Odd Lots - The Odd Lots Variety Show

Episode Date: October 7, 2019

On September 19, 2019, Odd Lots hosted its first-ever live event at the WNYC Greene Space in downtown New York City. With an all-star lineup of guests, the show featured convicted white-collar criminal Sam Antar, a panel on sovereign debt with Lee Buchheit and Brad Setser, and a discussion on MMT with Stephanie Kelton. We even had a surprise guest, SPY kid Kevin McGrath, not to mention two musical acts: country-singing economist Merle Hazard and a performance by Joe himself. Be sure to check out videos from the event on Bloomberg's Markets and Finance channel on YouTube. See omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask Alexa play the podcast Odd Lots on Amazon Music. You have the desire to help a real difference? The College, LaCity, you offer the program Dependence and Sententhal. Acquare the competences essential for accompany and support the people confronted to health mental and of dependence. Construise a career enrichingingance

to service of the community francophone of all the country. Don't know the health in French. It's possible with Lassian. Visit the Collegeslacet.com.ca. Today, an initiative of the consortium national of formation in health, supported by Santee Canada. Hello, Oddlots listeners,

it's Joe Wisenth. So on Thursday, September 19th, Tracy Alloway and I hosted the first ever Oddlott variety show at the WNYC Green Space in Manhattan. The show featured Sam Antar, Lee Bukai, Brad Setzer, Stephanie Kelton.

We even had a surprised guest, one of the spy kids, if you know that story, you should be excited about that. And if you don't, well, then this will be a treat 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 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. We'll 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 Lots variety show. So thanks everyone for listening and enjoy the show.

Thanks everyone for coming. I'm Joe Wisenthal. And I'm Tracy Allaway. 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. I have to say I'm a little disappointed because I wanted our first Odd Lod's Live event to be an Odd Lod's Live poker tournament. But this is also cool. I'm not disappointed. Just a couple 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&A, unfortunately,

but we'll have cocktails and reception afterwards. You 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. It's an actual convicted felon. He is the former CFO of Crazy Eddie, which for any longtime New Yorker may remember, there are ads in the 70s and 80s. He was an electronics retailer, also a fraud through and through from the beginning.

And so we have the CFO. He now does work on forensic accounting. And I want to bring in Sam Antar. So who are you? What do you do? I'm a retired criminal. Are you a reformed criminal? No.

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, 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 its CFO? Crazy Eddies was a small garden variety electronics operation. We engaged mostly in income tax evasion. Stealing the sales tax gave us the competitive advantage because that 6% or 7% 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 evading taxes in the old days.

It was a family-oriented business. We wanted to grow, and they wanted somebody in the inside family member to be the CFO of the company if the company grew to a certain level. So they picked me because I was the nerd that read the Wall Street Journal and Barron's when he was 12 years old. So they put me through college so I can become an accountant to help them commit more sophisticated crimes in the future. Eventually I go to Baruch College right over here on 23rd Street.

I get my CPA. And of course, I become a criminal mastermind, you know, doing white collar crime. I went to college to become an effect of white collar criminal. White collar criminals should never cheat themselves out of getting a good education. So I wasn't one of those kids that cheated in school or 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? Yes, of course.

And you were okay with that. Okay. Why not? It was fun. It made a lot of money. When I was 14 years old, I got a $1,500 bonus in 1971 in cash. Does anybody have any 14-year-old kids? Imagine if your kid came home with a $1,500 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. As a criminal, I learned to consider your humanity as a weakness to be exploited in the execution of my crimes. In other words, you're good nature, you're wanting to trust people,

you're wanting to give people a benefit of the doubt. That gave me the opportunity to execute my crimes. Second part is that people are, you steal more with a smile than you can would have gone. Anybody knows how I was working the crowd here, shaking hands, smiling, and everybody was happy with me, right? You see, if people like you, it's easier to steal from them because they feel like they're comfortable with you.

So let's talk, 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 stealing? When it comes to fraud, the distraction is always more important than the lie. Now, lying's not a problem. You can ask me any question here, and I'll lie to you right to your face, you will know the difference.

But the point 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 to lie about. So in the crazy eddy case, let's take auditors. The audits would be done over a period of, say, eight weeks. So they'd have to be 12.5% each week, right?

So by week six out of eight, they should have 75% of the work done in 75% of the time and 25% of the work left to do in 25% of time. My job was to stall them by having only 25% of the work done and 75% of the time so that they had to do 75% of the work and only 25% of the time,

which is causing the cram, rush to get things done and miss key order procedures, and it worked every single year. Do you know why? Because in the 1980s, there were no females in accounting. There were none. It was a male-dominated profession, and most of the legwork was done by 21 to 25-year-old kids

fresh out of college that was single. And what's the easiest way to distract the male auditor from doing their jobs. female accountants is beautiful as you and they spent most of their time flirting with the females instead of doing their jobs and every single year like Pavlov with the dog

you put the boo in front of the dog that salivates well you put the female in front of the accountant they salivate they don't even do anything else that's pretty much how we were able to succeed in our frauds we didn't get caught because of our auditors we got caught because somebody thought that Crazy A's was a goldmine and they took advantage of a drive

dropping the stock price and they took over the company right from out under us. In other words, we were benefited. We were a victim of our own fraud. No. Oh, I was going to say, talk to us about that moment. What happened 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 $7 a share.

We thought, we knew the people were hunting the company to take it over. So we made a bid at $7 a share. And I'd say, why are you going to pay $7 a share for a company you know is worthless? because we weren't going to use our money anyway. We're going to defraud the idiots on Wall Street, take all their money, have them finance to take off, and we're going to get 35% of the company for nothing. So we bid $7 a share, and guess what?

Some idiot out to actually bid $8 a share, thinking that we were trying to steal the company. In fact, the initial investigation to the crazy eddy fraud, the SEC thought that we deliberately understated our numbers to take over the company on the cheap. Well, I want to back up a second. What is the difference? And we, 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 different in the nature of fraud when you're a private company versus a public company. Right. The economics of crime. 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. company and evading your taxes. For instance, if I steal a million dollars from my own company as a private company, in other words, I skim a million dollars and I don't show it as income, and we have a 40% tax rate, I'm evading $400,000 in taxes. Simple math, right? One million dollars, 40%, $400,000, right? If I now am 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 going to overpay my taxes by 400,000 i'm going to have an inflated net income of 600,000 dollars and if my company is trading at a multiple of earnings let's say 30 times earnings p.e ratio i'm creating 18 million dollars in fictitious

wealth by overpaying my taxes by 400,000 dollars and guess who owns most of the stock crazy eddy people the antar family does we created a securities fraud by going legit. We said it was more profitable to screw investors than to screw the Internal Revenue Service. That was the whole idea behind the crazy Eddie fraud. Okay, I'm going to 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 them? My kids are here. Believe it or not, I didn't go to prison. I got house arrest. And 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'd bring their friends over to show off their 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. You think I'm going to go to jail for them? Have to have some standards. Yeah, some say. So one thing I'm very curious about, and we just have a couple minutes left, is these days with computers and all kinds of more ease of tracking inventory.

Is it harder to do fraud these days? No, crime evolves. I'll give you one example, computers and everything. One of the questions raised by Wall Street prior to us going public was whether we had an adequate computer system, which we didn't. So what do we do? We get Computer World magazine to bring one of their beautiful female reporters over, right? And she writes this story about Crazy Eddie's computer system

that tracks inventory. And we put a nice lady with a mini 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... That's simple. Extraction is always more important than the life. If you were going to do a 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 here to talk about investments, and actually I haven't been in the market for over a decade. But I will tell you, these companies are the scum of American capitalism. They're the ruination of American capitalization. They should not be allowed to exist. All right.

Sam Antar, the former CFO of Crazy Eddie. Thank you very much for your lessons on thought. Thank you. Moving swiftly along. we're going to bring up our next panel. And those of you that listen to Odd Lots 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. 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 Bookite, 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 1980s and really reshape the way that we think about sovereign debt. his mere presence at airports have been known to move a country's debt market. He's recently retired from the law firm Cleary Gottlieb,

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. So we purposefully gave ourselves a really sort of 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 crises 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. 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. 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. Brad, by the way, I just want to tell a little quick anecdote about Brad because we're here. So I think it was probably 14 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 interviewer, and I didn't get the job. But we, it's because he asked me about Argentina had just defaulted a couple of years ago,

and he asked me some question about Argentina. I was like, I just, you know, be asked my way through it. I had no idea. So I bombed. I didn't get it. But we're now here, and I'm, you know, he's in the hot seat. So, and once again, Argentina is in the news. So, Brad, why does Argentina, first of all, second of all, why does Argentina, why do they default so much?

What's the deal with that? Well, I made probably one of the biggest hiring mistakes in my life. We'd actually hired Felix Salmon, who turned out to be a pretty good blogger. So, you know, we could have put together Felix and Taurus. Joe and like probably been a successful blogging firm. So why 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. Thank you for your insight. I just kind of gets like wonky, sovereign debty. That's why we're here. Argentina doesn't have a big export base. It exports soybeans and soybean oil.

It hasn't developed other export industries. So exports are a 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, a depreciation, 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 21st 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 eclare, 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, that debt, in a net sense, will probably stay on its balance sheet forever, which is why sovereign debt stocks almost always go up.

They will occasionally go down, but almost always go up, relentlessly, remorse, Well, Brad, you mentioned that Argentina 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 international market? Well, I mean, they have at times tried a different model. I mean, for better or for worse, the Kersner's 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 finance government spending.

Macri came along and said, I wanted to go back to be a more legitimate form of finance. 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. Lee, should they do a different approach? And I'm also curious, like, after mockery won, everyone's like, yay, he's going to do all the liberal reforms that people want and the IMF is excited because they're going to 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 I say responsibility on the international community, whether it's or, or, organizations like the IMF to 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, there's a curious asymmetry in the international financial markets. Organizations like the IMF 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 IMF 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, does it always have to be fiscal adjustment or austerity, or are there alternatives that are just never pursued? Well, debt crises, you started this question, Tracy. Debt crises come in different forms.

Sometimes, often, I guess, they are caused by chronic fiscal mismanagement. of the economy, but not always. There have been debt crises caused by natural disasters, the hurricane, the earthquake, the tidal wave. Debt crises 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 lending,

and then they pull back. And when they pull back, going back to my earlier analogy, when all the, you're going to my earlier analogy, when all the debt is assumed to be refinanceable, and it no longer is refinanceable, then there's a debt crisis. Brad, do you think some other model should be pursued? I mean, let's say you could go back at time to right after mockery wins 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, you know, it's tough. But was there like a totally different approach they could have taken? 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 pesos,

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. So once Macri decided not to borrow in pesos, I think there were on a difficult trajectory. So you could have borrowed more in pesos.

You could have retained some of the capital controls, tried to lock in the domestic investors and force them to keep buying Argentina's debt. 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 once you default, then it becomes a question of how much you want to pay back. 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 note, Lee, do you hate creditors? No, certainly not. 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, the problem, and this goes to Joe's. Joe'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 reelected.

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. Borrowing, particularly borrowing from outside your own country. So in the international markets is the way to cover that deficit. It allows you to spend money without raising taxes. And for as long as it lasts, it's a wonderful thing. But the problem is it is for most politicians too 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 10 years in which the central banks, the 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 sloshing 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 a tendency 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, then Argentina, and that is Venezuela. And Tracy mentioned, Lee, that you were in retirement, but given all the ruction... 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 are you doing with Venezuela? Yeah, I am acting as what we're calling a strategic advisor to the Guido administration in Venezuela. And what's on the agenda for helping them and how much can you actually do as long as Maduro is clinging 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 $150 billion U.S. dollars. Its economy has been utterly decimated by 20 years of corruption and grotesque economic mismanagement. There is a deep humanitarian crisis in the country.

There is a serious refugee crisis at, you know, levels proportional to Syria. But there is no possibility of dealing with them. debt stock until Mr. Maduro says adios. Brad, do you have any thoughts on it? Any suggestions? The approach forward for Venezuela. I mean, Venezuela is going to be like the Super Bowl for sovereign debt lawyers. Once the restructuring gets started, you have every single possible issue.

You have two sovereign borrowers, one sovereign, one quasi-sovereign, the Pedevasa, the state oil company, both of whom owe a decent amount in international bonds. The legal equivalence or non-equivalence 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 bondholders and sovereign creditors like China, like Russia.

But then Russia's played a kind of clever game because Russia hasn't lent necessarily as Russia. Russia has lent as Rosneft, the state oil company, which 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, I think, is not clear compared to other obligations. We may have a different view. And so I think it has every avenue of complexity that one could ever imagine, combined with the greatest need for debt reduction, I think one can imagine. And Brad, how important are 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 U.S. and $1 trillion plus worth of U.S. treasuries held by China. Look, I probably made my name by tracking China's treasury holdings before anyone else thought

it was interesting. 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 long, you know, it's, you It's treasury holdings, which at one point in time, like 25% of China's GDP, they've kind of come down. Treasury and agencies, to be correct, have never really provided them with much leverage

over the U.S. political system. Soybean farmers, on the other hand, are a much more potent political force. I think that's partially because the U.S. borrows in its own currency, partially because the Fed can buy far more bonds than China could ever sell. And the partially because the relationship with China was always arm's length. The U.S. never really wanted China to accumulate so many reserves. And as a result, the U.S. never promised China much of a return. I think the Chinese learned this. I think one of the, one of my thesis 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 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 1900s, 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. 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 100 year old debt that the People's Republic of China actually repudiated. back in 1949. So Lee, we were talking about this earlier. Do you think they have any sort of shot at these people like picked up some pieces of paper? Wait, wait, wait. Is China going to be represented by Lee, in which case they have no shot? Legally, I think not.

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 1980s, 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 that went into default in 1917. They slosh around. And there was actually a very interesting situation in the mid-90s 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 Tsarist bonds that are held by French citizens.

And they paid them, I think, $500 million to do that. So these things slosh around. There are other countries, by the way, that... There may be a little bit of option value. Something could happen where they're worth more than paper, right? My image is most of these things are framed and on bathroom walls 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. Lee, we'd be remiss if we didn't ask you in your 40-plus year career what your most interesting moment was, jetting in and out.

of countries often in bankruptcy or on the verge? Interesting is a hard adjective, but most tense, I think, was Greece. Greece in 2010, encountered a terrible debt crisis. Greece, a member of the Eurozone, a member of the European Union. So it had, as a...

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. They owed north of 300 billion euros, virtually all of it in the form of bonds. And the question was, would a debtory structure 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 Eurozone, the monetary union was indissoluble. And had it proven not to be, might there have been. others who would leave might the markets 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, I just want to turn the subject a little bit. because Brad, we were talking about U.S. China and the trade war, and sometimes you come on TV, and I say, what's your prediction for the trade war? So with less than a minute to go, at this point, what is your prediction for where things are going with U.S. China trade? I 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 U.S. trade policy, us will be with the tone of his past 10 tweets. If the past 10 tweets are J. Powell is the biggest threat to human civilization, then he's probably not thinking about escalating with China. If his last

10 tweets are 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. Powell 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 buys some soybeans. The U.S. 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 Bookheight and Brad Setser. Thank you so much for being 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 going to play a game and you all are going to have to guess who he is and you're going to have to do so by asking questions that can be answered in yes or no format.

And there are a couple people in here 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 wants to guess? Shout it out. He's being recorded, so, you know, try to ask loud.

Are you bigger than a bread box? That's a guess. Give it. What financial frauds have you committed? None. Good question. Yet. None yet.

What's your Twitter handle? Don't have one. Mystery. Do you specialize in the RICO market? I do not. Barely know what that is. You're the Bitcoin guy. No.

Good guess, though. That is a good guess. You work on the oddlops podcast. The question was, does he work? Do you work on the oddlops podcast? No. But you're welcome to, like, you know. I'll come by them on.

Are you related to Wework in any way? What is a good question? Are you related to WeWork? No. Yeah, I'm interested to know why. But yeah, no. There are the news, so it's plausible that that could be. But we were questions. Do you work in Midtown?

No. Are you involved in country music? That's a good question. No. Unfortunately. Do you have an opinion on platinum coins? No. You know what I love that like no one is even like anywhere in the wallpark.

I swear, none of you have asked a robot. Like, I swear none of you have asked remotely, like, you're not getting warm at all, not even close. Can you play guitar? No. If I did, I have one. Do you work for the government? Do you work for the government? I'm kind of young, but no, I do not.

Are you a comedian? No. Are you a food server? It's getting worse. These questions are getting further away. Do something with the towel? No, it's not a towel. It's not a towel.

Okay, so there's a hint. Why do you show the hint? Because it's been like two minutes and... It's not getting better. You guys are getting anywhere close. This in particular is the important piece. Yes, there you go. Somebody got it.

You're one of the 13 kids. It's 11, actually. Oh, it's 11. We'll give that to you. So wait, just to be clear. Just to be clear, so the shirt in case, you didn't see, it says SPDR.

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 unveil before people start talking about platinum coins again, or Bitcoin. So the Spy 11, also known as the Spy Kids, are 11 pretty random

now millennials who have about $250 billion tied to them in the form of the world's biggest ETF, the SPDR, SMP-500 E-T-F, known by the ticker

SPY. I still can't believe this is real. So what's the deal? Well, basically, Spy was created as a unitary investment trust,

partially because it would be easy to get through the SEC regulations. 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's worked with regulators that's incredibly difficult oh gosh it's so it's probably around 93 94 when this document was created um i've probably more leading up into that but i think probably late 80s early 90s

as well but um 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 ETF 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 11 kids who are all kind of family members who are born around the time that this was created. So, for example, myself and two of my cousins who couldn't make it tonight are also on or part of the 11. 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... This was just a few weeks ago? Yes, this was probably mid-August, yeah. So you've gone your whole life without knowing that the world's largest ETF, how much is in it now, quarter of a trillion dollars, is continued existence, is contingent on you and 10 other people being alive? Yes. Okay, I just wanted to get that clear.

And you found this out a few weeks ago. Yes. I mean, the lead in email, it's like you're connected to this massive, billion dollar fund. I mean, that reads like any Nigerian print scan. 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 actually... 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. So my mom who put us on this list was an actual Amex counsel at the time for the American Stock Exchange who kind of helped push and create this product. And yeah, she kind of explained it to me. It's basically to avoid having something that can go on in essentially perpetuity. You can't have any, for example, a trust. If you had it go on in perpetuity, it can be doling out assets for 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. Do you resent 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, am I, do I get, like, I don't know, royalty or anything? Yeah, like, a couple of spy? Yeah, like, come on. Does someone, I mean, clearly not because you didn't know about this until recently, but how do they know that you're alive? You know, that's funny. 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 the heartbeats going like on the screen and all. I don't think anybody did. I don't think anybody. So I think a thing to understand here,

when this was all done, this was part of a 60-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 files. They weren't expecting these things to all be digitalized and put up on Edgar filings, and easily searched by people on Twitter, apparently.

Not easily searched. I did that search, by the way. Well, somebody had found it, right? Yeah, and sent it to us, yeah. Okay. But it took a long time to, it took years for them to find it. 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 form a ton to- same room together, right? Like that seems like it would be like a major financial stability risk to have you on the same plane or the same building, right? Like, yeah, it does not seem like a good idea. No, actually, so two of them

other names on the list, I don't know if, I mean, 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 244?

$50 billion right? So I actually work in public relations for a financial PR firm, M Group. Who's fake? M Group, got to give the plug. Sorry. You gotta get something out of this. Yeah, right? 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? So, like, that was really the thing that ticked me. I was like, what does this come from? Are you putting it on your business card, Spy Kid?

Haven't yet, but I'm thinking about it. Also thinking about getting some identity protection service. That's right. If anyone wants to help crowd fund some identity theft protection for Kevin, whose full name and birth date is widely available, we should probably do that. Can I just say I'm extremely impressed that like how articulately you talk about like securities law and the law relating to perpetuities and stuff like that, you know. I mean, I guess like you probably crammed after like discovering all this and wanted to learn everything.

But I'm very impressed. Oh, thank you. And no, it's part of that. I mean, sure, I definitely read into it. But also just being around my mom, my whole life. And she was just very talked about work very openly. Oh, yeah. What did she say?

So it's something 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. She had called my home and gotten my dad on the line. So he's like, call my, like, obviously this has to be connected to 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 being a kid because obviously they had the really cool merch and spy. You know, as your eight-year-old kid, you go to like your parents, like the swag room at their office. and you see like spiders. I was like, oh, awesome. Like, I'm grabbing all that. You're perfectly made for odd lots, by the way, if you think that's cool. Exactly. And, yeah, it was just kind of, I called her up, and I was like,

Ma, like, did you do this? And she's like, did I do that? She did not remember. Again, this was just a very... I thought it was going to be more like, I knew one day this conversation with a... I know, that's the more exciting. But no, I think it was...

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 have recently had kids or know somebody who had recently had kids who would want to put their name on this fund? Now I'm on 11. No pressure. Yeah. All right. 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. or economist country, 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.

He has some new numbers live from Nashville, Tennessee. Merle Hazard. Thank you, Joe and Tracy for that very kind introduction. Your mic on there. Howdy. All right. Y'all ready to hear some down-home music about high finance? All right.

Well, my name is Merle Hazard, and that's Hazard with the Z as in zero interest rate policy. The songs that I've done over the last 12 years or so since the crisis have been about economics, finance, banking, derivatives, and asset-backed 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 in compliance at Morgan Stanley Dean Witter. Now, this first song I want to do is on a monetary topic, and it's seniorage. And if I said seigneurage, I'm not going to 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 it electronically. They make a profit.

They use it in part to pay their army. And now central banks actually buy securities and make interest and dividends on this created money, and that's seniorage. So I figured that's a pretty good topic for a song. and it's to the tune. I'm going to use an old melody. You may recognize this by a guy named Harry Warren, who's been gone for decades.

But, Junior, you ready? Oh, this is my son, Merle Jr. Accompanion on guitar. And you ready to do that, Signor? I'm ready. All the money you print and the coins that you meant that's Senorich. On as much as you made,

there's no interest to pay. that's seigneurage. From the hills to the plains, like a dream of John Keynes, its 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 seigneurage.

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 storage. That is how central banks printing dollars and Franks earn signiorage. Yes, seigneurage, that's seigneurage. Thank you. What'd 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 it up. It's really good. And, uh, uh, you know, I love Nashville. where I live and where Merle grew up he lives here now but you know Nashville we got hot chicken We've got the Grand Ole Opry and we've got the headquarters of Alliance Bernstein It's pretty much everything a mannate This let's see 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 of the night and you might forget when you wake up or dimly recall but if you write down a few words and 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. 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 market's watching back in return. Fundamentals are in tatters. I'm not sure it even matters what companies possess or what they earn. The Fed is watching the market. They're trying to protect us from shocks when they speak of financial conditions. I'm thinking they really mean stocks.

The Fed is watching the market The market is returning its gaze It makes some people wealthy Yet still it feels unhealthy When price and value part ways The Fed believes in free markets Except not the market for cash It helps to make bubbles more likely

When you cut rates at 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 if valuation 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 caught in a financial feedback

I think you got the idea Thank you, thank you all Thank you. Well, we're going to do one more song for you. And if you're getting into these songs, check out the website, Merrillhaazard.com. There are songs on YouTube. There are some streaming things, you know, Spotify and Apple Music.

And even on iTunes. So if you've got, the holidays are coming up, and have you got colleagues at the financial firms where some of you work and they are intellectual and mildly depressed, I'm told this would cheer them up. You may cement a friendship or get a promotion or something out of it. So this next song is about the statutory framework

under which the Federal Reserve operates, the U.S. Central Bank, yeah, it's a good topic. So I respect Central Bankers. They have a really hard job in any country. I think they have an even, perhaps even harder job in the U.S. because the statute gives them two conflicting goals. And imagining myself in that position, I wrote this lament of the American Central Bank.

banker, which we'll finish up with, and the title is dual mandate. It's awfully hard to be a central banker. Rich folks like to see the currency strong, but the average Joe's not overjoyed. If he's destitute and unemployed, it seems like every time I choose, I'm choosing wrong. The right says I should tighten up on credit, not Donald Trump, but most of the right, to keep the risk of inflation nice and low. While the left and many economic scholars are urging me to print more dollars, I'm torn between the two ways I could go. I've got a dual mandate. Dual mandate.

I got to keep prices stable while giving jobs to those who are able. Dual mandate. Dual mandate. My job is harder than you'll ever know. Unlike here in the U.S., the Bank of England has it relatively easy. And so I hear does Europe's ECB. The goal is for stable price. That's simpler and must be nice, a single mandate,

unlike poor on Mucky Meen. Because I've got a dual mandate, dual mandate, I got to solve labor's troubles without creating financial bubbles. Dual mandate, dual mandate, it's tough for me to,

To make our economy grow. My job is harder than you'll ever know. All right, thank you all very much. It's great to be here in our much. You have the desire to help us. The college, the city, you offer the program Dependence and Sentental. Acquare the competences essential for

accompany and support the people confronted to the health mental and dependence. Construise a career enrichicient to service of the community francophone of all the country. Don't know their soins of quality in French

it's possible with the city visit the college lacetate point CA right now an initiative of the consortium

national of formation in health by SOTE Well we've come to the final interview

of the night and 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 has been caricature

and it's like other people just say print the money. They kind of do. But also, so it's also kind of caricatured. Anyway, tonight we have with us the person who I think has done more than anyone else these days to be a proponent and an advocate and a voice for MMT. And that is Stephanie Kelton. She is a professor at Stony Brook. She's also an economic advisor to the Bernie Sanders campaign. And in addition to talking a little bit about what MMT 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 low 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 want to, you know, economists are scratching their head. So I'm looking forward to hearing how a MMT economist examined some of these puzzles, of modern economic life. So Stephanie Kellyn. What do you say when people say that about MMT?

They're like, oh, yeah, just print the money. Well, you just said it. I said backstage. No, I said it. I said, I'm out of here. What do I say? I don't know what else to say except, you know, what we've been saying for now two decades and print the money.

I thought it just started in the last couple of years. You guys have been added for a while? We've been added 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 short-handed 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 going to 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 and the headline reads,

Economist says, print more money, you know. So there's 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 this demographic? Well, it's like the impossible question to say, you know, what is MMT about? Because it's a group project that started more than two decades ago with 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 to 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 a sound bite. But I think most people, when they think of MMT, they think of it as an analytic framework. So we're macroeconomist. So it's an analytic framework that tries to update the lens through which we 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 this first started? Was it that something has changed about either the financial 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 hear MMT, they think full employment, they think universal health care, that sort of thing. Which was the inspiration behind it? 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-90s. And, you know, there were already different schools of thought out there. The post-Kanesians 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 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 MMT, I think it started evolving as we started to

think differently about the role of taxes and the relationship between money and taxes and 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 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 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, you know, 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 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, you know, money is, inflation is something that happens when you print too much money. Or, you know, the Milton Friedman, inflation is always and everywhere a monetary phenomenon. So if you see central banks doing things like QE 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 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 on prices. 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 bargaining power and then that leads to higher wages. and then they have 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 4%. 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 worth? 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 exercised through unions and what's happened to unions over the course of the last 30 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 tightens, 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 market's tight, let's go. It's just not there. The mechanisms aren't in place for that to happen for huge swaths of the American workforce. So here's one thing I sometimes wonder, but if everyone in the U.S. at least woke up tomorrow and accepted MMT 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 now?

I mean, honestly, I think the biggest thing that changes is the conversation that we have. I mean, 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, well, 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 get, right? 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 we can't afford it, 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 dependents 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, entire. It's driving us into a debt crisis, which is silly. As I mentioned, Inshar, you are on one of the teams in the primary. And you met, 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 deficit?

It does, but I haven't heard that much of it. And you're encouraged. I'm encouraged. You know, 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 and 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 the deficit for very specific, purposes. There are quite a few high-profile Democrats who seem to be embracing MMT, whereas Republicans who actually have a de facto history of embracing MMT haven't done that. Why do you think that is? Do you mean openly invoking? No. So they'll expand the deficit for their pet projects in a sort of MMT way, but they don't seem to embrace the theory in the way that some Democrats have. Well, it's better to embrace it actively than to embrace it rhetorically. So I,

In some sense, you know, it's more encouraging to see someone pushing through an agenda that doesn't hew to the hysteria around debt and deficits. Is this my preferred set of policies? No. 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 PAYGO, and that's not terribly encouraging. If you're looking at 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 PAYGO 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 good and bad. 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 wing or 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 Keynes wrote a pamphlet, how to pay for the war that applied today towards something as ambitious as a Green New Deal? Yeah, I mean, I think that Keynes'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 II. And this is, Keynes was British economist, of course, so this was, you know, advice for the British government. And it turns out, you read this thing and it 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 Keynes 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 Keynes, 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 U.S. economy. And so the lesson is to look back at what Keynes 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 U.S. economy over a short period of time 10 years or so, right?

that there are important lessons to learn from what Keynes 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 Keynesianism in various ways. How would you respond to that? 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, when it comes to the Green New Deal, listen to Keynes. Okay, that was about inflation risk. But there are very substantive differences between the way that we analyze some big questions and the way that some headline Keynesians. 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 there we teased 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, it has to increase borrowing. And as it borrows more, that gobbles up private savings that are no longer available to finance private investment,

leaving companies with fewer resources to invest. And so investment goes down. and as investment goes down, you get a slower-growing, more lethargic economy. MMT, 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 $100 into the economy and only taxes $90 back out, we label that

a government deficit. But what we forget is that I just deposited $10 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 we go on and on. Another thing to people say, say about MMT is that, like, well, yeah, sure, because the U.S. is the world's reserve currency, so the U.S. has a lot of policy flexibility. Other countries don't have it. But I don't know how much you were paying attention. We were talking about Argentina. What is the sort of MMT? If you were, you know, if Mockery had brought in you instead of the IMF and said, what should I do to make my economy more stable, what would have been the MMTers advice? Well, I mean, I think the last discussion was really good and very very, very much. 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 unilaterally, just say, 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 for 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 not too long ago. And Japan, yeah, but, but there's a country that is not the world's reserve currency that has a debt to GDP ratio, if you go gross terms of like 240%, right? And I go over there. And the biggest question I got from

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 are right where the bank Japan puts them at very low. Inflation's low. It's just, you know. Well, actually, I was going to ask about some of the chaos that we've seen in money markets this week. And part of that was said to have been caused by this ramp up in T-bill issuance by the government, 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 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 think it's in 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 MMTers 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 Fulweiler, 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 too involved in what was happening. with financial markets in the last couple of days and fed interventions and so forth. But these guys were all over it in a deep way. And yeah, we have a DM group that we were all going back and forth and trying in real time to make full sense of it because it's very much in the weeds. 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. 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 and in which cycle, I think. I mean, you know. So 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 of 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 Warren Mosler were sitting here, he'd say they've got the brake and the gas pedals mixed up. In other words, Warren has for a long time, this is a sort of founding father of MMT,

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 when 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 easing. 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? Bondholders receive interest as income. And raising rates, as bonds are rolled over and interest rates are going up, is tantamount to fiscal expansion. In other words, it's an increase in income, right? Interest income. So there is the point. possibility that raising interest rates has a stimulative effect. 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 are rising. 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 it 25 basis points here and 25 basis points there, that they can steer this enormous economic ship called the United States economy is pretty much a 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 Fed's 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 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, I think that, you know, this is textbook stock. There are two levers. If you're doing macroeconomic policy, you either pull the monetary policy lever, which is conventional policy, tweaking the interest rate, or you pull the fiscal policy lever. And that's taxes and government spending. And for the last 30 years, we have leaned extremely heavily on central banks, not just here in the U.S., 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 break in case of emergency cover on it. And central banks are supposed to steer economies, right? And that hasn't worked all that well for 30 years. You know, Larry Summers says the last three expansions in the U.S. were bubble-driven.

I mean, all three, right? From the savings and loan to the subprime to the dot com in the 1990s. 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 have to become more. reliant upon. 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- Just 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 a 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 implies politics for better or worse. 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 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 800,000 jobs a month at the height of the Great Recession. And if we had had 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, Janet Yellen several years ago at Jackson Hole, the big meeting that takes place between Fed officials and invited academics and others,

she said we need to strengthen the automatic stabilizers. We need better automatic stabilizers. And a federal job guarantee is like turbocharging the automatic stabilizers we have today. And that's what I would do. Stephanie Kelton, 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 made it happen.

I'm glad to. Thanks for having me. All right, our next act is the last of the evening. It's someone you've probably never heard of before. In addition to being a genius at poker, a polymath, 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 a 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 going to play a few songs, but I'm really intimidated now after having watched Moral play, but I wrote a few songs about markets and economics. This first one

is about one of my favorite lessons from markets, which is that 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. Well, I met the old trader

in the pits of Chicago. And where I'd be without them, heaven only knows. Because he taught me the lesson I still think about today. And any time I'm feeling down, I think of what he'd say. Well, I told him I was going to buy a stock, because it went down so much. And I said, it's going to rebound, and I'm going to 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 low you get, you can always go down another 100%. No matter how hard you fall. No matter how low you get, you can always go down another 100%. 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 instill no matter how hard you fall no matter how low you get you can always go down another hundred percent Well, I think about life's journeys And all its ups and downs

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 percent well I saw that trader years ago and he was looking frail he made a fortune trading cotton then he lost it leaning on the rail he said it really don't matter much you just got a few years left and it don't matter how high's you pile when you're facing death no matter how hard you fall no matter how low you get you can always go down down another 100%. Thank you.

So one of my favorite characters in the world of financial markets are charlatans who sell newsletters where they claim that they predict the future and they get people to subscribe and they're like, oh, I predicted all this and I predicted all that. And I fight with them a lot and you should never subscribe to their newsletters. So I wrote a song about them and I dedicate this song to all the charlatans in the audience. I knew bad things were going to happen. I knew the bombs were going to fall. I knew that stocks were going to 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've got to pay me for my next insight. $50 a year is really not that bad. to know the things that I'm knowing. $50 a year is really not that bad. To know the way that we're gone.

I knew bad things were going to happen. I knew the bombs were going to fall. I knew the stocks were going to crash, and I 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 Trump.

I know which way the wind is blowing. I predicted the mortgage meltdown and Amazon's melt up. I can see the seeds we're sowing. I knew bad things were going to happen. I knew the bombs were going to fall. I knew that stocks were going to 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. Some say I'm a genius, but that's really not it at all. I just know where to look. And if you want to know all the things that I know, you've got to read a lot of ancient Greek books. Some say I'm clairvoyant, but that's really not it at all. I just know where to look. And if you want to know all the things that I know,

just download my free e-book. All right, this is my last song, and so I was talking to a friend of mine the other day, and he was recommending that I listened to some singer that he liked. And he's like, oh, his song is a 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. Seems unfair. So I wrote a folk 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 deserve. But lately, I haven't been doing so hard.

And I blame it on the Federal Reserve And 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 friend Hey my friend

Haven't you heard the news I've been coming down With a bad case of the shareholder blues 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 gains

So I held on to it just hoping That I could pay less tax But you can guess what happened next The stock gave the gains right back Hey my friend Hey my friends Haven't you heard the news I've been coming down

With the bad case of the show Shareholder blues. Now these are tough times for everyone. Student loan debt 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.

Shareholder. Hey, my friend, hey my friend, haven't you? the news. I've been coming down with a bad case of the shareholder blue. Now the newspapers say the economy's booming, but we all know it's sick, but if you listen to me, I've got a few ideas, and we can make this economy tick. But if you enact the policies, then me and my friends don't like, we're going to bring the economy to its knees when we go on a capital strike. Hey, my friend, hey my friend, haven't you heard the news? I've been coming down with a bad case of the shareholder blue.

Thank you. That's it. All right. Mr. Joe Wisenthal. That's it. That's it. This has been the first ever episode of the Odd Lodz Variety Show. I want to thank everyone for coming out.

Of course, all of our wonderful guests. as well as our producer, Laura Carlson, 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 entire event. She does all our shows every week, and she put this on. It's really awesome.

Yeah. Thank you, Laura. I also want to thank Jed Sandberg, because this whole thing came out of his budget at Bloomberg. Yes, which he's told us repeatedly. Yeah, he's reminded us. So the fact that we have this space, and drinks and everything.

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. The news doesn't stop on the weekends.

Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gurra. Join us every Saturday and Sunday for the new Bloomberg this weekend. I'm Christina Ruffini. will bring you the latest headlines, in-depth analysis, and big interviews. All the stories that hit home on your days off. And I'm Lisa Mateo.

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