Friday, April 3, 2015

And then Mosler shows up

Warren Mosler just says what he wants. He's always right, as least in his mind. He closes his comments section because he's too busy to respond to people's questions or criticisms. His word is gospel: accept it or brand yourself WRONG or just go away.

Well, he's been wrong--a lot.

Why am I venting this? Because I made a mistake and admitted it, so what happens? He shows up on my Facebook timeline--out of nowhere--schooling me on how to understand what is going on with the euro.

Really, Warren?

Nevermind that he's been wrong for years. He's been bullish on the euro since last May. It has gotten crushed. The deficit's been shrinking for years. He's been bearish. Go sell stocks on that advice. How'd you do?

Nonstop he's been saying, "making the euro harder to get." What ever happened to, it's about price, not quantity, Warren?

Then he says, "Oh, I was bullish on the fundamentals (MMT), but really I was bearish based on the technicals." Seriously??? The euro dropped THREE THOUSAND POINTS on the "fundamentals." So what the fuck use is MMT?

Warren, here's some advice: learn to have a little humility. We all make mistakes. Humility is a very endearing quality.

I am sick of this shit. There are no geniuses here. We're all trying our best. Nobody is perfect. Get over yourself.


Michael Norman said...

Warren, say you got it fucking wrong.

Dan Lynch said...

I learned a lot from Warren. But he's human like the rest of us.

Chance_Nation said...

Aren't you guys friends? Airing this out in public is a little... awkward, no?

circuit said...

Speaking of closing the comments section, I noticed lots of blogs are going that route these days.

Thanks Mike for keeping the conversation going.

John said...


I've got a helluva lot of time for you and Warren, and there is much in what you say, although I wouldn't have put it in those terms.

You made a very big call and it backfired on you big time. Warren has made some big calls and they've backfired on him too, but then I wouldn't mind being as successfully wrong as he's been.

However, it really does seem extremely odd that someone as brilliant as Warren would say that about the euro. Schiff, yes; Mosler, no.

Anyway, anyone taking such investing advice would have lost money, but then MMT is not meant to be a full-proof trading strategy - there is no such thing.

But in terms of macroeconomics, MMT's proponents should have done better. There is that unfortunate video with you laughing at that crackpot Peter Schiff while he's explaining very cogently (!) that the world economy is about to collapse.

He's been embarrassingly wrong about everything else (and you've been right about very nearly everything else), but his actual analysis should have been the kind of thing a PK or MMT economist should have been shouting from the rooftops: excessive debt, leveraged financial system, a Fed that's allowed a gigantic and fraudulent housing boom, a derivatives implosion, followed by systemic financial collapse and a near depression.

On the progressive end of the spectrum, apart from Steve Keen, Michael Hudson, Dean Baker and the Monthly Review crowd, no one was saying any such thing! Why the hell not?

Keen Hudson, for instance, and Godley before them, are not full blown MMTers, but they did make these calls. And they've been excellent forecasters on growth, jobs, asset bubbles, etc since 2008.

So what's missing from MMT's analysis? As good a description of a modern monetary economy as it is, there seems to be a chasm in its predictive macroeconomic abilities that is letting it down.

Do you think that there is something missing, and/or are the likes of Keen and Hudson seeing something that MMT isn't?

Best wishes,

Malmo's Ghost said...

One thing to note is that a string of much lower deficits have not caused the economy to implode-- so far. Not sure what MMT says about low deficits and attendant negative lag effects on the economy, however? Seems to me many other moving parts must be considered in conjunction with the deficit. I mention the above because I don't think Mosler and Mike necessarily agree here either, but I'm not certain of that.

Matt Franko said...

Mal lower deficits can perhaps be analogous to an increase in efficiency in a circuit... rsp

Dan Lynch said...

@Malmo's Ghost, household accounts are still positive despite the austerity, it's the business sector that is going into the red.

In the US we've enjoyed a defacto stimulus from the fracking bubble. It cut our trade deficit in half and at the same time there was a lot of private debt created to finance the fracking bubble. Mosler was a little slow to notice the fracking bubble but he gets it now.

All explained by sectoral balances and by Steve Keen's view that the economy is usually driven by changes in private debt.

@John, if there is something missing from MMT it is the tendency to focus on government spending. MMT is correct to believe that government could and should vary spending to stabilize the economy, but in practice government fiscal policy is "too little, too late" if not in fact pro-cyclical. So in reality, lacking a WWII-style government mobilization, its usually the sectoral balances and private debt that drive the economy. Just my 2 cents.

Michael Norman said...

Warren talks about the "fundamentals" constantly, then when he's wrong he says "you can't trade the fundamentals."

Jesus, MMT is not in policy, you can't use it for investing or trading ("you can't trade the fundamentals"), then what the hell is it good for? Sitting around talking like a bunch of academics?

Sorry that doesn't fly in my book. People have to take responsibility at some level. You can't talk about the fundamentals all day, every day and then say, you can't use them.

Moreover, what "technicals" is he talking about? Does he mean the technicals that showed the euro being massively oversold on hourly, daily, weekly charts and looking like a bottom? Or how about the numerous volume spikes indicating capitulation bottoms? Classic. Then again there were the upside breakouts above resistance. All of those, presumably, he would have bought, but they failed, too, just like his "fundamentals" failed.

On the other hand, could it be that he's WRONG on the fundamentals? That the euro is NOT getting "harder to get?" That exporters are "price setting" the euro lower? No, that could never happen. Warren says it doesn't happen that way and he's Warren Mosler. He's never wrong.

Come on. Have some humility, man. That's all I'm saying. I'm wrong all the time. I can take people calling me names and looking like a fool and telling me that I'm wrong. Nobody is perfect. Not even Mosler.

Michael Norman said...

Why is it so hard for him to say he's wrong? Very strange. Insecurity? Superiority complex? I don't know.

Neil Wilson said...

"That exporters are "price setting" the euro lower?"

To be fair that idea doesn't float any boats either. It simply doesn't fit with the way businesses manage their treasury operations or their sales volumes. Assuming everybody repatriates via exchange or has any need to is simply wrong.

Exchange rates reach their value in a singularly non-linear fashion that has no current direct explanation - just like share prices.

There's always a fondness to try and find mechanical explanations, but generally it turns out to be curve fitting in a very specific set of current circumstances. Then the hole fills in and the explanation is out of date.

Generally the best way to make money out of such an idea is to write an investment book very quickly explaining the process. :)

Seen that done loads of times.

Joe said...

I like both you guys.
I remember Warren telling fund managers to go play golf for a few years and let the market ride. Then he changed his tune a became bearish. His about-face was like 2-3 years ago, not the most prudent call in retrospect. And I do recall him being euro bullish many months ago.

Tough to have a read on the drama without seeing the facebook thread. At the same time, Mike is an asshole new yorker, and I mean that in an endearing way.

Matt Franko said...


Wrt share prices..

What if traders are pushing the price of a stock around $50 ..... bullish rumors and it goes up to 55... bearish rumours and it goes down to 45....

Then Warren Buffett comes in with a tender at $75.... what becomes the price and why?

Foreign firms are often paid for the exports in their domestic currency before they leave port.... the products are then financed in the system of the importing nation.... the price at which these deals are done matter to not only the exporting firms but also the banks that are financing the trade...

If the firms lower their prices in the foreign currency the banks cannot sit there and pretend this did not happen... they have to do things in response in order to remain in compliance rather than "control fraud" or some such nonsense...

If you think banks are "control frauds" you remain blind to these aspects of the system.... you would think "well the banks just lie" while in REALITY they dont, the banks seek to comply.. and take action to do so....


st hs said...


1. austerity leads to lower importer demand.

2. exporters lower their prices in response.

3. banks that lent exporter money to finance the inventory must go out and sell the exporter's currency as the inventory has now decreased in value.

4. this causes exchange rate adjustment.

Is this what roughly the process that you are talking about?
Step number 3 is the part where I am most lost.

Jose Guilherme said...

Financial account flows dwarf current account transactions.

When, say, German investors buy more U.S. shares or bonds they have to acquire dollars and thus help prop up the dollar exchange rate. Yet such transactions do not show up under the current account.

It's simply wrong to emphasize export and import flows as determinants of the exchange rate.

Michael Norman said...

"Financial account flows dwarf current account transactions."

Uh, no. Not even close. Where are you getting that?

Jose Guilherme said...

See for instance this:

"The currency exchange trading volume dwarfs the stock and bond markets. Daily volume in currency is typically in excess of $5.0 trillion (January 2014)"


If we have 260 week days in a year, that amount translates into $1.3 thousand trillion dollars per year.

That´s almost 18 times world GDP for year 2014 (source: and 73 times the total amount of world exports for year 2013 (

Anonymous said...

I was a bit surprised that the Euro didn't launch against the dollar. We still have next week to go, but at the same time, Euro is a currency that's damned by it's own hand. I don't see how the export-driven paradigm can continue unless the periphery becomes just as/more competitive than the net exporter and then they'd only be trading that trophy around.

Anonymous said...

And that still translates to:

The Financial Sector is a LOT more trouble than it's worth.

Anonymous said...

Via Cory Hoffman on Twitter:

John said...


Thanks for the reply, but if what you say is true then that makes MMT analysis look positively medieval.

It seems that MMT's problem is not only analytical but political - concentrate on government, even though private spending is approximately 70% of the economy and, absent any wage changes to match productivity, acceleration in debt is what drives the economy.

Analytically, perhaps what MMT needs is Richard Werner's disaggregated credit model to complete it. Just a thought. Along with Keen, his forecasting seems richer and deeper than MMT's. I don't think anything explains the modern monetary economy as well as MMT, but it seems behind its PK rivals in its forecasting.

(Politically, it needs a good dose of reality. Most governments do not care about the people. It is a bought and paid for "executive committee" of big business, to mangle a well known description by an nineteenth century bearded gentleman.)

No theory is perfect and the world is too complicated for an all-encompassing theory.

PS. Mike, very classy of you to admit to your mistakes and be humble about it all. You could easily have done a Schiffy and given a bunch of lame reasons why it didn't pan out as anticipated but "one day" it will.

Matt Franko said...

Jose, at what price though? Rsp

Matt Franko said...

Jose that stuff is on the forex ECNs not in the interbank market imo.... rsp

Matias Vernengo said...

To tell you the truth I have a hard time understanding what Warren says. He speaks in peculiar terms, that are self-referenced. As far as I can understand, for example, he thinks that flexible rates solve balance of payments problems and there is no need for capital controls. Back in the late 1990s, Randy used to say that, and I think that was Warren's view (I did understand Randy, who is very clear, and I think has changed his mind on capital controls). But it is impossible to understand where Warren stands on these issues.

MRW said...

"Yet such transactions do not show up under the current account."

Sure they do. They're called sales to us. That's how they get USD. Or they exchange their currency (obtained by selling things to us) for our dollars.

No dollars can leave the US banking system, so all those dollars are here. (Travelers can take 10Gs max out at a time.)

MRW said...

Correction. Should read:

"Or they exchange their currency for our dollars."

Jose Guilherme said...

@ Matt

"Trading on the currency exchange market...takes place on an inter-bank or dealer basis. There is also an Over-the-Counter market where two parties can take counter positions via an electronic network...unlike stock markets, the currency exchange is not centralized"

Financial flows - not trade - rule the roost.

This also applies to the "reserve currency" question, btw.

In the decades following WWII the U.S. had a chronic current account surplus - and Europe had a corresponding "dollar gap". But the surplus country, the U.S., simply lent the necessary dollars - the reserve currency - to Europe.

Contrary to what one reads in many texts with a MMT-orientation, having a deficit in the current account is certainly not a necessary condition for the issuer of the world's reserve currency.

Jose Guilherme said...


Suppose a German company decides to buy U.S. shares.

It will use euros to buy dollars in the foreign exchange market.

This transaction does not involve any trade in goods and services, so the current account balances of Germany and the U.S. remain unchanged.

All the action is on the financial account of the balance of payments.

Foreign exchange transactions are just an item under the financial account of the BoP - and foreign exchange transactions vastly exceed foreign trade (with 1.3 thousand trillion dollars per year versus some $18 trillion of annual world trade, it´s a 18:1 ratio).

Jose Guilherme said...

An excellent source of information on foreign exchange market activity is this 2013 survey from the Bank of International Settlements:

One can read there interesting statements of fact, such as the following ones:

Trading in foreign exchange markets averaged $5.3 trillion per day in April 2013.

This is up from $4.0 trillion in April 2010 and $3.3 trillion in April 2007.

The US dollar remained the dominant vehicle currency; it was on one side of 87% of all trades in April 2013.

The role of the US dollar as the world’s dominant vehicle currency remains unchallenged.

Smaller banks (not participating in the survey as reporting dealers) accounted for 24% of turnover, institutional investors such as pension funds and insurance companies 11%, and hedge funds and proprietary trading firms another 11%.

Trading with non-financial customers, mainly corporations, contracted between the 2010 and 2013 surveys, reducing their share of global turnover to only 9%.

Reporting dealers accounted for 39% of turnover"

Again, financial flows dwarf all other types of flows in the world economy of today. No wonder the banking sector is ever more powerful, influential and rich.

Matt Franko said...

Jose, again you are focusing on quantity here and not price....

What would cause the price to change?

If a company in EZ wanted to buy a US company they might just structure it as a stock deal... not a cash deal...

How much of those actions are the dealers hedging exposures? Dealers who have no concern if the price moves or not they are after the spreads....


Matt Franko said...


We are currently having the collegiate basketball championship here....

perhaps Think of it this way; the direct economic impact of this tournament is $800m and over $9B will be wagered on it.... the wagers do not effect the real tournament. ..


Calgacus said...

Leaving aside current events, most criticism here misses the mark. MMTers like Wray, who collaborated with Godley, did shout from the rooftops. MMTers do not overemphasize trade determining exchange rates; Wray highly recommends John Harvey's work emphasizing finance. MMT incorporates "endogenous" money / private credit perfectly. It emphasizes government action because that is what public policy is about, and is well aware of fiscal policy lags, as Keynes & his predecessors had been; that is one of the many problems that the JG solves. The thoughtless majority of "economists" devote their attention to minimizing and belittling the most powerful actor, the government, the common voice - so that their paymasters can continue to survive on government welfare-for-the-rich checks and assault people who work, the weak and the whole planet.

They should console themselves with observing what many students who finally get something do. They repeat, lit by their new understanding, exactly what their teacher said - and ask why didn't you say that?

Tom Hickey said...

Matias Vernengo said...
To tell you the truth I have a hard time understanding what Warren says. He speaks in peculiar terms, that are self-referenced.

Right, Warren holds a conceptual model in his mind using sparse terminology that he gets the most out of. I ran into this when I first encountered his blog and realized that to understand him, it's necessary to penetrate his model through his jargon, which is more financial than economic. I think that most finance people understand what he is saying, since it is based mainly on stocks and flows, although it may seem opaque to others who don't think this way.

That was a lot easier when he was taking comments and answered almost all questions. Harder now that the comment section is closed. But he is on Twitter and FB.

His conceptual model is based on a few foundational heuristics like a currency sovereign being a monopolist, regardless of whether key officials realize it, whether money is getting harder or easier to get, etc.

MortgageAngel said...

I think I understand where Mike is coming from. Considering what most of us all know as far as the history of their friendship Warren's post on Mike's fb seems to be, well, kind of backhanded. Warren has always struck me as being a pretty humble guy so I'm a little shocked but perhaps he didn't mean to come across like he did... we all have bad days! If Warren isn't too busy to give all of this some thought I'd expect he'll be able to see where Mike is coming from.