The Odd Lots Variety Show

for you. And we even had musical guests, so we had the country singing economist Merle Hazard and I sing a few of my own songs. So on this week's Odd Lots, we're going to feature the full length audio that we recorded at the live show, so that even if you weren't able to make it out that night, you can still hear the great conversations and music from

that night. And if you'd like to see video from the event, you can find it on the Bloomberg Markets and Finance channel on YouTube or just by searching Odd Lots Variety Show will also be featuring video clips and teasers from the event on social media. You can check it out on Twitter from the handle at Podcasts, and I'm sure that Tracy Alloway and I will be tweeting links to it plenty. If you missed it, don't worry because we are very hopeful and confident that this won't

have been the last Odd Lot Variety show. So thanks everyone for listening and enjoy the show. Hi, thanks everyone for coming. I'm Joe Wisenthal and I'm Tracy Alloway, and welcome to the Odd Lots Variety Show. It's our first ever live event and we're so happy to have you all here. Um. I have to say I'm a little disappointed because I wanted our first odd LODs live event to be an odd LODs Live poker tournament. But this is also cool. I'm not disappointed. Uh. Just a couple

of notes before we start. We have some really really great people backstage, some guests that we've been wanting to get on the podcast for a very long time. One housekeeping note, this is being recorded in audio format. Of course, it's also being recorded in video format, so please just be mindful of that, and other than that, enjoy the show. One other thing, we don't have time for Q and

A unfortunately, but we'll have cocktails and reception afterwards. Who can hang out and mingle and ask questions that you didn't get a chance to ask. So let's get started, all right. Our first guest is a criminal, is actual convicted felon. He is the former CFO of Crazy Eddie, which for any long time New Yorker may remember their ads in the seventies and eighties, who was an electronics retailer. Uh. Also a fraud through and through from the beginning. Uh.

And so we have the CFO. He now does work on forensic accounting. And I want to bring in Samanta. Uh So, who are you? What do you do? I'm a retired criminal? Are you reformed criminal? Do you think i'd be here right now if I didn't get caught? Well, maybe I would as a legitimate CEO that hasn't gotten caught yet. Do criminals ever truly retire? Yeah, because you know, after a while, you know it's um, you know what what's what's What's the benefit of doing any more crime?

Even though at times I feel like I'd love to do crime again. After meeting some of the people in this room here, I said, oh man, this would be easy just to go back into the game. Again, So tell us about how you got into the business and what was crazy Eddie, and how did you become at CFO. Crazy as was a small garden variety electronics operation. Uh. We engage mostly in income tax evasions. Stealing the sales tax gave us the competitive advantage because that's six or

seven percent we can steal. Gave us the opportunity to discount more to customers and still make money. So we were pretty much being competitive by you know, by by evading taxes in the old days. Uh. It was a family oriented business. We wanted to grow and they wanted somebody in the inside family member to to be the CFO of the company if the company grew to assert and level. So they picked me because I was the nerd that read the Wall Street Journal and barons when

he was twelve years old. So they put me through college so I can become an accountant to help them commit more sophisticated crimes in the future. So eventually I go to brew College right over here in twenty third Street, I get my c p A. And of course I become a criminal mastermind, you know, doing white collar crime. I went to college to become an effective white collar criminal, white collar criminal should never cheat themselves out of getting a good education. So I was one of those kids

that cheated in school anything. I earned my grades because I wanted to be the best at what I was doing in crime. Did you know that was the ultimate destination was crime at the time, and you were okay, And it was fun a lot of money when I was fourteen years old. They got a fifteen hundred dollar bonus in nineteen seventy one in cash. Does anybody have

any fourteen year old kids? Imagine if your kid came home with a fifteen hundred dollar cash bonus today even and the money, of course is not worth as much as it was back then. Go ahead. So what was the most useful thing you learned from accounting for a life of criminality? Is that people are very, very gullible. People are too trusting. Uh. As a criminal, I learned to consider your humanity as a weakness to be exploited in the execution of my crimes. In other words, your

good nature. You're wanting to trust people, You wanted to give people a benefit of the doubt. That gave me the opportunity to execute my crimes. Second part is is that people are you steal more with a smile than you can without have gone? Anybody knows how I was working the crowd. He has shaking hands, smiling, and everybody was happy with me. Right. You see, if if people like you, it's easy at to steal from them because they feel like they're comfortable with you. So let's talk Uh,

that's nice and theoretical, but let's talk practical. So obviously, I'm sure there's a lot of people that would like to steal the income tax or the sales tax that they owe. But you have auditors who are forced to come in. So how do you like dupe the people whose job it is to make sure that you're not dealing. When it comes to fraud, the distraction is always more important than the law. Now, line is not a problem.

You can ask me any question here and I'll lie to you right to your face, as you will know the difference. But the point is is that if you can distract somebody from doing their job, chances are they're not going to ask you the question that you have the law about. So in the crazy Eddie case, let's

take auditors. The audits would be done over a period of say eight weeks, so they'd have to be twelve and a half percent each week, right, So by week six out of eight, they should have seventy five percent of the work done in seventy five percent at a time and twenty percent of the work left to do

in twenty five percent at time. My job was to store them by having only twenty five percent of the work done in seventy five percent at a time, so that they had have to do seventy five percent of the work and only twenty five percent at a time, which is causedn't the cram rush to get things done and miss key order procedures? And that worked every single year. Do you know why? Because in the nineteen eighties there

were no females in accounting doing none. It was a male dominated profession and most of the leg work was done by twenty one twenty five year old kids fresh out of college that was single. And what's the easiest way to distract the mail order to from doing their jobs female accountants is beautiful as you and they would they spent most of that time flirting with the females instead of doing their jobs. And every single year, like Pavlov with the dog, you put the wood in front

of the dog gets salivates. Well, you put the female in front of the account and they salivate. They don't even do anything else. That's pretty much how we're able to succeed for us. We didn't get caught because of our aortors. We got caught because somebody I thought that Crazy A's was a goldmine, and they took advantage of a dropping the stock price and they took over the company right from out under us. In other words, we were benefited. We were we were a victim of our

own fraud. No oh, I was gonna say, talk to us about that moment. What happened when when you heard that someone was actually interested in the company and you knew that it was a fraud. Well, we tried to take it over at seven dollars this ship we thought, we knew that people were hunting the company to take it over. So we've made a bid at seven dollars a year and excited, Why are you gonna pay seven dollars a share for a company you know it is worthless?

Because we weren't going to use our money anyway. We're gonna defraud the idiots on Wall Street take all the money have them finance to take on. We're gonna get the company for nothing. So we've got seven dollars a year, and guess what submediate out to actually bet eight dollars a year, thinking that we were trying to steal the company. In fact, the initial investigation into the Crazy Eddy fraud, the SEC thought that we deliberately understated on numbers to

take over the company on the cheap. Well, I want to like back up a second, what is the difference? And we we uh. Sam was a guest on a recorded podcast, and I thought this was one of the most key ideas that he said. There is a difference in the nature of fraud when you're a private company versus public company. The economics of crime change when you

go public. So what's the difference. You get a better bang for the buck overstating your income as a public company, even if it means overpaying your taxes then understating your income as a private company and evading your taxes. For instance, if I steal a million dollars from my own companies a private company, in other words, I skim a million dollars and I don't show it as income and we have at tax rate, I'm evading four hundred thousand dollars

in taxes. Simple math. Right, one million dollars, four hundred thousand dollars. Right. If I now I'm a public company and I put that million dollars back into the company, right, I have an inflated pre tax income of one million dollars. I'm gonna overpay my taxes by four hundred thousand. I'm gonna have an inflated net income of six hundred thousand dollars.

And if my company is trading at a multiple of earnings let's say thirty times earnings pe ratio, I'm creating eighteen million dollars and fictitious wealth by overpaying my taxes by four hundred thousand dollars agains. Who's most stock? Crazy? Any people? The hand of family does? We created a security screud by going legit. We said it was more profitable to screw investors than to than to screw the internal revenue service. That was the whole idea behind the

crazy Eddy for it. Okay, I'm gonna jump forward again. What was it like in prison? And did you do a Shawshank redemption kind of thing where you started doing everyone's tax accounting for the kids, and my kids are here, um, believe it or that I didn't. I didn't go to prison. I got house arrested when they were young because they were too young to be traumatized by what was going on. They'd see daddy wearing an ankle bracelet, so they bring

their friends over if they daddy's ankle bracelet. So did you tell on your own family members? Yes, but not my immediate family, my cousins. Yes, of course. Absolutely. Do you think I'm gonna go to jail for them? Have to have some standards? YEA. One thing I'm very curious about it. We just have a couple of minutes left. Is these days with computers and all kinds of more are easy, you know, ease of tracking inventory? Is it harder to do? For all these days? Crime evolves? I'll

give you one one example. Computers and everything. One of the things one of the questions raised by Wall Street prior to us going public was what we had an adequate computer system? Which we didn't. So what do we do?

We get them? Um? Computer World magazine to bring one of their beautiful female reporters over right, and she writes this story about crazy at these computer system that tracks inventory, and we put a nice lady in with with a smini skirt in front of the computers and all of the red, orange and yellow lights are going on, and people think we have a great computer system. If a

traction is always more important than the life. If you were going to do it fraud today, in modern times, what would it be multi level marketing or time shares? Because it's legitimate fraud. I see people. I've done work on the forensic side on that. I see people getting fleeced all the time by these industries pretending to be legitimate businesses. I mean they might be good investments for

Wall Street. I'm not he had to talk about investments, And actually I haven't been in the market for over a decade, but I will tell you these these these companies are the scum of American capitalism, the ruination of American capitals. They should not be allowed to exist. All right, Sam answer the former CFO of Crazy Eddie, Thank you very much for your lessons for us. Thank you all right. Moving swiftly along, We're gonna bring up our next panel.

And those of you that listen to a plots know that obviously we talk a lot about financial markets on the show, and I think sometimes there's a tendency to think that markets are sort of divorced from people's day to day lives, when in fact they matter a lot to how everyone lives. So for our next panel, we're going to focus on some big moments in the debt market, specifically UM and big moments in the debt market that

have actually changed the world in various ways. Our next two panelists are Brad Setser, an American economist and former staff economist at the Treasury Department. Many of you probably follow him on Twitter, and if you don't, you definitely should because he has great insights. And we also have Lee book Eye, who's been described previously as the philosopher

King of sovereign debt lawyers. He's represented nearly every country that's gone bankrupt since the nineteen eighties and really reshaped the way that we think about sovereign debt. His mere presence at airports have been known to move a country's debt market. Uh, and he's recently retired from the law firm. Cleary Gotlieb and we managed to get him out of his semi retirement to come talk to us. So very exciting.

Let's bring them on right. Uh, So we purposefully gave ourselves a really sort of a vague intro, which means I now have to struggle to think what the first question is. But I think we want to focus on debt crisis to begin with. Do they all look the same? Is there a common thread? How do you actually spot a debt crisis coming? Lee? Let's start with you. They don't all look the same, but they have one thing in common. They're all a crisis um and they never

come in isolation. A sovereign debt crisis will almost always be accompanied by a banking crisis, or trade crisis, a currency crisis, sometimes a social crisis. Uh. The pressure on the politicians who are there when the crisis begins is intense because they all know that history suggests that the politicians there when a crisis begins are rarely the ones there when it ends. Bread By the way, I just

want to tell quick anecdote about Brad because we're here. So. I think it was probably fourteen years ago and I was like unemployed. I hadn't been in New York that long. I applied for a job to like blog about economics or something, and Brad was my interviewer and I bombed the interview and I think at the job, but we that's because he asked me about Argentina had just defaulted a couple of years ago, and he asked me some question about Argentina. Was like, you know, he asked my

way through. I had no idea, so I bombed. I didn't get it. But we're now here and I'm you know, he's at the hot seat. So and once again Argentina isn't the news. Uh so, Brad, why does Argentina first of all? Uh? Second of all, why does Argentina? Why did they default so much? What's the deal with that? Well? I made probably one of the biggest hiring mistakes in

my life. Um. We we'd actually hired Felix Salmon, who would turned to be a pretty good blog so we could have put together Felix and Joe and like, uh, probably been a successful blogging firm. Um. So, what does Argentina default so much? I guess it's because people lend them so much money? Okay, why do people keep lending them money? Because this seems to happen literally at this point, almost every five years. I think people consistently overestimate Argentina's

capacity to repay. Yeah, they just kind of gets like squonky sovereign debty. Uh, Argentina doesn't have a big export base. It exports soybeans and UH soybean oil. It hasn't developed other export industries, so exports are very small share of Argentina's economy. If you have a small share of exports, you have less capacity to support foreign currency debt. Yet Argentina keeps borrowing in foreign currency. So I mean essentially every time what would normally be a currency move and appreciation,

it turns into a debt crisis. So I described Lee's career saying that he's represented in numerous governments. So give us your opinion on why those governments keep tapping the market for money that apparently they can't actually afford. Look, in the twenty first century, no sovereign borrows money in the international markets with the expectation that they'll ever have to repay it. If by repay you mean devote current

resources to settle that liability. They borrow it in the sure and certain hope that when it matures they will be able to go back into the market and borrow from someone else to pay that back, and when that matures, they'll do the same so on in perpetuity. I sometimes think of sovereign debt that it used to be a joke that if you had a pal who was on a diet and you saw them about to tuck into a chocolate declaire, you were supposed to say to them, Now,

remember a moment on the lips. A lifetime on the hips. Sovereign debt is that when a sovereign borrows money today, uh, that debt in a net sense, will probably stay on its balance sheet forever. That which is why sovereign debt stocks almost always go up. They will occasionally go down, but almost always go up relentlessly, remorselessly. Well, Brad, you mentioned that argent Tina is particularly ill suited to take on foreign currency debt due to its immature export base.

Why not adopt a different model? Why do they have to borrow from borrow from international markets? Well, I mean they have at times tried a different model. I mean, for better or for worse. The Kushners were frozen out of the market for a long period of time. They still kind of wanted to run budget deficits, so they kind of borrowed from the Central Bank to UH finance government spending. Mockery came along and said, I wanted to go back to be a more legitimate form of finance.

UH and Argentina, in addition to having a small export sector, has a really small banking sector. Lots of historical reasons, the history of inflation, so we couldn't finance the budget deficit with the banking sector. The market was there and the temptation was strong, Uh Lee should they do? Should they do a different approach? And I'm also curious, like after Mockery one, everyone's like, yeah, he's going to do

all the liberal reforms that people want. And the i m F is excited because they're gonna do some playbook and obviously, as we've seen over the last several months, it's completely failed. How much burden is there on the or as a responsibility on the international community, whether it's organizations like the i m F. Two, try that playbook again and sort of think, like, you know, how much is it their fault for adopting this pattern that just

isn't working. Well, here's a curious asymmetry in the international financial markets. Organizations like the I m F. Every year by their articles of agreement will send a team of economists down to every one of their members analyze the fiscal policies and usually criticize them, sometimes brutally, but they have no power at that stage to get the country to change policy. It is only when the country cannot pay its debts and comes to the I m F and asks for a program that the IMF can begin

to say, you must adopt these fiscal adjustment measures. It's a curious asymmetry. It's as though the medical profession was unable to tell patients to avoid smoking cigarettes, that they could only help them when they come in with the consequences of it. So is the solution to debt crises doesn't always have to be fiscal adjustment or austerity or are there alternatives that are just never pursued? Well, debt crisis you you started this question, Tracy. Debt crisis come

in different forms. Sometimes often I guess they are caused by chronic fiscal mismanagement of the economy, but not always um There have been debt is caused by natural disasters, the hurricane, the the earthquake, the tidal wave. UH Debt crisis can be caused by a Lehman moment in the international markets. Debt crisis can be caused by some other sovereign, some other place in the world misbehaving or the victim of gross misfortune, which causes the investor community to recoil.

And it's almost like you're seeing them wake up and remember the risks of sovereign nothing and then they pull back. And when they pull back, Uh, going back to my earlier analogy, Uh, when all the debt is assumed to be refinanciable and it no longer is refinanciable, then there's a debt crisis. Bread. Do you think some other model should be pursued? I mean, let's say you could go back in time too, after right after Mockery went to

the election or some other point. Was there another path that plausibly could have been taken by Argentina to avoid this? And I don't mean like, you know, more austerity per se, because whatever, you know, it's tough, But was there like a totally different approach they could have taken. I in Argentina's particular case, there were choices, but I'm not sure the choices would have avoided some form of austerity. One choice would have been to borrow more in pass uh,

not to borrow in dollars. I mean, you get into debt trouble most typically when you borrow in a currency that is not your own. There may be some differences across cases, but that's the commonality. Otherwise you can sort of print your way out of the crisis. Uh So, once Mockery decided not to borrow into in Paso's I think there were on a difficult trajectory. So you could have borrowed more in Pasos. You could have retained some of the capital controls, tried to lock in the domestic

investors and forced them to keep buying Argentina's debt. Uh. And in that world, if you had not been relying as heavily on the central bank for financing, you probably would have had to have run smaller fiscal deficits at the time. The other question, which sort of Lee avoided is that once you get into trouble and wants you default, then it becomes a question of how much you want

to pay back ah. And so one way of avoiding too much austerity after you have stopped paying is to strike a generous deal with your creditors and gives yourself a fresh start right on this Notely, do you hate creditors? No, certainly not um. Look, the countries, all countries, but particularly developing economies, can benefit enormously from access to capital markets

if it is done with moderation and maturity. Ah. The problem, and this goes to Joe's Yo's you were dancing around this, But the answer to your question is that the political flesh is notoriously weak. Look, politicians like to spend money it helps them get re elected. Politicians don't like to tax because it doesn't help them get reelected. They don't like to cut services because that doesn't help them. Uh. Borrowing, particularly borrowing from outside your own country. So in the

international markets is the way to cover that deficit. Ah. It allows you to spend money without raising taxes um and for as long as it lasts, it's the one a full thing. But the problem is it is for most politicians to tempting and they will borrow often to the saturation point of what the market will lend them.

And that is where global economics comes in. If you live in a time as we have for ten years in which the central banks, major central banks of the world have driven interest rates to near zero and have pumped massive amounts of liquidity into the market through quantitative easing and similar programs. There's enormous amount of money slashing around that will need a home and they will welcome a borrower willing to take it. So there you have

a confluence of two dangerous things. A tendency of politicians to borrow as much as they can and attend and see of a market, not a tendency a financial imperative to lend money to someone at the best interest rate they can. Let's talk about a country that's even worse shaped by a long shot, I think than Argentina, and that is Venezuela. And Tracy mentioned Lee that you were in retirement, but give it all the rusteny retirement semi retirement.

So you are involved in some way in Venezuela, but you're not working for Maduro right, No, okay, So what's going what what's your what are you doing with Venezuela? Yeah, I am acting as what we're calling a strategic advisor to the Guideau administration in Venezuela. And what's on the agenda for helping them? And how much can you actually do as long as Maduro is cleaning onto power. Well, that's the problem. Until that man takes the hint that

he should exit the political stage. There isn't much that can be done with respect to the country's external debt. The country owes north of a hundred and fifty billion US dollars. Its economy has been utterly decimated by twenty years of corruption and grotesque economic mismanagement. There is a deep humanitarian crisis in the country. There is a serious refugee crisis at at you know, levels proportional to Syria um.

But there is no possibility of dealing with that debt stock until Mr Maduro says audios, thoughts and suggestions approach forward for Venezuela. I mean, Venezuela is going to be like the super Bowl for sovereign debt lawyers. Once the restructure and get started. You have every single possible issue. You have two sovereign borrowers, one sovereign, one quasi sovereign, the PETAVSA, the state oil company, both of whom owe a decent amount in international bonds. The legal equivalence or

non equivalents between their debts is to be determined. Ample scope for creativity. The contractual provisions in Venezuela's bonds are very old school, which means that they have more litigation possibilities and avenues and fewer tools to facilitate a restructuring than a modern restructuring clause would allow. You have an issue of equity between bond holders and sovereign creditors like China, like Russia, but then Russia has played a kind of

clever game because Russia hasn't lent necessarily as Russia. Russia has lent as Rosneft, the state oil company. Uh sort of seems like the sovereign, but it isn't technically the sovereign. You have a whole host of court claims for past expropriation whose relative rank uh I think is not clear compared to other obligations. We may have a different view, and so I think it uh it it has every avenue of complexity that one could ever imagine, combined with

the greatest need for debt reduction. I think one can imagine, Brad how important our debt relationships to international politics, Because on the one hand, you are building up a relationship between two companies. This country owes that country some money or vice versa. But on the other hand, you can see it as a point of antagonism when things start

to go wrong or whenever there's tensions. And the one I'm thinking about right now is China and the US and one trillion dollars plus worth of U S treasuries held by China. Yeah. Look, I probably made my my name by tracking China's treasury holdings before anyone else thought it was interesting. Uh. And the boring reality is that the treasuries have been the most boring aspect of the trade war. China hasn't used them as leverage. China probably

can't use them effectively as leverage. I think China has been disappointed by the fact that it's law, you know, it's it's treasury holdings, which at one point in time, like China's GDP, they've kind of come down. Treasury and agencies, to be correct, um, have never really provided them with much leverage over the US political system. Uh. Soybean farmers, on the other hand, are a much more potent political force.

I think that's partially because the US borrows in its own currency, partially because the FED can buy far more bonds than China could ever sell, and partially because the relationship with China was always arm's length. The US never really wanted China to accumulate so many reserves, and as a result, the US never promised China much of a return.

I think the Chinese learned this. I think one of the one of my seces is that frustration with a lack of leverage provided by treasury bonds contributed to China's decision to lend more through its policy banks, more through the Belt and Road initiative, more through direct close relationships, loans to specific politicians, specific companies, and less through a

deep liquid bond market like the treasury market. So I don't know if people know this or not, but Tracy has contributed to um the tensions between the U S and China with an article that she wrote a couple of weeks ago. So apparently there's some people that like bought some old Chinese bonds from like the early nineteen hundreds, like in an antique shop or something like that, that they just say their bonds, and now they're trying to lobby the Trump administration to get to enforce uh, I

mean you describe it. They want Trump to make China pay them. Sure, they want Trump to basically exert pressure on China to pay this hundred year old that the People's Republic of China actually repudiated back in nineteen So Lee, we were talking about this earlier. Do they have do you think they have any sort of shot at these people? Like picked up some pieces of paper and anyway, wait, is China going to be represented by Lee? In which

case legally I think not. Um. Whether Mr Trump wishes to use this or rattle this saber that I don't know. But these bonds were actually the subject of litigation back in the nineteen eighties UH and the courts decided that the statute of limitations had run on these obligations. It isn't just China, by the way, there are Czarist Russian bonds for that went into default in nineteen seventeen. They

slash around, UH. And there was actually a very interesting situation in the mid nineties when Russia wanted to issue euro bonds in Europe. The French government said to the Russian government, not until you pay us some money to settle the old Czarist bonds that are held by French citizens. And they paid them I think five million dollars to

do that. So these things slosh around. It's it's there are other countries, by the way, that may be a little bit of option value if something could happen where they're worth. My image is most of these things are framed and on bathroom walls. Uh and break the glass when Mr Trump tells you too, they are beautiful debt certificates.

I'm just going to say that they're very gorgeous and we should all buy them for the art value at least, um Lee, we'd be remiss if we didn't ask you, in your forty plus your career, what your most interesting moment was, jetting in and out of countries, often in bankruptcy or on the verge. Interesting is hard adjective, but most tense I think was Greece. Greece in twenty ten encountered a terrible debt crisis. Grease a member of the Eurozone,

member of the European Union. Uh so it had as its domestic currency the euro, but it wasn't a domestic currency like the Argentine pesos. The Greeks unilaterally couldn't print it, and so in that sense it was a foreign currency. Um. They owed north of three hundred billion euros, virtually all of it in the form of bonds, and the question was would a debt restructuring for that debt stock force Greece to leave the Eurozone, possibly force it to leave

the European Union to bring back the drachma. And that had enormous political consequences across Europe because many in Europe thought that the UH, the Eurozone, the monetary union was indissoluble, and had it proved even not to be, might there have been others who would leave? Might the market have looked at Greece and said, if Greece can restructure, maybe Spain could, maybe Italy could, maybe La Belle France could, and would that not bring a cataclysm upon European finance?

So it was a tense period. We're almost wrapped up before we go, Um, I just want to turn the subject a little bit because Brad, you know, we're talking about US China and the trade war, and sometimes you come on TV and I said, what's your prediction for

the trade war? So, with you know less than a minute to go at this point, what is your prediction for where things are going with you as China trade I I, my guess this is one of the cases where you can get on TV simply by reading the president's Twitter account and saying that the best predictor of what US trade policy will be will be with the tone of his past ten tweets. If the past ten tweets are J. Powell is the biggest threat to human civilization,

then he's probably not thinking about escalating with China. If his last ten tweets or I'm a tariff man, he probably is going to escalate with China. So the recent pattern of tweets seem to be back on J. Poweh is not the world's best central banker, rather than China is our greatest enemy. So right now I'm putting slightly higher odds on a kind of what's called the mini deal. China buy some soybeans, the US doesn't escalate any further.

I don't think the Trump administration really wants to do the last round of tariffs anyway, and then that provides sort of an unspoken truce to go through the election. All right, We're going to leave it there. That's Lee book Eyed and Brad Setser, thank you so treating with us. All right. I have to be very careful with this next intro because it's slightly last minute, and it's also not on your lineup. It's a surprise guest who we're

not going to name. Instead, we're going to bring him out and we're gonna play a game, and you all are going to have to guess who he is, and you're gonna have to do so by asking questions that can be answered in yes or no format. And there are a couple of people and hear who I know know who this person is, so please don't ruin it for everyone else. Yes, all right, let's bring him on the special guest. You can clap even though you don't know who he is. All right, who is it? Who

is it? Who wants to get shouted out? Is being recorded? So you know right to ask loud? Ye? Yes, keep become financial frauds if you committed no good question? What's your Twitter handle? Don't don't have one? Mystery? Do you specialize the reco part? I do not. I barely know what that is. She's a big point, you guy, No good guess though, that's a good guy. You work on the podcast? The question was does he work? Do you work on the podcast? But you're welcome to like, I'll

come on. Are you related to we work in any way? Is it a good question. Are you really do work? Yeah, I'm interested in exactly Yeah the news, so yeah, fair enough, but we work. Questions do you work now? Are you involved in country music? Involved? That's a good question. No, unfortunately, you're have an opinion on platinum coins. No, you know what?

Iven you know what? I love that like no one just even like anywhere in the wallparks like I swear, none of you have asked remotely like you're not You're not getting warm at all. It's not even close. No, if I did, I had one. Do you work for the government. I'm kind of young, but no I did not. No, yeah, I got it's getting worse. Actually, want questions are getting further away the towel. Let's not tell. Okay, so there's a hint. Why don't you show the hint because it's

been like two minutes and it's not getting better. You guys are getting anywhere close. Ye, this in particular is the import in peace. Yes, there, you're one of the thirteen kids. It's eleven. Actually we'll give that just to be clear, Just to be clear. So the shirt, in case you didn't see it, says uh sp dr. And that was enough for someone to say that you were one of the kids. So who are the kids? What's going on? I'm going to do the unveiled before people

start talking about platinum coins again UM or bitcoin. So the Spy eleven, also known as the Spy Kids, are eleven pretty random. UM, now millennials who have about two fifty billion dollars tied to them in the form of the world's biggest e t F, the SPDR SMP five d E t F, known by the ticker sp Y. I still can't believe this is real. So what's the deal? Well, basically, Spy was created as a unitary investment try UM partially because it would be easy to get through the SEC

regulations UM at the time. To create this type of vehicle, they had to basically get two separate divisions of the SEC to come together and approve it, which, if anybody has worked with regulators, that's incredibly difficult. Oh gosh, it's so it's probably around nine when this document was created. UM. I've probably more leading up into that. I think probably late eighties early nineties as well. But UM. This so

basically what a unitary investment trust is. Just to give a little legal background, is UM it's a vehicle that they put these investments into for this initial et f UM that is connected to not only does it have a date limit to to go against the rule of perpetuities, but they also have measuring lives, which is us eleven kids who are all kind of family members who are

born around the time that this was created. So um for example, myself and two of my cousins who couldn't make it tonight A are also on our part of the eleven. But you didn't know that you were actually listed on this legal document until one of our reporters actually called you up. What was that conversation, like, did you think immediately that it was a scam? Yes? Actually I was like it was this was just a few

weeks ago. Yes, this was probably mid August. Yeah, You've going your whole life without knowing that the world's largest et f how much is in it now a quarter of a trillion dollars, is continue It's continued existence is contingent on you and ten other people being alive. Yes, okay, I just want to get that clear. And you found this out a few weeks ago, Yes, I mean that the lead and email it's like you're connected to this massive billion dollar fund. I mean that reads like any

Nigerian prince scam. Like what it guys, You're getting real elaborate, like you know, businesses are giving this info away in these hacks. Like why do you got to do all this? I'm still a little confused. What was the legal requirement? I still don't know. Well, so I have a question on this because you actually touched on it already, the rule against perpetuities. Have you just become an expert in this in the past three or four weeks a little bit?

My um, so, my mom who put us on this list was actual AMEX council at the time for the American Stock Exchange who kind of helped push and create this product. Um, and yeah, she she kind of explained it to me. It's it's very it's basically to avoid having something that can go on in essentially perpetuity. Um, you can't have any for example of trust, it could if you had to go on in perpetuity, can be

doling out assets forever in theory. But that's why they have these rules in place to kind of limit these things. And one of them is to use measuring lives. And that's what we are essentially present that like they've made so much money on this, and I assume you don't get anything. I was that was my first question, And yes, I was quite like, and I do I get, like I don't know royalty or anything. Yeah, a couple of yeah, like does someone I mean clearly not because you didn't

know about this until recently. But how did they know that you're alive? I you know, that's funny that that was a question we had, like who's tracking Is there anybody tracking us? You know? My cousin joked, it's like the Born Supremacy where they have all like the faces and and la heartbeats going like on the screen and all.

I don't think anybody did. I don't think anybody So I think the thing to understand here when this was all done, this was part of a sixty page legal document that was meant to be filed at the SEC and like lost forever, you know, it just would end up in some random government. They weren't expecting these things all be digitalized and put up on Edgar filings um and easily searched by people on Twitter. Apparently, um, not

easily searched. I did that search by the way, well somebody, I thought somebody, Well somebody had found here, yeah and sent it to us yet. Okay, but it took a long time too. It took years for them to find it. Yeah. Have you met the other spy kids? Are you all friends? Now? I like to think that you're all going to go on vacation together and some room together, right like? That seems like it would be like a major financial stability risk to have you all the same plane or the

same building, right like. It's yeah, it does not seem like a good idea. Um no, actually, so two of them, uh other names on the list, I don't know. I mean, their their names are out there already. I guess Pete and Paul Pavelka are my cousins and they were also kind of born around the same time. So my mom thought, well, yeah,

let's put them on there as well. What do you actually, by the way, what do you do besides I have two So I actually work in public relations for a financial PR firm and routh I'm group got to get the plug. Sorry, uh yeah right, um, so there's no So it's not that weird that financial reporters reached out to me. It was kind of like, but the weird question was like, is your name Kevin Patrick McGrath. Now,

I don't use my middle name on anything like. I think it's probably on two documents connected to me and it's so that was like when I was like, what, like what is this all? Like? That was really the thing that ticked me. I was like, where does this come from? Are you putting it on your business card? Spy kid? I haven't yet, but I'm thinking about it.

Also thinking about getting some identity protection service. That's right if if anyone wants to help crowdfund some identity theft protection for Kevin whose full name and birth date is widely available, um, and we should probably do that. Can I just say, I'm I'm extremely impressed that, Like how particularly you talk about like securities law and the law relating to perpetuities and stuff like that. You know, I mean, I guess like you're probably crammed after like discovering all

this and what to learn everything, but I am very impressed. Oh, thank you? And um, now it's part of that be sure, I definitely read into it. But um, also just being around my mom my whole life and she was just very talked about work very well, Oh yeah, what did she say so someone, I assume you asked her like mom, Yeah, so before I think maybe shortly before Rachel was able to contact me at work. Rachel is the Bloomberg reporter. Correct. Um, she she had called my home and gotten my dad

on the line. So he's like, calm, like, obviously this has to be connected your mother. And I realized that once I saw someone sent me the filing and I saw that it was Spy And I had known Spider from a kid, from being a kid, because obviously they had the really cool merch and spy. You know, as as your eight year old kid, you go to like your parents like the swag room at their office and you see like spiders, and I was like, awesome, like

I'm grabbing all that. Um, you're perfectly made for all thoughts. By the way, if you think that's cool exactly, Um, And yeah, I was just kind of I called her up and I was like Mom, like did you do this? And she's like did I do that? She was she did not remember. Again, this was just a very It was going to be more like I knew one day conversation and I know that's the more exciting. Uh, but no, I think it was just for them. It was very routine.

It was just kind of like a call going around the office, like, Hey, does anybody had recently had kids? Who know somebody had recently kids? Would want to put their name on this fund? And now now I'm on. Yeah, alright, Kevin McGrath, thank you so much for coming on and being our surprise guest, and thanks everyone for playing the game right. And now it's time for the first musical break of the evening. Our guest today is America's foremost

country singing economist, possibly maybe the only one. You might know him from his smash hit that came out during the crisis, Inflation or Deflation, which asked the crucial question would we face that, would we be more like Zimbabwe or Japan? And so far I think Japan is winning. Uh. He has some new numbers live from Nashville, Tennessee. Uh. Merl Hazard, thank you Joe and Tracy for that very kind introduction. Mic on there, all right, you're all ready

to hear some down home music about high finance. All right, Well, my name is Merl Hazard, and that's Hazard with the Z as in zero interest rate policy, the songs that I've done over the last twelve years or so since the crisis have been about UH economics, finance, banking, derivatives, and asset back securities. There are songs about life, and people do sometimes ask me how a country singer from Nashville could kind of get into that kind of thing,

But to me, it really just comes natural. My daddy was a coal miner and my mama was a supervisor and compliance at Morgan Stanley being winter. Now, this first song I want to do is on a monetary topic, and it's seen seigniorage. And if I said seigniorage, I'm not gonna quiz anybody. But does that mean a lot, a little, or nothing? Okay, So for some of you it's a new topic. Basically, when a government produces its money supply, it makes a profit. Could be an emperor

in ancient times, a king, queen, modern government. They could be stamping coins with images, they could be printing paper, they could be doing electronically. They make a profit. They use it in part to pay their army, and now central banks actually by securities and make interesting dividends on this creative money. And that's seigniorage. So I figured that's a pretty good topic for a song. And uh, it's to the two and I'm going to use an old melody.

You may recognize this by a guy named Harry Warren, has been going for decades. But Junior, you're ready, Oh, this is my son Merle Junior, good company on guitar and you're ready to do that signorage? All right? All the money you print and the coins that you meant, that's seigniorage on as much as you make. There's no interest to pay that seignior ridge from the hills to the plains, like a dream of John Keynes. It's state income.

Every central bank knows that as M zero grows they can make some even gangsters with cash in an illegal stash. That's seigniorage for a central bank earns as the black market churns. This is true. Money's value is strange. It's a means of exchange and of storridge. That is how central banks printing dollars and Frank's stern siniorage. Yes, senior ridge, that's send George, thank you, thank you. What do you think? It's a much better response than we got at the

cracker barrel in Chattanooga. It is. So. I hope y'all are watching the PBS series on country music that just started up. It's really good. And uh, you know, I love Nashville, where I live and where Merle grew up. He lives here now, but uh, you know, Nashville. We got hot Chicken, We've got um the Grand Old Opry, and we've got the headquarters of Lions Bernstein. It's pretty

much everything a man neat um this, let's see. And you know, one thing I love about country music is you can take an idea, the kind of idea you wake up in the middle night. You might forget when you wake up or dimly recall. But if you're write down a few words to make them rhyme, put a few chords on it, you've got something. Well that's what I try to do with this next song. And it's called The Fed is watching the Market? Are you ready? I'm ready? All right? The Fed? The one, two, three, four,

The Fed is watching the market. The market is watching the Fed. It's a game of follow the leader, but I can't tell which one is being led. The Fed is watching the market, the markets watching back In return, fundamentals are in tatters. I'm not sure it even matters what companies possess or or what they hear. The FED is watching the market. They're trying to protect us from shocks. Where they speak of financial conditions, I'm thinking they really

mean stocks. The FED is watching the market. The market is returning it's gaze. It makes some people wealthy, yet still it feels unhealthy when chrice valued part ways. FED believes in free markets, except not the market for cash. It helps to make bubbles more likely. Your cut rates the first sign of a crash. The FED is watching the market, But is there any bit of meat left in the soup? Incentives are perverse, Evaluation is recursive. We're

caught in a financial feedback loop. Yes, we're caught in a financial feedback loop. Yes, we're caught in a financial feedback loop. Yes, we're called in a financial feedback I think got the idea. Thank you, thank you all, thank you well. If you're getting we're gonna do one more song for you. And if you're getting into these songs, uh, check out the website merl hazard dot com. There are songs on YouTube. There's some streaming things, uh, you know,

Spotify and Apple Music and even on iTunes. So if you've got, uh holidays are coming up. And if you've got colleagues at the financial firms where some of you work, and they are intellectual and mildly depressed, I'm told this will cheer them up. You may Samantha friendship or get a promotion or something out of it. So this next song is about them. The statutory framework under which the Federal Reserve operates the US Central Bank. Yeah, it's a

good topic. Uh So I respect central bankers that they have a really hard job in any country. I think they have an even perhaps even harder job in the US because the the statue gives them to conflicting goals US. And imagining myself in that position, I wrote this Lament of the American Central Banker, which will finish up with and the title is dual Mandate Junior. It's awfully hard to be a central banker. For rich folks like to see the currency strong, but the average Joe's not overjoyed

if he's destitute, unemployed. Seems like every time I choose, I'm choosing wrong. The right says I should tighten up on credit, not Donald Trump, most of the right to keep the risk of inflation nice and low, while the left and many economics scholars are jin me to print more dollars. I'm torn between the two ways I could go. I've got a due mandate, due mandate. I gotta keep prices stable while giving jobs to those for able due mandate, due mandate. My job is harder than you'll ever know.

Unlike here in the US, the Bank of England has it relatively easy ban con England, and so I hear does Europe's DCB, Europe the Uncentral Their goal is for stable price. That's simpler. It must be nice a single mandate, unlike poor on mucky meat. Because I've got up due mandate, due mandate, I gottau solve labors troubles without creating financial bubbles due mandate, do mandate. It's tough for me to make our economy equal. My job is harder thanuel ever know.

All Right, thank you all very much. It's great to be here. And I'm like, all right, well, we've come to the final interview of the night, and um, I think unless you've been living under a rock over the last year or so, you've probably heard in the news a lot of debate and discussion about modern monetary theory. Probably a lot of it um has been caricature. It's like other people who just say print the money, they kind of do um. But also so it's also kind

of caricatured um. Anyway, tonight we have with us the person who I think has done more than anyone else these uh these days to be a proponent and an advocate and a voice for MMT, and that is Stephanie Kelton. She is a professor. It's Tony Brooks. She's also an

economic advisor to the Bernie Sanders campaign. In addition to talking a little bit about what m m T is, we're going to get her perspective on the state of the economy and economics right now, because we live in interesting times, large deficits by historical standards, very interest rates by historical standards, and yet things aren't working and we're not having inflation like people would have expected. Wage growth has been poor GDP growth across the developed world very

mediocre since the crisis. So I wanna you know, economists are scratching their head. They're looking forward to hearing how I MMT economist examined some of these puzzles of modern economic life. So it's definitely called what do you say when do people say that about mm T, Like, oh, yeah, just print the money. Well, you just said it, I said, stage, Um, what do I say? I don't know what else to say except you know what we've been saying for now two decades? Uh and print then I thought it just

started in the last couple of years. You guys have been at it for We've been at it for a little while, and as far as I can tell, none of us has ever said MMT is about, you know, printing the money. But it gets shorthanded that way, and it's like nails on a chalkboard every time I do an interview. Now I sit down and I say, okay, we're gonna do this on the understanding that you're not going to run a story that says MMT is about printing money. And so we do the interview. In the

headline reads economists says print more money. You know. Okay, so nothing I can do. I'm going to take the bait in that case. What is MMT about? And why has it suddenly sort of exploded into maybe not entirely

the public consciousness, but certainly um this demographic. Well, it's like the impossible question to say, you know, what is MMT about, because it's, uh, it's a group project that started more than two decades ago with UM maybe a half a dozen economists in the early years, producing scholarship on questions from you know, the Eurozone, to trade, to social security, to government finance that deficits to the you know,

I mean, it's this enormous project. So there's no way to just say this is what MMT is in like, you know, a sound bite. But I think most people when they think of MMT, they think of it as UM an analytic framework. So it's a mac we're macro economists. So it's an analytic framework that tries to update the lens through which we UM understand the monetary system and the policy options that are available I guess in the

post Bretton Woods, post gold standard era. And so we're basically saying, look, there's policy space that has opened up around us since we have gone off of the gold standard or fixed exchange rates, and we're not taking full advantage of that space. We could be doing better, and so we're trying to you know, shine a light on some of those things. So what was the impetus when when this first started. Was it that something has changed about either the finance system or the economy and we

want to understand the existing world better. Or was it the policy prescription that you were after, because I think nowadays lots of people here m MT they think full employment, they think universal healthcare, that sort of thing, which which was the inspiration behind I don't think it was either. Actually, I mean I think back to you know, when I started training as an economist from undergrad let's say, to graduate school. It was the mid nineties, and you know,

there were already different schools of thought out there. The post Kaynsians were saying very different things from more mainstream types of economists, and especially when it came to the financial system, to banking and finance and those sort of questions. So, um, we were always kind of agitated by the way that mainstream economists describe how finance works in particular, so we had a different narrative set up from the very beginning.

But then, you know, with m MT, I think it started evolving as we started to think differently about the role of taxes and the relationship between money and taxes and state finance, and it kind of opened up around the question of launching the Euro, I think really because we were looking at countries that were making a decision to abandon their currencies and adopt a common currency, and

that's sort of I think sparked the broader interest. So you mentioned that essentially it's an analytical framework, and as I mentioned in the intro, I think we're people would agree. We're at a moment where a lot of people feel unsatisfied with the existing answers that economists have given, or that mainstream economists have given on things like the recovery. Why hasn't growth been faster? Why hasn't inflation picked up despite cutting rates and these trillion dollar deficits. What's your

answer to that? What is the let's start with that. Why hasn't inflation picked up despite all these things that economists would have said, oh, yeah, that'll definitely cause inflation. Well, I think the models are too mechanistic and they lead us to too simple and understanding of really complex phenomenon like inflation. And so if you're trained like I was maybe in the early years, to think that, um, you know, money is inflation is something that happens when you print

too much money, or you know, the Milton Friedman. Inflation

is always an everywhere monetary phenomenon. So if you seek central banks doing things like que and people say quantitative easing is printing money, and printing money leads to inflation, then we all come to expect that if you believe that inflation automatically picks up because the labor market gets tight, and your market, your your model tells you that tight labor markets working through a Phillips curve sort of relationship, lead to pressure on wages that then lead to increased pressure.

It's basically the models are too simple and we have too much faith in them. Well, actually on that point, because I get the logic of this idea that okay, unemployment falls and then workers have more borrowing bargaining power, and then that leads to higher wages, and then they have more um you know, more purchasing power and so on, what is the conceptual flow Because we haven't even really seen robust wage growth by any stretch, even though the

unemployment rate is below four percent. So just like breaking it down, like, why does even the most simple, seemingly logical idea that low unemployment would have all these positive effects on prices? Why does that not even seem to be worked well. I think most of it has to do with one key phrase that you just use, which is bargaining power, and how is bargaining power exercise through unions? And what's happened to unions over the course of the

last thirty years. I mean, they've mostly been decimated. So it's pretty hard to tell a rational story about how, even as the labor market titans, workers are supposed to exercise the power in the negotiating process. If they don't have union representation, what are they supposed to do walk in and just sit down with the boss, kick their feet up on the table and say, I'm here for the raise. You know, labor markets tight, let's go. It's

just not there. The mechanisms aren't in place for that to happen for for huge swaths of the American workforce. So here's one thing I sometimes wonder, but if if everyone in the U S at least woke up tomorrow and accepted m m T as the analytical framework for the economy, what would change like? What would that world look like, and what would that change from the current scenario actually tell us about what's wrong with the way

we think about economics. I mean, honestly, I think the biggest thing that changes is the conversation that we have. I mean, if if we had a better set of lenses and we were able to see more clearly, you know, the nature of the space around us, the monetary system,

the way it works. I just think that a lot of the questions we asked today, and a lot of the things that we presume stand in the way of you know, Congress passing legislation that would do something more ambitious, like what we can't because trillion dollar deficits, or we can't because China has all this debt, or we can't because look what happened to Greece, or we can't be right. Um, at least that would go away, and then we would

have a very different conversation even the tax cuts. Right if we were looking through an MMT lens and we said, the Republicans are looking to do between a trillion and a half or two trillion, depending on how you want to cost it out in tax cuts. Instead of saying, um, we can't afford it, will blow a hole in the budget and all this kind of stuff, we would have

a different conversation. It would be about you know, the presumed effectiveness in terms of job creation and the potential inflation risk in an economy that may or may not be closer to full employment. So I just think, you know, social security, Are we really going to have a conversation about the government's ability to keep its promise to future retirees, their dependence and the disabled. If we're not afraid of running out of money, then the conversation changes. Then it

becomes about demographics and inflation risk. And I just think we have a richer, more substantive national debate than this, you know, arbitrary, frivolous conversation about you know, entitlements driving us into a debt crisis, which is as I mentioned, insure you are on one of the teams in the primary and you met uh speaking of like the sound of like screeching chalkboards. How much does it hurt you when you hear Democratic candidates blast the tax cuts on

the grounds that it blew out the deficits. It does, But I haven't heard that much of it, and I'm encouraged. You know what, It's funny, Joe, because what I hear Democrats saying is that they would like to repeal all or much of the Republican tax cuts, not because they blew a hole in the deficit. We got to repair that damage, but because they want to use those tax cuts to quote pay for something else. In other words, it's the same as saying I want to use the

deficit to build infrastructure. It's no different. It's tantamount to saying I want to keep the deficit, but I want to direct it towards some other aim, right. I mean so, even though we have some Democrats complaining about Republicans expanding deficit for very specific purposes, there are quite a few higher file Democrats who seem to be embracing mm T, whereas Republicans who actually have a de facto history a blow of embracing MMT haven't done that. Why do you

think that is? Do you mean openly invoking so they'll expand the deficit for their pet projects, um in a sort of m MT way, But they don't seem to embrace the theory in the way that some Democrats. Well, it's better to embrace it actively than to embrace it rhetorically. So I get in some sense, you know, it's more encouraging to see someone pushing through an agenda UM that doesn't hue to the hysteria around dead indeficits. Is this

my preferred um set of policies. No um. But you know, it's not as if it's encouraging just because a few Democrats have invoked MMT, because at the same time, you know, the Speaker of the House has reinstated PAGO, and that's

not terribly encouraging. If you're looking the potential to take the House and the Senate and then move ambitious progressive legislation, you're not going to do it in an environment in which PAGO is in place, which is a rule that exists in the House of Representatives today that says you can't add to the deficit, so everything has to be deficit neutral. So I mean, it's it's good and bad,

it's there's progress for sure being made now. One of the policy agendas that's likely to be on the plate of a theoretical democratic administration, particularly if it's of the more progressive way, or if it's if it is Bernie would be a green New Deal. And something that you hear people say is like some people like, well, how can we afford it? And the response is often well, you know, we didn't ask that question. We didn't We didn't choose to fight the World Wars based on whether

we could afford to. We figured out a way to do it. So what are the lessons from the wars? And I mean I think Kines wrote a pamphlet how to Pay for the War that applied today towards something as in is a green New Deal. Yeah, I mean I think that Kines's little book, which it was called how to Pay for the War. That's literally the title of the little pamphlet. And you would think, just based on the name of it, that this must be a book about where to get all the money to finance

World War two? And this is Kines was British economist of corso this was, you know, advice for the British government. And it turns out you read this thing and has nothing to do with where the British government is going to get all the money to finance the war effort.

It's about understanding that this is going to be a massive endeavor, that it's going to involve transforming the economy away from one that's oriented around producing for the consumer to one that's oriented around winning the war right, transforming the entire economy, and Caines was mindful of the inflation risks because the government was going to have to ramp spending way up, and in order to do that, it was going to have to take resources away from other uses,

and so you're elbowing out the private sector in order to bring people and industries into public service and to orient, you know, for the war effort. So the whole book is about how to do that in a way that avoids, to the extent possible, creating an inflation problem. And it turns out it was really effective. It was a very careful analysis of how to allow the government to spend into the economy while removing enough purchasing power strategically right.

It was really important to Kean's that remove the purchasing power from the right hands, because if you remove purchasing power from the wrong hands, you might not do much to mitigate the inflation risk. In other words, if all you do is tax the very richest people who weren't going to spend much of that money in the first place, then you run the risk of a real inflation problem. So he understood that this had to be done really strategically.

So with a green new deal same thing. Right, The same principle applies if you're going to do something that is truly transformative. That you're not just talking about transforming the way we deliver energy, but the way we build housing and transportation, and the way we deal with food production, agriculture. You're going to touch nearly every piece of the US economy.

And so the lesson is to look back at what Kines told us and to figure out if you're going to go that big and you're going to make that kind of investment in the US economy over a short period of time ten years or so, right, Um, that there are important lessons to learn from what Kines was doing in that little pamphlet, And inflation is the major risk,

not bankruptcy or financing. So this sort of connects with one of the criticisms that you often hear about MMT, which is it's actually not that different to Kynesianism in various ways. How would you respond to that? How how would you lay out the differences explicitly? Well, I think there are a lot of them, and you're right, I mean there are examples like the one I just gave where I'm saying basically, um, when it comes to the Green New Deal. Listened to Kin's. Okay, that was about

inflation risk. But um, there are very substantive differences between the way that we analyze some big questions in the way that some headline canesians. I mean, I don't know how much I want to pick on certain people and give specific examples. I was a contributor at Bloomberg for a period of time. I got into a little back and forth with Paul Krugman. We traded some columns him in the New York Times, me writing for Bloomberg, and um,

there we taste out. I think some of the important differences. I mean, you know, the conventional Keynesian models tell you that deficits are supposed to drive interest rates up. That's

the way it works in normal times. And that when the government increases its deficit as to increase borrowing, and as it borrows more, that gobbles up private savings that are no longer available to finance private investment, leaving UM companies with fewer resources to invest, And so investment goes down, and his investment goes down, you get a slower, growing, more lethargic economy. M emty. This is just one example but MMT says, no, no, no, hang on. Deficits don't

gobble up savings. They augment savings. If the government spends a hundred dollars into the economy and only taxes ninety dollars back out, we label that a government deficit. But what we forget is that just deposited ten dollars into some part of the economy. My deficit. If i'm government, I'm Uncle Sam. My deficit becomes a surplus in some

other part of the economy. So from the very beginning of this crowding out story where deficits become the villains of progress in the economy, MMT says, no, no, hang on, you're getting it wrong. From that very first step, right, deficits add to savings. And then we could go on about the relationship between interest rates and investment. They think that they are obviously inversely related. We say, interest rates are policy variable, not something determined by market forces, or

at least they always can be. So there's just we go on and on. Another thing to people say about m m T is that like, well, yeah, sure, because the US is the world's reserve currency, so the US has a lot of policy flexibility. Other countries don't have it. But I don't know how much you're paying attention. We were talking about Argentina. What is the sort of m m T if you were you know, if Mockery had brought in you instead of the I m F and said what should I do to make my economy more stable?

What have what would have been the uh the mm tiers advice. Well, I mean, I think the last discussion was was really good and very much on point in many ways, in the sense that to the extent that you're able to avoid doing so, you should avoid borrowing in a foreign currency, and not every country has the capacity to UNI laterally just s I am not going to the international markets at all. I'm only borrowing in

my own currency. Some countries can't do that, but Argentina could do less of that, and that would be advisable UM for for a start. Yeah, I mean, obviously the reserve currency status gives us an additional degree of freedom. There is, you know, an extra benefit to being the

world's reserve currency. But you know, I was just in Japan too long ago, and yeah, but but there's a country that is not the world's reserve currency that UM has a debt to GDP ratio if you go gross terms of like two, right, and I go over there. And the biggest question I got from all all of Japanese press everyone I talked to, how do we get inflation? What can we do to cause inflation? Like they're desperate

to create inflation. Their debt ratios the you know, highest in the world interest rates or right where the Bank Japan puts them very low. Inflation is low. It's just you know, uh well, actually I was going to ask about, um, some of the chaos that we've seen in money markets this week, UM. And part of that was said to have been caused by this ramp up in T bill issuance by the government, UM, which sort of bled through

into money markets. I guess I'm curious how much does MMT sort of reflect on the existing banking system and regulations when it comes to gauging its own impact. Oh, I mean, I mean I think that if you ask me what's the greatest strength of MMT, you know, I'll be a little bit brazen here. I think we've gotten all the big stuff right. There's nothing that has been

major that we've gotten wrong. Nothing, I don't I think it's a pretty impeccable record, and I think the strength is that we have a superior understanding of monetary operations, and that is we dig deep into the weeds on some of this stuff monetary operations that other people kind of superficially understand. But m M tears are really in the weeds. So you're both very on Twitter, very online, and you probably saw some of the conversation from folks

in the MMT community. Nathan is sitting over there, Scott Fullwiler, Rowan Gray, these guys were tweeting out. You know, I was trying to write a book and so trying as much as possible not to get two involved in what was happening with you know, financial markets in the last couple of days and FED interventions and so forth. That these guys were all over it in a deep way.

And yeah, we have a d M group that we were all going back and forth and trying in real time to you know, make full sense of it, because um, it's very much in the weed, well more generally, so we don't you know, get too in the weeds on the operations of money markets and the repo markets, which I don't even understand myself. Uh, just generally speaking, what is it? What do you make of like sort of mainstream Fed policy? Do rate cuts stimulate the economy? It depends.

It depends where you are in and in which cycle I think. I mean, right now we've embarked on yet another cutting cycle. We don't know how long it's going to be. But since the summer, the Fed, for the first time since before the crisis has cut again twice. Now is that the kind of action that you think could have a positive impact on the economy. No, I mean not much. It's unlikely to do a lot of harm. If more and Mosler were sitting here, he'd say they've

got the break and the gas pedals mixed up. In other words, Um Warren has for a long time. This is a sort of founding father of M M T. So for those that aren't familiar with the name, Warren actually makes the argument, and I think Randy Ray does as well. It's a pretty compelling argument if you actually do. I wrote a paper on this one I was a lot younger and published it, and there's some empirical support for the idea that central banks when they raise interest rates,

they think they're tightening. When they cut interest rates. They think they're easy, they think it stimulates the economy to lower rates. But in some countries where the debt is very large, interest is somebody's income, right, bond holders receive interest as income, and raising rates as bonds are rolled over and interest rates are going up, this is tantamount to fiscal expansion. In other words, it's an increase in income, right,

interest income. So there is the possibility that raising interest rates has a stimulative of fact. Now against that, obviously, credit becomes more expensive, So interest sensitive sectors like home buying and durable goods like automobiles and stuff. Maybe people borrow less to buy a home or a car in

an environment in which interest rates arising. But to think that this one price in the entire U S economy, the overnight interest rate, the Fed's policy tool, one price that if they just move at twenty five basis points here and twenty five basis points there, that they can steer this enormous economic ship called the United States economy is pretty much as stretch for me. Yeah, but that's it.

That's what we believe. That's what economists believe, right. The FED the dual mandate song, it will go through your head tonight. Right, the dual mandate. The Feds got a dual mandate, and they're supposed to use this one price and make these modest adjustments to bring about, you know, a broad equilibrium in the economy where we get low

inflation and high levels of employment and growth. So one thing we're hearing a lot about now, to the point where it's become a cliche, is that fiscal policy is the new monetary And Joe and I heard this several times today alone. Is that the right direction or do you worry that we're just going to assume that any form of fiscal stimulus is going to be the panacea that we've been seeking. Well, look, I think that you know this is textbook stuff. Right. There are two levers.

If you're doing macroeconomic policy, Uh, you you either pull the monetary policy lever, which is conventional policy tweaking the interest rate, or you pulled the fiscal policy lever, and that's taxes and government spending. And for the last thirty years, we have leaned extremely heavily on central banks, not just here in the US but around the world. Right, the central banks were the only game in town. Fiscal policy is that thing that sits behind the glass with the

breaking case of emergency cover on it. And central banks are supposed to to steer economies, right, um, and that hasn't worked all that for thirty years, you know. Larry Summer says, the last three expansions in the US were bubble driven. I mean all three, right, the last, from the savings alone to the um subprime to the dot com in the So that's kind of how we do it. And now everybody's sort of waking up to this idea that there's another lever that we we have to become

more reliant pump. But does that mean that any fiscal policy is good fiscal policy and all has good effects. No, you know, it's got to be targeted and have a few moments left. But I think this is one of the main things they say, Yeah, it makes sense that fiscal policymakers should run the show more often in terms

of demand management. But then they look at what that means and no one actually looks at d C right now and thinks, oh, this is a Congress that is capable of working with the president that could deliver anything meaningful in any period of time or timely manner. That seems like a real problem just from a practical standpoint.

That it's all nice to say that fiscal policy is the lever that should be pulled, but that applies politics for better or worse, is there how do you address that concern that it's like, Okay, maybe monetary policy is not that effective, but at least they could do something well, So I know how I I would address it by putting it on automatic pilot to a large extent, in other words, take the responsibility away from Congress to act in real time to make smart decisions with tax policy

and spending, and to do that through a federal job guarantee, which is to say that in the last downturn, you know, we were losing eight hundred thousand jobs a month at the height of the Great Recession, and if we had had um uh something in place, a program in place to absorb workers into employment instead of allowing them to fall into unemployment, it would have provided a cushion for

the economy to recover more quickly. So you know, Janey yellen Uh several years ago at Jackson Hole, the big me being that takes place between FED officials and invited academics and others. Um. She said, we need to strengthen the automatic stabilizers. We need better automatic stabilizers, and a federal job guarantee is like turbo charging the automatic stabilizers we have today. And that's what I would do. Stephanie Carlton,

thank you very much. We've tried so long. We've tried a bunch of times to actually get you to come on the podcast itself. So I'm glad we finally want me to happen. I'm glad to thanks for having me. All right, uh, our our next act is the last of the evening. Um. It's it's someone you've probably never

heard of before. Um. In addition to being a genius at poker, a poly math, an expert in Chinese food, and the provider of original insights into everything from economics to finance, markets, philosophy, and trade, he also has musical abilities on the level of a Bob Dylan or Van Morrison. He's also the best colleague anyone could ever ask for, despite writing his own introduction and making me repeat it here. Yes, it is time for the musical stylings of Mr Joe Wisenthal.

All right, I'm just gonna play a few songs, UM, but I'm really intimidated now after having watched uh More All play. But I wrote a few songs about markets and economics. This first one, UM is about one of my favorite lessons from markets, which is that, Um, no matter how bad things get in life, one of the lessons that markets tells us is that they can get

infinitely worse. You can always go to zero. La the old trader in the pits of Chicago home, and where i'd be without him, heaven only nose because he taught me the lesson. I still think about today, and any time i'm filling down, I think of what he'd say. Well, I told him I was gonna buy a stock because it went down so much, and I said it's gonna rebound and I'm gonna make a bunch. He said, I hope you get your money. Yes, I hope you get your cash. But there's a simple lesson that's of use

in life and math. No matter how hard you fall, no matter how he loo you get, you can't always go down another hundred percent. No matter how hard you fall, no matter how hello you get, you can't always go down another hundred percent. Well, I heard you're doing badly and you're trying to get well. Well, I heard you're in the valley and you're trying to climb the hill. Well I hope, Well I think that you'll do better. Yes,

I really think you will. But there's a simple lesson that I'm trying to and still, no matter how hard you fall, no matter how hello you get, you can't always go down another hundred percent. Well, I think about life's journeys and all it's ups and down and all the hidden corners that I couldn't see around, And sometimes it's like I'm swimming and I'm trying not to drown, and I think about the lesson I learned in Chicago town.

No matter how hard you fall, no matter how low you get, you can always go down another hundred Well. I saw that trader years ago and he was looking frail. He made a fortune trade in cotton, then he lost the linen on the rail. He said, it really don't matter much. You just got a few years or left, and it don't matter how high's your pile when you're facing death, no matter how how hard you fall, no matter how low you get, you can always go down

another hundred percent. Thank you, so uh, So, one of my favorite characters in the world of financial markets are um Charlatan's, who sell newsletters where they claim that they like predict the future and they get people to subscribe and they're like, I predicted all this, and I predicted all that, and fight with them a lot, and you

know you should never subscribe to their newsletters. UM So I wrote a song about them, and uh, I said, I dedicate this song to all the Charlotte Teans in the audience to I knew bad things we're gonna happen under the bombs we're gonna fall. I knew the stocks were gonna crash, and I tried to warn you all. Now listen, my friends, I get no joy from being right, But if you want to know what happens next, you

gotta pay me for my next insight. Fifty dollars a year is really not that bad to know the things that I'm knowing. Fifty dollars a year is really not that bad to know the way that we're going. I knew bad things we're gonna happen, the bombs were gonna fall, I knew the socks were gonna crash, and I'm meant to warn you all. Now listen, my friends. I get no joy from being right, But if you want to know what happens next, you gotta pay me for my

next insight. I predicted Brexit and President and Trump. I know which way the wind is blowing. I predicted the mortgage melt down and Amazon's melt up. I can see the seeds were sewing. I knew bad things were gonna happen. The bombs were gonna fall. I knew the socks were gonna crash, and I tried to warn you all. Now listen to my friends. I get no joy from being right, but if you want to know what happens next, you gotta pay me for my next insight. Some I'm a

gene yes, but that's really not at at all. I just know where to look. And if you want to know all the things that I know, you've got a lot of You've got to read a lot of ancient Greek books. Some say I'm clairvoyant, but that's really not at at all. I just know where to look, and if you want to know all the things that I know,

just download my free you book. All right, it is my last song, and I'm so I was talking to a friend of mine the other day and he was like recommending that I listened to like some singer that um he liked, and he's like, oh, his songs are really class conscious. And I said, well, what does that mean? Like which class? And he's like, well, the working class, obviously. And then it occurred to me as soon as he said that, like, no one ever writes a folk song

for the shareholder class. Um seems unfair. Um, So I wrote a folks song for the shareholder class. It's called the Shareholder Blues. Well. For many years, I've been buying stock, and all the money that I made I deserved, but I haven't been doing so hot, and I blame it on the Federal Reserve. I am the working man. He wants more pay and a bonus of a thousand large ones. And I'd like to say that it's okay, just as long as it don't eat into margins. Hey, my friends, Hey,

my friend, haven't you heard the news. I've been coming down with a bad case other share holder blue. Well. I bought a stock and it doubled in just a hundred days, but that wasn't long enough to be eligible for the long term capital game. So I held onto it, just hoping that I could pay less tax. But you can guess what happened next. The stock gave the games right back. Hey my friend, Hey, my friends, haven't you heard the news. I've been coming town with a bad

case other share holder blue. Now, these are tough times for everyone. Student loan dead burden on the young, and the low interest rates don't help as you get older, and there ain't no raises for the working man as soon as they pay Uncle Sam, and nobody gives a damn about the struggling share holder. Hey my friend, Hey, my friend, haven't you heard the news. I've been coming down with a bad case of the shareholder blues. Now the newspapers say the economy's movement, but we all know

it's sick. But if you've got if you listen to me, I've got a few ideas and we can make this economy tick. But if you enact the policies, than me and my friends down't like we're gonna bring the economy to its knees when we go on a capital strike. Hey my friends, Hey my friend, haven't you heard the news. I've been coming down with a bad case share hold Thank you, that's it. All right, Mr Joe Wise and thal that's it. That's it. This has been the first

ever episode of The Odd Lotts Variety Show. I want to thank everyone for coming out, of course all of our wonderful guests, as well as our producer Laura Colson, who I don't know if she's backstage, but if you want to come out, Laura, so everyone could thank you for really organizing this and does all our shows every week and she put this on. It's really awesome. Ye, thank you, Laura. I also wanna thank Jed Sandberg because um, this whole thing came out of his budget at Bloomberg,

so he's told us repeatedly. He's reminded us so the fact that we have this space and drinks and everything. And and if you enjoyed the event, do tell Jed and other people at Bloomberg that you liked it, because we'll put on more of them, including potentially in some different countries which would be interesting. And thanks again to all our guests, and thanks for coming up to Ta Ta Ta ta eat