Warren Mosler: Because We Think We Can Be The Next Greece, We’re Turning Ourselves Into The Next Japan

Warren Mosler, economist and one of the primary founders of Modern Monetary Theory (MMT), had a very interesting interview recently on “Straight Talk About Money” that is a must listen (click the link to listen). He was giving his thoughts on how we’re not headed in the right direction and what we can do to fix that. As usual, he gives very clear and concise descriptions about the monetary system, the economy and what the solutions should be for our woes.

One thing that particularly caught my attention was when he said (at about 37:37):  “Because We Think We Can Be The Next Greece, We’re Turning Ourselves Into The Next Japan”. This is exactly what is happening. We think the deficits are hurting us while it is truly the only thing keeping us from going into a deflationary spiral. We think we can default like Greece because of our inability to “pay back our debt”.

To add some illustrations to this quote (and some of Mosler’s other points), just take a look at the following charts and graphs.

The Charts

Japan’s debt is about 2.5X the United State’s debt in terms of GDP.


Yet, while their debt has been exploding, their 10-year bond rate has been in the range of 0-2% for over the past 12 years. Where did all the bond vigilantes go? Or how about those S&P Rating Downgrades? As Japan was being downgraded to levels below Botswana (in 2002), their yields did not skyrocket. In fact they fell to their lowest levels ever a couple years after that.



OK, so you might be thinking the Bank of Japan has been monetizing the debt right? I mean, why else are rates so low for so long? The Japanese Yen surely has to have seen some devaluation right?

Nope, the $USDJPY is stronger then ever. Take a look at other yen currency pairs as well. All you see is strength or stability. In fact, the Yen is so strong, Toyota is taking steps in order to combat it, such as shifting “production of compact cars to other countries”.


All the while Japan has literally seen no inflation over the past 20 years. Check the CPI both straight up and Year over Year. CPI has flat lined basically over the past 20 or so years.



And remember, all of this was happening while the Bank Of Japan was conducting QEs (which everyone thinks is inflationary, or money-printing) while growing their Monetary Base.




Final Thoughts

We can’t be Greece. Greece turned themselves effectively into a US State when they decided to get off the Greek Drachma and use the Euro (which is controlled by the European Central Bank, also known as the $ECB). We’re more in danger of becoming the next Japan, which means a lost decade because the politicians and decision makers can’t see what our true problem is and what we need to do in order to solve it. While I am optimistic and do not think we turn into the next Japan (which would mean stagnate growth), I do not see us reachng our true potential to pull us out of this balance-sheet recession until we realize what Warren Mosler is saying (and the way to do that is by getting money out of politics)



The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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