Rate Hikes Are Inflationary, Says Warren Mosler, Godfather of Modern Monetary Theory (MMT)

In this episode of Forward Guidance, Jack Farley interviews Warren Mosler, a pioneer of Modern Monetary Theory (MMT), about the potential economic fallout from a US debt ceiling crisis and the broader implications of MMT. Mosler argues that a debt ceiling breach could trigger a rapid economic downturn due to reduced government spending and subsequent tax revenue declines. He challenges mainstream economic thinking by suggesting that higher interest rates can be inflationary in a highly indebted economy, as increased interest payments contribute to deficit spending. Mosler also critiques the Federal Reserve's current monetary policy, suggesting that it is inadvertently stimulating the economy through interest payments to those who already hold significant savings. The conversation covers various aspects of MMT, including the sequence of government spending and taxation, the role of the Federal Reserve, and the impact of fiscal policy on inflation and economic growth.