since. And every other MMTer. Stephanie, Randy. He was at UMKC with them.

They put him on panels with them. He was there in Italy with that big panel in front of thousands of people in a stadium. Bill Black was there. He was at one of the big MMT conferences that we organized in 2020, talking about how he was one of the first people trying to bring law and micro together. Fred Lee was doing it on the econ side, but he was saying preventing people from inflating asset values for accounting fraud is its own form of regulation of prices, because we’re keeping asset prices from being artificially inflated through fraud.

So the idea that this community has somehow hoodwinked him this is a guy that wants to jail bankers, but we just hoodwinked him. He doesn’t realize who Warren is. He failed to look up his CV. If you want to be taken seriously on that, don’t make arguments so stupid that they fail the laugh test. So if you want to be taken seriously about that, actually integrate what we’re saying right now into your worldview.

If your worldview is Bill has no influence and Warren does, or we’re all afraid to challenge Warren when he makes pro banker statements and Bill is sitting there carrying in a second tier whatever, make those arguments, and we can hash that out if you really think that’s what it is. But this lazy of, like, I don’t want to take it seriously. I found one thing in their CV to discount the entire thing.

I have a lot of problem with people who I think are compromised ideologically because of their professional commitments. I make that point all the time. But I am actually quite careful about who I do that to and why. If I think I can make the explanation for why, I will. But we are not talking about one person. We are not talking about a group of people who are out there consistently opposing higher taxes on the rich, consistently proposing deregulation, consistently proposing handouts, none of that.

So make your mind up. I think it’s important. And if the idea is that all they want to do is besmirch our credibility, fine. They can try that. We can see how big a movement that they get. And you’re right, there’s a few people on the left that care about that. But there’s not a single person in Congress I know of.

There’s not a single major left political community organization that is listening to AMI on crucial issues. When I go to those meetings, they’re mostly people over 65 who haven’t had a serious policy space since Dennis Kucinich got kicked out. And I have no problem with older people. I’m not saying it to besmirch them. I’m just saying there’s a reason why the younger generation of leftists are by and large not interested in that because it’s not offering them useful solutions.

[01:01:00.690] – Grumbine

One final thing before we get out of here, and I want to also talk about the conference you guys are going to be putting on regarding public banking and mint the coin. I get a lot of pushback from people that think because of Stephanie’s position with Bernie and some of you guys advising Rashida Tlaib and AOC that MMT is a thing for the Democratic Party. But let’s be fair. The Democrats have a layup right now and they’re choosing not to take the layup.

[01:01:28.090] – Grey

That’s my entire pitch. That’s the entire pitch to mint the coin is that the Republicans are being deficit terrorists, but also they have no power unless the Democrats choose to give it to them. So who do I blame right now? Absolutely I’m blaming the president. The whole point of the mint the coin is the power is in your hands.

Treasury Secretary Yellen’s got a finger over the button. She’s not pressing it every day. If the economy goes down, it is on her. I don’t expect those children fascists to exercise any adult behavior right now. I expect the people who claim to be adults to do so. Is Yellen doing the right thing? Absolutely not. Right now, the people who are being taken seriously in the White House about this Neil Buchanan and Michael Dorf, the law professor at Cornell and the economist who wrote the law review article that mine responded to, theirs was called How to Choose the Least Unconstitutional Option.

And they said, well, the President should just ignore the debt ceiling because it’s better than ignoring the taxes and ignoring the spending commitments. Those are like core powers of the purse. Congress really cares about taxing and spending. The debt ceiling is a dumb limit. So if you have to violate one, violate that one.

I agree with that as a logical argument, but as an actual explanation of what’s going on, all of that requires ignoring the coin. Remember that fourth annoying option? The coin’s there.  All of that goes out the window. And they explicitly wrote, and these are people that the White House was reading at the time, I know this for a fact because they came to Columbia Law School when they published that article in the Columbia Law Review.

And Trevor Morrison, who was at that point a constitutional law professor at Columbia who eventually became the dean of NYU Law School before, in the middle, was working in the White House as one of their legal counsel was saying, we’re talking about your article in the White House. And they wanted the coin to not exist. It was a distraction to their theoretical argument about constitutionality and how you choose between unconstitutional options, how you choose the least bad amongst bads.

And I was like, there’s a good actually, we don’t need to choose amongst the least bads. There’s a good. And we eventually got to the point where last year I had Peter Coy at the New York Times write an op ed saying what the coin can teach us. Where he was saying basically, MMTers say the coin is a teaching moment.

We can get past this bullshit about debt and deficits and how we have to borrow in order to spend, all the stuff that the AMI crowd want. We can get past that through the symbolism of the coin, through this big moment, this moment where the whole country’s eyes are turned on this absolutely ridiculous problem.

It takes a ridiculous problem to make this solution seem sane to people who are so predisposed not to take it seriously. And I said I think it’s problematic that people who are supposedly progressive, supposedly on the side of not being fascists, are more interested in keeping this lie that we have to borrow to spend alive than they are to use constitutional options available to them such that they would be willingly open to violate the Constitution rather than just tell the truth.

And Buchanan and Dorf got offended at that, and they wrote an op ed saying, well, Professor Grey is accusing us of being elitist. And then in the same article, they said Plato talked about the noble lie and sometimes it was important to deceive people to keep society running. And they said that was in the context of slavery, which is probably bad, but maybe there are situations where it’s good.

And then they went on to explain why they think in this situation, the public shouldn’t know the truth about how money; so I’m sorry, but if you are saying you think people should remain ignorant because they can’t handle the truth, then I don’t know. Why are you being offended about being called elitist? You know the truth. You think you can handle it. You just think someone else can’t.

What’s the difference between you and them? Oh, sorry. You’re an Ivy League law professor. I remember. We get to be on the inside of conversations. It’s just those people who can’t handle it have to be on the outside. So that’s where I think all of this stuff falls. I think there’s this inherent elitism around the Democrats who know this is bullshit but keep pretending it isn’t.

And they like doing that because it allows them to blame the Republicans for a problem that they’re also causing. Because what’s really hard about it, what’s really hard about telling the truth, the answer is you have to admit that you were lying before. You have to admit that you stood up and said, in 2009, we ran out of money when we didn’t.

You have to admit that when you sat there and signed that bipartisan deficit reduction commission, it was all bullshit. You have to admit that when you said, hey, I hate government debt and deficits, and I’m a balanced budget hawk like Biden did for decades. That was also bullshit. So is Biden of 2023 willing to kill Biden of 2011? Is the Democratic Party willing to kill the Democratic Party of 1950 to 2020?

I don’t know, but I’m certainly putting the blame on them. And I didn’t come from Australia to become a Democratic Party apparatchik. I’m not even a Labor Party apparatchik in Australia. I have no loyalty to any of these people. I came here because I’m sick of America hurting my country and people around the world.

[01:06:05.980] – Grumbine

Amen. Wow. Yes.

[01:06:07.990] – Grey

You think the Democrats aren’t responsible for that? My God.

[01:06:10.900] – Grumbine

They have blood on their hands, baby. All right, one final question for you, sir, and that is what is happening with this conference you guys are going to be putting on at Willamette.

[01:06:23.070] – Grey

Willamette, dammit Janet, Willamette. Yes. So, first of all, there’s an event before that, which is Monday the 23rd. So not this upcoming Monday, but the following Monday, January 23, at 12:00 Eastern or 09:00 Pacific, there will be an event that is bicoastal, so it’s in person in two different places. It’s Willamette Law School in Salem, Oregon.

The capital of Oregon an hour away from Portland and in New York City at Columbia, uptown in Morningside Heights at the law school. And the information about where those are located is on the mintthecoin.org website. And it will be live streamed, and the zoom link is also on the mintecoin.org website.

And that event will include myself, Joe Weisenthal, who is the editor of Odd Lots podcast at Bloomberg and an MMT friendly journalist. And it includes the Mint director Phillip Diehl, who drafted the platinum coin law and Stephanie Kelton. So Stephanie was one of the earliest supporters or advocates about the coin. She was one of the people who helped coin the phrase mint the coin, the hashtag.

Joe was one of the earliest journalists. And of course, Philip Diehl wrote the law, and I wrote the law review article. So I’m hoping that this event will be a chance for people to want to understand this in more detail and get a definitive take from people who know about it, that we can go into this debt ceiling conversation on the same page about what the coin is.

You might not still be convinced, okay, but at least hopefully, we can be, as I said earlier, talking in the same language, understanding where we actually disagree, not this other stuff that’s a distraction and mostly just miscommunication and talking past each other. So that’s Monday the 23rd at noon. There’s resources and materials online, et cetera.

It’s free and open to the public. There’ll be coffee, et cetera. And then separately from that, at the end of March, Thursday to Saturday, March 23 to 25th, there will be a conference in Oregon at Willamette, three day conference. It will be on public money in the future. The first day will be at the Economics department and will include a number of MMTers, including a keynote by Randall Wray, Randy Wray, who this is his final year ever of teaching, and he is teaching as a visiting professor at Willamette.

He was brought there by Yan Liang, who is an MMT economist, and she is also part of the powerhouse duo of herself and Eric Tymoigne, who you might remember from New Economic Perspectives blogs. He wrote one of the best finance, law open textbooks out there, in my opinion. She teaches macroeconomics there. A number of her students make it into my law school classes.

They’re always fantastic. So we’re co hosting this. That first day will be on what is money, what is banking, what role for public banking in the MMT framework. The second day will be cohosted by the Law and Political Economy Society chapter at Willamette and the Willamette Law Review, and will be at the law school.

And it will be on the past and future of money. It will include myself, Raul Carrillo, Nathan Tankus, John Kiff, the former head of the digital currencies team at the IMF,  Andrés Arauz, who was the developer of the eDinero, the first central bank digital currency in 2014 in Ecuador, and most recently was the presidential candidate on the left. In the Ecuadorian presidential election, he almost won.

He was a protege of Rafael Correa who had a number of MMT consulting him over the years and a number of other lawyers and very brilliant people who will also be on that day. And then the final day on the Saturday will be activists, organizers. There’ll be more town halls, less panel formats, and we’ll look at basically how to set up a public bank.

What we’re doing in Oregon, the state of things. We’ll have elected officials, stakeholders, activists from other public banking communities around the country and how we can coordinate our efforts, be effective, make sure we design a bank that understands how money and banking work properly and that is consistent with the big things that we’re doing.

One of my favorite quotes ever was, I try to think about the big things while doing the small things so the small things go in the right direction. And that’s part of what we’re trying to do here, is we’re trying to do this public banking work, start local. This is my community now for as long as they’ll have me in Oregon. And we’re trying to make sure we can get a public bank there, because if California can do it, you want to be damn sure that Oregon does it too.

And we’re going to make sure it’s MMT consistent so that’s also free and open to the public. I’m not sure how much of it is going to be live streamed. Some of it will, some it won’t be. But if you’re in that area, you want to be involved, please reach out. We’re welcome to have you. And hopefully it’ll be one more example of MMT trying to actually have practical impact on the ground with real change.

[01:10:23.270] – Grumbine

Rohan, thank you for being a truth teller. Thank you for being so generous with your time. And with that, I’m Steve Grumbine, and we are out of here.

[01:11:17.770] – End credits

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