Tuesday, March 5, 2019

Why has Warren Mosler been bearish for so long?

On Warren Mosler's website his economic views have been bearish for something like the last four years. I cannot understand this.

Not only was the deficit (something he talks about all the time) last year the highest in 6 years (both nominally and as a percent of GDP), but this year it will be even higher. In fact, it's already three-fourth's of last year's total and we're not even halfway through the fiscal year. Shouldn't he be bullish?

Moreover, government spending is going to break another record. Government spending is the "flow" in the "stock/flow" discussion (whereas the deficit is the stock) and it's what drives income, profits and overall economic activity. You don't even know what the deficit is going to be until the government spends first. (He even says, "gov't spends first then taxes later." So why not look at flows?)

Finally, when he talks about Fed rate hikes he says they "add to income via the interest channel," which is true. Meanwhile the Fed has been raising rates for the past 3+ years and he's still bearish?

Frankly I don't understand his constant bearishness. It's very odd. It's like he ignores his very own MMT concepts when looking at the economy. Every post on his website is about how this or that metric is slowing and those posts have been going on for years, yet gov't spending continues to rise, the economy continues to expand and the stock market continues to make new highs.

Really, I find it very strange.


David said...

My perspective, Warren is 'unknown' risk adverse. He understands the complexities of the economic system and has used them to his advantage probably before anyone else did.

His framework is more widely understood, even by central bankers and the levers are being made use of. Conflict with how Warren's framework says the system operates and how it actually does has morphed. CB's should not be buying stock (as in Switzerland, Japan and probably the US, China ) or other financial assets outside of Tsy securities either directly or indirectly. These nontraditional moves have allowed the current system to continue. MMR and one of the Scott's would be proud

I remember back in 2003? when Warren and I discussed the possibility of US choosing an alternative path to Japanese style deflation. I argued our electoral system would allow for an inflationary blowoff which would lead the world to unwind from its debt bondage in a nonviolent form of WWII. Warren thought I was nuts and he was right on target with the financial crisis that followed.

My hope for an inflationary jubilee rather than a violent overthrow of the current system continues with the future bringing more deflation. Warren is a pessimist and mostly right.

Michael Norman said...

I don't know about "mostly right." His views have been mostly wrong. In addition they appear to be altogether dismissive of his own MMT rationale.

Maybe he made his money like Jim Rogers made his money, i.e. being hooked up with a savvy trader and going along for the ride. (e.g. Rogers/Soros.)

If he's been short the market for the last 4 years based on is posts, then he lost a lot. And that was contrary to what his own MMT understandings should have been telling him.


David said...

If I recall correctly there was a little more to it...

"Warren Mosler developed a lot of this cohesion himself while running his own hedge fund and made $100 million in the early 90s betting that Italy wouldn’t default on its own debt, because they could print as much Lira as they wanted.'


My guess is he's been making money lately like Bill Gross made his money for 40 years. He's been borrowing short and lending long on Treasuries as Treasuries have no haircut on capital requirement, if you are a financial institution.

I agree he's been negative for a long time. He does follow my favorite recession indicator, Commercial and Industrial Loans and I find it useful when he posts charts of it since I'm not near as disciplined as he is. I don't recall him doing or saying anything 'wrong', worst crime I would accuse him of is highlighting bad news.

You and Warren had an interview thing going that I would listen to back in the beginning. Sorry you guys had a falling out, always figured Warren might be a bit autistic (as I possibly am) given his drive to gather information, though I've never met him.

Kain said...

I noticed this too. In general, is it fair to say that Warren Mosler has been out of the public eye for the most part in about 3 years?

Mike Norman said...


C&I loans are at record levels and rising at the fastest pace in over 3 years so, again, he doesn't follow MMT or the "evidence" he posts.

And he made $100 million because of his trader partners. He was the "analyst."

Mike Norman said...


Here is the link to C&I loans.

Click here.

David said...


Just wanted to say the C&I loan did the same before last recession was declared in Dec 2008. C&I loans turned down after they quit accelerating. The geniuses at the NBER declared recession and backdated its start to Dec 2007.


I recall discussing with Warren at the time. He mentioned that often economic sectors will boost borrowing to compensate for fall in profits/income until banks wise up and quit lending. If you see a sudden acceleration in lending it isn't necessarily a good sign.

David said...

I'm not sure where the optimism regarding the government deficit is coming from.

I'm seeing a rapid deceleration in federal government deficit spending leading up to the end of 2018. See page 6 of Z1 report