Since we were corresponding by text, Warren’s thoughts were brief and incomplete. So, just for fun, I decided to prompt ChatGPT. I asked it to draft a respond to Brooks from the perspective of Warren Mosler.

I could tell right away that it included various statements that Warren would never make. In a few places, ChatGPT got things exactly backwards. I sent it over to Warren, and he responded, “Lots of errors on my position. Should I edit/correct?”

With his permission, I’m sharing the edited text. I removed the passages that Warren cut and indicated in bold the new content he added. I guess you could say ChatGPT got it about half right (or half wrong). Anyway, thanks to Warren and I hope this is useful to those of you following the ever-intensifying commentary about a global debt crisis.

From Warren Mosler’s perspective, Robin Brooks’s diagnosis of Japan rests on a fundamental misunderstanding of how interest rates, currency values, and government debt interact in a monetary system where the state is the issuer of its own currency.

Start with the core error: Brooks treats higher interest rates as a necessary defense of the currency and as a signal of fiscal stress. Mosler has long argued that this logic has the causality exactly backwards. For a currency issuer like Japan, raising policy rates does not ‘tighten’ in the conventional sense. It increases government interest payments to the private sector. Those payments are an addition to deficit spending, new yen income, credited to bank accounts, which expands net financial assets. Through this interest-income channel, rate hikes are more plausibly inflationary than disinflationary, especially in an economy already operating at or near full capacity.

In Japan’s case, higher rates raise the yen income of JGB holders, boosting domestic spending power. That additional yen spending can weaken the exchange rate, not strengthen it. Brooks interprets yen depreciation alongside rising long-term yields as evidence of a debt crisis. Mosler would respond that Japan cannot be forced into insolvency in yen. The Bank of Japan can always settle any yen-denominated obligation by crediting reserve accounts. Rising term yields simply reflect market anticipation of a future policy choice to pay more interest, along with possible investor preference for duration issues, and not a market verdict that Japan is “running out of money.” Furthermore, Japan always has the option to issue only 3-month bills, and not to issue any longer term securities.

Brooks also frames the situation as a trap: raise rates to defend the yen and worsen debt dynamics or keep rates low and suffer currency collapse. From Mosler’s view, this trap is imaginary. Brooks has it backwards. The yen, with its floating exchange rate policy, is not defended via higher rates, as it would be with a fixed exchange rate policy. Instead, it is depreciated by higher rates.

Additionally, Japan’s imports are overwhelmingly real goods priced in global markets, and its export competitiveness improves with a weaker currency. Without BOJ intervention, foreign exchange reserves remain constant while the level of the yen expresses indifference levels associated with optimal real terms of trade. Those reserves are the by-product of BOJ intervention not evidence of financial fragility.

Crucially, higher long-term JGB yields do not “burden” Japan in any operational sense. They represent higher interest income paid to the non-government sector—mostly domestic institutions. What Brooks calls a debt crisis is, in Mosler’s framework, a distributional issue at most, not a funding problem. There is no numerical constraint that can be imposed by bond vigilantes or currency traders. If inflation becomes excessive, rate hikes only make it worse. The appropriate tools vary with the underlying reasons for the increase in the price level. In the case of excess demand, for example, which is very rare, fiscal adjustments may be appropriate, which can include interest rate reductions. Prices can also be the result of regulatory measures and instances of imperfect competition, domestic or foreign, often in the context of public and private indexation, none of which are related to interest rate policy.

In short, Brooks mistakes symptoms for causes. Japan is not trapped by its debt; it is choosing an interest-rate policy that weakens the yen and adds income. The problem is not that Japan cannot afford higher rates, but that raising them does exactly the opposite of what orthodox theory predicts.

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I was part of a roundtable session on the Trump economic program. Other panelists included James K. Galbraith (University of Texas, Austin), Darrick Hamilton (New School University), and Gary Dymski (Leeds University). The panel was moderated by Geoffrey Schneider (Bucknell University) and Howard Stein (University of Michigan).

Each of the four panelists was asked to provide 5-10 minutes of opening remarks. It was a very good, standing-room-only, session in one of the larger ballrooms. Discussion was lively, and it reminded me why it’s important to try to attend these in-person meetings.

These were my opening comments.

Before I jump to the Trump administration’s current economic program, let me step back for a moment to revisit a—perhaps under-appreciated—break from mainstream economic dogma during Trump’s first term.

In some important ways, what we experienced in 2025 was a radical break from Trump 1.0, an era in which Trump’s then budget director—Mick Mulvaney—publicly confessed that “nobody cares” about deficits or the trajectory of public debt. House and Senate Republicans voted for, and Trump signed into law, the Tax Cuts and Jobs Act of 2017 with little regard for its budgetary impacts. They ignored warnings from the likes of Paul Krugman, Larry Summers, Jack Lew, and the many beltway debt scolds who raised the usual conventional fiscal concerns—higher interest rates from crowding out, lower growth, and a threat to our national security. Instead, after passage of the TCJA, we got accelerating growth, 3.9 percent unemployment, and a substantial increase in military spending.

When COVID hit in March 2020, Trump signed a $2.2 trillion fiscal package—the CARES Act. That came alongside the $4 trillion federal budget. He defended the spending in a press conference, saying, “It’s $6.2 trillion, because its 2.2 plus 4, and we can handle it easily because of who we are and what we are. It’s our currency. It’s our money.” Ah, the beauty of MMT.

What we have witnessed under Trump 2.0 is a radical departure from that bolder acknowledgement of the federal government’s spending capacity. Running throughout Project 2025 is a recommitment to a very old and very damaging idea: that fiscal discipline must be restored, that public purpose must always be subordinated to private wealth, and that the greatest danger facing the economy is public spending rather than private power.

What has been delivered, thus far, is austerity for the many and abundance for the few.

Think back to DOGE at the start of Trump 2.0. Suddenly we needed mass layoffs of federal workers, cuts to Medicaid, the privatization of public institutions, and the dismantling of regulatory agencies to “pay for” tax cuts that would, once again, overwhelmingly benefit those at the top of the income distribution. Are we supposed to believe that Russel Vought, Scott Bessent, Kevin Hasset, and Donald Trump wanted these offsets because they’re genuinely worried about the government’s finances this time around? I somehow doubt it.

The United States is a monetary sovereign. It does not need to cut essential public services or throw people out of work in order to “afford” tax cuts or any other form of spending. The cruelty, as they say, is the point.

Government employment provides stable, middle-class jobs that anchor local economies. Medicaid is one of the most effective automatic stabilizers we have. It covers about 1 in 4 Americans. More than 40 million people rely on SNAP benefits. The Consumer Financial Protection Bureau is being gutted precisely because it has been effective at holding powerful financial actors accountable.

We should not mistake political cruelty for fiscal prudence.

Internationally, the same logic applies. Tariffs were not deployed as part of a coherent industrial strategy, but as a blunt political weapon, often wielded against close allies. The withdrawal from multilateral institutions (WHO) and international agreements (Paris Climate) weakens global cooperation, undermines public health, and ultimately leaves the U.S. more exposed, not more secure.

And all of this, ironically, is accelerating the very de-dollarization the administration claims to fear. We are decoupling from the rest of the world.

Domestically, the administration’s immigration policy reveals another deep contradiction. You cannot claim to be fighting a cost-of-living crisis while deporting millions of farm workers, home builders, caretakers, etc. But of course the point is not to bring down costs. The point is to sow fear and entrench authoritarianism.

And then there are the attacks on universities, research funding, DEI initiatives and so on. We are told that these are cultural side-issues, but surely, they are economic issues. Public universities are engines of innovation and regional development. DEI programs exist to expand opportunities to recruit talent in an economy that desperately needs both. Undermining these institutions weakens us economically.

Trump 2.0 is about building an economy that prioritizes private gains for the few over broad-based prosperity for the many. It is concentrating wealth, weakening democracy, and abandoning the public purpose. As Keynes, Kalecki, and Minsky might remind us, that does not mean that the stock market cannot grind higher or that the labor market will necessarily crack. It does, however, suggest the exacerbation of a very K-shaped economy.

There is an alternative.

We could do what Darrick Hamilton and I have urged for decades: guarantee jobs for all to stabilize wages and prices while strengthening communities. Address the deficits that matter. (I devoted an entire chapter to these in my book, The Deficit Myth.) Design trade and industrial policies that build domestic capacity without scapegoating workers or allies. Regulate the financial system. And treat our great public universities as strategic partners and assets to be strengthened instead of “woke” adversaries that need to be brought to heel.

Thank you.

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Today marks the thirteenth day of the government shutdown. Roughly 750,000 people have been furloughed, causing disruptions across a wide array of government agencies. Many essential workers, including air traffic controllers and active-duty troops, are still required to show up for work—and somehow pay their bills and feed their families—even though they aren’t receiving a paycheck. And now the Trump administration is summarily terminating thousands of federal employees in the departments of Health and Human Services, Treasury, Commerce, Education, Energy, Housing and Urban Development, and Homeland Security.

Government shutdowns are nothing new. Since 1980, funding has lapsed on fourteen other occasions. The record (34 days) for the longest shutdown in U.S. history was set in 2019, during the first Trump administration. But this shutdown is different.

For one thing, Russell Vought, the current head of the Office of Management and Budget (OMB) and principal architect of Project 2025, came to the job announcing that he was eager to traumatize the federal workforce:

[We want them] to be traumatically affected…When they wake up in the morning, we want them to not want to go to work, because they are increasingly viewed as the villains. We want their funding to be shut down…We want to put them in trauma.

From the perspective of the Trump administration, the shutdown presents an opportunity to do just that. As the president himself recently put it:

We can do things during the shutdown that are irreversible that are bad for them and irreversible by them, like cutting vast numbers of people out, cutting things they that they like, cutting programs that they like.

While republicans don’t want to be blamed for the shutdown itself—they’ve branded it the “Schumer shutdown”—they’re using the opportunity to go after people and programs they want to eliminate anyway. This is how the OMB director announced the Friday night massacre at the Centers for Disease Control and Prevention (CDC).1

This is not like other shutdowns.

The Message from Democrats

Democrats want credit for standing up to the Trump administration, but they don’t want to be blamed for the shutdown that has led to furloughs, firings, flight delays, and so on. Senate democrats acknowledge that they have the power to restart paychecks and bring furloughed workers back to the office. All they have to do is vote to pass the House bill, which extends federal funding at current levels through November 21, and the shutdown would end. But they’re playing hardball.

It takes 60 votes to overcome a filibuster in the Senate, and Sen. Rand Paul (R-KY) continues to vote ‘no’. That means that it will take eight democrats to end the shutdown. As it stands, they are five short.

Most democrats, including the senators featured in this video, have decided to leverage their power in order to rescue tens of millions of Americans from imminent danger.

What would happen if five more democrats voted to join Senators Fetterman, Cortez Masto, and King? The government would reopen, and a health care catastrophe would unfold across America. Health insurance premiums would double for 20 million Americans, 15 million people would lose coverage, and tens of thousands of Americans would die from preventable deaths.

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To understand why premiums are poised to skyrocket, you have to understand something about the Affordable Care Act (ACA), which was signed into law by President Obama in March 2010. Among other things, the ACA established online platforms (“marketplaces”) that allow people to shop for and purchase health insurance. It also created subsidies to reduce the out-of-pocket cost of buying coverage for individuals and families with modest incomes. Under President Biden, Congress expanded the value of the tax credits people receive when they purchase health care in these marketplaces.

The problem facing 24 million people who currently get their coverage under the ACA is that funding for the enhanced subsidies is set to expire on December 31.

Democrats are using the only leverage they have to try try to bring republicans to the table to negotiate some kind of deal around health care. And while Senate republicans have shown little interest in negotiating, they know they have a problem.

As Sen. Patty Murray (D-WA) points out, Americans who live in so-called “red states” are going to be absolutely walloped by the looming spike in premiums. This is why democratic strategist Neera Tanden recently said that “Republicans should secretly hope that Democrats win this debate.” In other words, by making the shutdown fight about health care, democrats just might end up saving republicans from themselves. As Sen. Tammy Baldwin (D-WI) notes, about a quarter of all farmers rely on the ACA for their health care coverage.

You might wonder why democrats decided not to sit back let the health care catastrophe unfold. Why not keep their fingerprints completely off the shutdown? After all, shutdowns are unpopular, and even though voters tend to blame the party in power, it’s always possible that the “Schumer shutdown” branding could stick. And if democrats are successful in restoring funding for the enhanced subsidies, will they even get credit?

When the shutdown began, I kept thinking of images like this. The superhero arrives just in time to prevent a catastrophe, and the passengers—at least those who know that they were in imminent danger—heap gratitude on their savior.

It seemed like a risky bet on the part of democrats. Were voters paying attention to what’s coming down the pike with respect to health care? And if not, could they be educated quickly enough to make them allies in the shutdown fight? Thirteen days later, their political calculus looks a lot less risky.

Premium shock is setting in.

Millions of Americans have been receiving alarming notices from their health insurers. It’s open enrollment season—i.e. the annual period (starting November 1) when individuals can sign up for, renew, or change their health insurance plan. Those notices show people what their premiums will look like in the coming year. Increases of 200, 300, or 350 percent are staring them right in the face.

Did democrats pick the right shutdown fight? It sure looks like a winner.

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PERSON: What does the data show?

ECONOMIST: What do you want it to show?

I was working on a paper for a micro theory class, and there were some pretty big gaps (missing observations) in the time series data I had collected. My professor advised me to find a creative solution. I could use a proxy (unfortunately, there were no good ones) or do some kind of averaging to construct my own data points. He told me that he didn’t really care how I resolved the issue as long as I explained my technique in a footnote. When I told some of my classmates that I was going to have to paper over the problem, one of them told me that joke.

One way or another, I was expected to invent the numbers. It felt like cheating. I did what I had to do, but it nagged at me. How was I supposed to feel good about the paper’s conclusions, knowing that I hadn’t been able to analyze all of the right data? Having access to data is important, but having access to quality data is essential.

Last week, President Trump fired the Bureau of Labor Statistics (BLS) commissioner. The move came just hours after the agency reported that total nonfarm payroll employment grew by 73,000 in July. That’s a pretty weak number, but it was the downward revisions to the May and June numbers that caused the president to cry foul.

The BLS had previously reported job gains of +144,000 in May and +147,000 in June. The July report erased more than a quarter-of-a-million jobs, revising May to +19,000 and June to +14,000. Before firing the commission head, President Trump accused her of releasing “phony” numbers that had been “faked” for political reasons.

In the same way that Trump looks at U.S. trade deficits as de facto proof that other nation’s are “ripping us off”, he interprets large revisions in the data as evidence of malfeasance. When there were big downward revisions in August 2024, he accused the BLS of an extended coverup to help Biden ahead of the 2024 election. (Never mind that the same agency reported, just days before the November election, that a paltry 12,000 jobs were created in October 2024 and that Trump used that the weak number to argue that the Biden/Harris economy was “a catastrophe”.) Now that Trump is in the White House, he’s convinced that the BLS is either incompetent or malicious.

It is neither.

Revisions aren’t mistakes. They don’t’ happen because the statisticians at the BLS counted up the numbers the wrong way in May and June, forcing them to make big adjustments in subsequent months. Nor are the rank-and-file workers in the agency coordinating with one another to rig the data for political reasons. They’re just incorporating new information—as it becomes available—in order to produce more accurate data. The revisions have nothing to do with politics and everything to do with the very real problem of receiving time-staggered survey responses from employers who don’t transmit their own data to the BLS as efficiently as they could/should.1

All data must be generated. Sometimes it’s relatively easy to produce good data, and sometimes you have to work—or wait—for it. Some of the data I rely on to get a sense of what’s happening in the economy comes from outside the government (e.g. ADP’s Employment Report or The Conference Board ) and some of it comes from federal agencies like the Bureau of Economic Analysis (BEA) or the Bureau of Labor Statistics (BLS).

In addition to the nonfarm payrolls report, the BLS is responsible for publishing the most widely-cited measure of inflation, the Consumer Price Index (CPI). Generating this series is a heroic undertaking that literally involves scores of data collectors calling or visiting thousands of retail stores, service establishments, doctor’s offices, websites, etc. across the United States to keep track of the prices that consumers are paying for ~80,000 goods and services each month.

If you’re interested in a behind-the-scenes look at the important work the agency does, then I highly recommend this podcast conversation with Bill Beach, who was named Commissioner of the BLS by President Trump in 2017. (Before moving into that role, Bill was the chief economist for the republicans on the U.S. Senate Budget Committee. I was his counterpart on the democratic side. I viewed him as kind, smart, and hardworking.) As Bill explains, the Bureau has worked hard to maintain data integrity in the face of acute budgeting challenges.

When it comes to collecting the data that’s used to construct the CPI, one of the big challenges is that it costs a lot of money to pay all of those data collectors to monitor what’s actually happening on the ground. Back in June, the BLS posted a public notice on its website, explaining that it had stopped collecting data in several cities (Lincoln, Nebraska; Buffalo, New York; and Provo, Utah) and that it would rely more heavily on “imputations” to configure the prices of certain items (basically, that means inferring rather than directly observing certain prices). That started to raise some alarm bells as CPI is a vital statistic for all sorts of reasons.

As CNN reported:

The Trump administration’s drastic cutbacks of government spending and the federal workforce have economists, researchers and statisticians sounding the alarm that the reliability and accuracy of economic data could become a casualty to those efforts.

The BLS pretty much gets one shot at producing good inflation data. The data team scours the consumer landscape and reports the prices that people are paying to acquire ~80,000 different goods and services. They don’t look back at prior months in order to fill in gaps or otherwise modify the price data they report each month. What you get in each monthly CPI report is what you get.

That’s not how it works with certain other data series, for example Gross Domestic Product (GDP) and the Nonfarm Payrolls report (NFP). In each of these cases, the BEA and BLS, respectively, report preliminary data. Everyone knows it’s just an initial glimpse—i.e. an early estimate that will be revised as more data comes in. That’s why you often hear Fed officials (and others) explaining that they don’t want to put too much weight on a single report, especially when the data is subject to multiple revisions.

The president’s top economic advisor (and potential next Fed chair) has defended the firing of the BLS commissioner, adding that President Trump’s “top priority” is to make the economic data more reliable. But it’s hard to see how installing a partisan loyalist will foster greater confidence in the integrity of the nation’s economic data. It’s also difficult to imagine how the administration’s own budget proposal, which calls for an 8% cut in staff and funding for the BLS, will help the agency modernize and improve its data collection.

But here’s a question no one is asking: Why did top officials in the Trump administration spend months telling us that DOGE was going to help wean the economy off of government spending and that the “detox period” would be painful but “worth it” even if it tipped the economy into recession? I mean, this is precisely what Lutnick, Bessent, Trump, and other top officials considered the downside risks (albeit transitory) of the tariffs, trade wars, DOGE layoffs, and mass deportations. David asks, “What did he think would happen?” but Trump told us that his policies could cause substantial upheaval.

When the unemployment rate edged higher in February, some wondered whether the “detox period” was already underway. Consumer confidence had plunged and economic growth was slowing. In response, Treasury Secretary Scott Bessent said it was reasonable to think the economy would lose momentum as we begin to rely more heavily on the private sector to support output and employment. So what was the point of telling everyone to brace for a rough ride if they were going to shoot the messenger for publishing the data that confirms that we just took a bad bounce?

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As always, thank you for reading The Lens. Here’s Trump’s former BLS Commissioner (Bill Beach) in a newly-released podcast, explaining that if anyone is politicizing the jobs data, it is the president himself.

I’ve been trying (not very successfully) to limit travel and media while I work to finish a book manuscript, but I agreed to do Jeremy Hobson’s call-in talk show later this evening. I’ll be joined by CNBC senior economics reporter Steve Liesman, and together we’ll answer as many questions as time allows.

Given the way the program is being framed, I suppose I’ll have to begin by asking why we’re trying to “fix” what is, properly conceived, really just part of the broader U.S. money supply.

You can catch the show live on NPR stations across the U.S., live on YouTube or at a later date wherever you get your podcasts.

And if you’d like to call in with a question, here’s the number: 844-4-middle

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Back in January, when the broad contours of the GOP’s tax and spending ambitions were just coming into focus, I talked about the prospects for its passage with Bloomberg’s Scarlet Fu. I summarized our conversation here:

While it’s true that republicans will have a trifecta come Monday morning, it could still prove difficult to get a package that does tax, border, deportation, and deregulation in one big reconciliation bill across the finish line. As Biden discovered when democrats had their own trifecta, having enough seats to pass legislation isn’t the same thing as having enough votes (think Sen. Manchin (D-WV) and Sen. Sinema (D-AZ). Could a handful of republicans thwart parts of Trump’s agenda? Sure. In fact, there are already reports of frustration brewing in the House. But as I told Scarlet, I would be surprised if they don’t end up passing something that does most of what President-elect Trump has called for.

Scarlet asked whether I could envision republicans “embracing the idea of Modern Monetary Theory and just printing the money needed to finance the deficits.” I knew we were reaching the end of the segment, so there was no time to walk through the mechanics of government finance (to explain that all government spending is already financed by keystroking new money into existence), but I did explain how the MMT lens could be applied to evaluate the GOP’s tax and spending ambitions.

I had a chance to elaborate on that point in a series of recent interviews: The Lever podcast with David Sirota, NPR’s On Point with Meghna Chakrabarti, and Bloomberg’s The Close with Romaine Bostick. Looking at the OBBB through the MMT lens, I explained that I was less unnerved by the bill’s “price tag” and more concerned with its human, environmental, and inflationary impacts. Let me say a few words about each of these concerns.

The Human Toll

When it comes to the human toll, the bill will have devastating effects on the most vulnerable people in America. Unlike the 2017 Tax Cuts and Jobs Act (TCJA), which was more-or-less a straight up tax bill that sprinkled relief across the entire income distribution (though tilting the windfall heavily in favor of those at the top), the OBBB combines regressive tax cuts with regressive spending cuts. The spending cuts are so large that the Congressional Budget Office (CBO) has shown that they will more than erase the benefits that the tax cuts themselves would have delivered to low-income households.

Taken as a whole, the OBBB provides tax relief and new financial perks for millions of Americans and businesses while clawing back support that millions of these same people receive from programs like Medicaid and food assistance (SNAP). According to many experts, this will result in the largest cuts to the social safety net in US history. It will clobber low-income Americans, who will end up— on balance—worse off in the coming decade. Two million tipped workers are among those at risk of losing health coverage because of the cuts to Medicaid and the Affordable Care Act.

When all is said and done, as many as 17 million Americans could lose their health insurance coverage, kids and families will go hungry, hospitals in rural communities will shutter (taking decent-paying jobs down with them), and we could see more than 51,000 preventable deaths each year. As I wrote here, the OBBB is an egregious piece of legislation that strips resources from those at the bottom of the income distribution while showering even more wealth onto people who already enjoy substantial economic security. That’s a feature (not a bug) of the OBBB that democrats have been highlighting for some time and something they’re hoping voters will focus on when they head to the polls next year. Here’s Senate Democratic Leader Chuck Schumer:

We're going to be in their states in every way. We are going to organize. We are going to have all the people who are hurt organized. You're going to see a constant, constant battle in those states, reminding people day in and day out of what happened. And that's going to be Democrats in the Senate. It's going to be all of the groups who were hurt so badly. It's going to be just average folks. You saw how many people marched last month. There'll be many more marches, many more protests against this “Big, Ugly Betrayal.”

Republicans admit they’re vulnerable here, which is why they’ve structured the bill so that the tax cuts hit right away while many of the harshest cuts to the safety net don’t ramp until 2027/28. President Trump and his allies want families to feel the perks of the legislation before they feel its pain. (I’ll come back to this as it’s crucial to the way I think about the bill’s potential inflation risk.) It also means that democrats will have their work cut out for them when it comes to persuading voters, including tens of millions of MAGA voters, that republicans should be punished for throwing them to the wolves.

The Environmental Damage

When it comes to the environment, the OBBB eliminates $543 billion worth of tax incentives aimed at boosting the development and adoption of clean energy by businesses and American consumers. Climate experts warn that it “destroys thousands of clean energy jobs, and puts us all at greater risk from climate disasters.”

Because of the substantial rollback in the Inflation Reduction Act (IRA), Patrick Drupp, director of climate policy for the Sierra Club., has dubbed the OBBB “the most anti-environment bill in history.” Removing those tax breaks means that it will be more expensive to bring wind and solar—generation that can be added relatively quickly—onto the grid at a time when energy demand is rising at a historic rate. Here’s an excellent summary of the IRA provisions that get rolled back. Meanwhile, Dana Drugmand writes that the bill “extends a tax credit to production of metallurgical coal, ….cripples a program intended to crack down on methane emissions, … and raises the tax credit level for carbon capture and storage projects that involve enhanced oil recovery—a type of drilling using carbon dioxide to stimulate oil production.”

I could write for days about the OBBB’s environmental toll, but I would just be referencing and summarizing the work of experts in the climate space. You can read more here here here here here and here. As you might imagine, there are externalities associated with the environmental harms that spill over into other areas of concern, like human health and inflation.

The Inflation Risk

There are various opinions—and some heated disputes—about the extent to which the OBBB will juice domestic production and employment. Champions of the bill would have us believe that we’re about to witness a bonafide, trickle-down miracle that will push real GDP growth as high as 4.9% in the near term. That’s what the White House Council of Economic Advisors (CEA) is touting.

Critics are mocking the CEA’s rosy outlook, accusing White House economists of basing their projections on “fantasy” assumptions that look nothing like what’s being predicted by more credible forecasters.

One of the reasons the Trump administration is touting these eye-popping growth projections is that republicans are being pressed on the budgetary effects—i.e. debt and deficit—of their “massive” bill. By assuming explosive growth, they hope to sell financial markets (and voters) on the notion that what they’re doing isn’t fiscally irresponsible.

As I’ve been saying in various interviews, I’m not unnerved by what the Congressional Budget Office (CBO), the Yale Budget Lab (YBL), the Penn Wharton Budget Model (PWBM), or the Center for a Responsible Federal Budget (CRFB) have to say about the budgetary effects of the OBBB. I look at things through an MMT lens, so the “fiscal cost” of the tax and spending bill doesn’t give me a lot of insight into the things I really care about. What I’m most concerned about are the bill’s human, distributional, environmental, and inflationary impacts.

A point I have been making for decades is that when it comes to inflation risk, it’s not enough to know whether Congress is “paying for” its spending vs. adding to the deficit. The reason is that it would be pretty easy to assemble a tax and spending bill that is deficit neutral but highly inflationary and therefore fiscally irresponsible—e.g. a generous Universal Basic Income (UBI) “paid for” by raising taxes only on those in the top 1% of the income distribution. That would punch up spending by almost every American while doing relatively little to curb demand at the very top. Conversely, I could draft legislation that substantially increases the fiscal deficit while dragging inflation lower—e.g. single-payer health care such as Medicare for All. Total (public + private sector) spending on healthcare as a share of GDP might fall from around 18% to something like 15% (depending on which version of Medicare for All we’re considering), freeing up substantial real resources (including labor). Hence, it would be a mistake to assume that any generic increase in the deficit will necessarily lead to higher inflation or that Congress can avoid inflation by keeping everything deficit neutral.

From an MMT perspective, understanding the sector financial balances means understanding that on the other side of every government deficit lies a matching (financial) surplus that accumulates in some other part of the economy. Who receives those payments, and whether and how that money goes on to enter the veins of commerce—chasing after existing goods and services or spurring new investment—can spell the difference between a benign increase in the deficit (like we had following the 2009 American Rescue and Recovery Act or the 2017 Tax Cuts and Jobs Act) and one that makes a mess of inflation.

It’s worth noting that none of the headline macro forecasts referenced above (CBO, PWBM, YBL, CFRFB) predict that the OBBB will lead to ruinous inflation. In part, that’s because they view the package as only modestly expansionary in the short-run. Most of what happens on the tax side is just an extension of the 2017 tax cuts, so there’s no new fiscal impulse to worry about on that front, and a lot of the new stuff (no tax on tips/overtime/auto loan interest/etc.) expires after a few years. When you couple the new tax stuff with higher near-term spending on defense and immigration, all of the headline models project modest inflationary pressures, which the Fed counters by raising interest rates. As interest rates move higher, all of the models assume there will be enough crowding out of private sector spending to push inflation down to the Fed’s 2 percent target in a reasonably short period of time.

So the problem with the OBBB, according to all of these models, isn’t that it provides so much fiscal stimulus that it requires the Fed to aggressively tighten monetary policy. It takes only a modest rise in interest rates to hold inflation in check. The problem, according to CBO (and the others), is that you end up with a worse performing economy relative to a baseline case where the 2017 tax cuts were allowed to expire, shrinking the fiscal deficit over time. In all of these stories, the deficit is the culprit, and a slower-growing—not inflationary—economy is the punishment.

The White House disputes all of this. President Trump wants—and expects—interest rates to be lower, not higher, in the coming months and years. His administration sees more rapid, not slower, economic growth as a result of the OBBB. And the Trump team believes that inflation will trend down, not up, as manufacturing capacity expands and advances in Artificial Intelligence (AI) deliver a productivity miracle.

Faster growth. Lower inflation. Lower interest rates.

That’s what Kevin Hassett (director of the White House National Economic Council), Stephen Miran (chairman of the White House Council of Economic Advisers), and Scott Bessent (U.S. Treasury Secretary) are all promising. In July 7 interview on CNBC, Secretary Bessent said, “We’re going to have economic growth in a non-inflationary manner.” In a joint op-ed a week earlier, Hasset and Miran wrote:

Another argument raised is that the bill will cause inflation to pick up as growth takes off. Those with this view, of course, fail to account for the fact that a factory spending boom that increases U.S. production drives down inflation by increasing supply. The Biden administration threw fire on inflation with government spending and used skyrocketing regulations to impede supply. To see the effect of today’s proposed policies, look no further than the 2017-19 acceleration in growth that was accompanied by low, stable inflation.

It would be nice if we could jump directly from the tax incentives that are designed to spur new investment to the shiny new factories themselves, but that’s not how things work. Before a build-up in new manufacturing capacity can help drive down prices, all of those new factories have to be built. And that requires labor (with the requisite skills), capital equipment, lumber, steel, concrete, copper, etc. How is all of this supposed to happen in a non-inflationary way with high (and rising) tariffs on key inputs, a shrinking labor force via mass deportation, and a budget bill that will significantly drive up health care, energy, and other costs?

Long before “Liberation Day,” Secretary Bessent defended the use of tariffs, arguing that “tariffs can’t be inflationary because if the price of one thing goes up—unless you give people more money—then they have less money to spend on the other thing, so there is no inflation."

Well, republicans just passed a bill that gives pretty much everyone more money (while setting the stage for higher energy, health care, and other costs that feed directly into inflation). So am I worried? You bet.

It began:

“Is the U.S. Going Broke?”

Featuring an illustrated Uncle Sam with pockets turned inside out, that was the cover story of America’s most influential news magazine…in March 1972.

That influential magazine was TIME, and the image of Uncle Sam with his pockets turned inside out was the inspiration for the cover of my book, The Deficit Myth.

I opened the introduction to the book with this paragraph:

I remember when I saw a bumper sticker on the back of a Mercedes SUV in 2008 while I made my one-hour commute from Lawrence, Kansas, to my job teaching economics at the University of Missouri in Kansas City. It featured a man, standing slightly hunched, with his pants pockets turned inside out. His face bore a hardened, serious look. He wore red-and-white striped pants, a dark-blue jacket, and a top hat adorned with stars. It was Uncle Sam. Like the driver with this bumper sticker, many people have come to believe that our government is flat broke and that its budget is unable to tackle the most important issues of our time.

The book was published on June 9, 2020. Exactly five years ago. Two weeks after its release, it was a New York Times best seller.

I think it’s safe to assume that part of the reason the book did so well is that it was published at more-or-less the perfect time. Governments around the world were embracing the use of large-scale fiscal deficits in support of households, businesses, and other currency users whose lives and livelihoods were being upended by the onset of a deadly pandemic. People really wanted to understand where all of the money was coming from and whether everything they’d been told about the dangers of government debt and deficits was really true.

Almost overnight, there was a flurry of headlines declaring that “We Are All MMTers Now.” That actually frustrated MMT economists. For one thing, there’s nothing in Modern Monetary Theory (MMT) that advocates for big deficits, or even deficits per se. As a framework for analysis, MMT is agnostic about whether there’s a plus sign (+) or a minus sign (-) in front of the number that falls out of the budget box at the end of each fiscal, calendar, or lunar year.

There are times when a balanced budget—or even budget surpluses—might be appropriate. If a country can achieve full employment and price stability without the need for fiscal deficits—e.g. because they run sufficiently large trade surpluses—that is entirely consistent with the policy objectives under MMT. If, however, it takes persistent government deficits to achieve those macro goals, then MMT is there to remind us why that shouldn’t spark panic and condemnation.

As I explained in The Deficit Myth:

[W]e should accept any budget outcome that delivers broadly balanced conditions in our economy. Thus, if the budget outcome depicted in Exhibit 2 on the left gives rise to the balanced economic conditions pictured on the right, then fiscal policy requires no further adjustment and we should consider the budget in balance.

While the pandemic is behind us, the U.S. continues to run large fiscal deficits, and republicans are looking to pass a bill that will perpetuate these deficits over the coming decade. Headlines are once again sounding the alarm over what is supposedly a reckless and unsustainable fiscal trajectory. I’ve made my opposition to the One Big, Beautiful Bill Act (OBBBA) clear, but I’m not joining the chorus of Wall Street worrywarts, including Ray Dalio, Peter Orszag, and Jamie Dimon, who are currently sounding the fiscal alarm.

Dimon wants us to believe that there’s a fiscal “reckoning” coming. He said, “I just don’t know if it’s going to be a crisis in six months or six years.” Dalio is equally certain there’s trouble ahead, giving America “three years, give or take a year” to avert an economic “heart attack.” Orszag doesn’t try to pin down the timing of a debt crisis, but he says “the wolf” is “lurking much closer to our door.”

One of the reasons we’re supposedly in trouble, according the WSJ, is that “the math is getting daunting with interest on the debt blowing past $1 trillion annually.” As I recently joked, one wonders how America survived the Volcker/Reagan era.

Anyway, happy anniversary to The Deficit Myth. I wish the current debate was less focused on the size of the so-called “national debt” and more focused on inflation risk and other MMT insights. Maybe we’ll get there in another five years, give or take. In the meantime, here’s Chapter 3 from the book: The National Debt (That Isn’t).

Since they’re doing this through a process known as budget reconciliation, the bill can pass with simple majorities in both chambers. Republicans don’t need—and won’t get—a single vote from democrats, but they’ll have to stick together with minimal defections in order get the bill through the House and the Senate.

It looks like that won’t happen by the aspirational July 4 deadline sought by President Trump, but it will almost certainly happen sometime this year. As I teach graduate students in my Public Budgeting and Finance course, it’s all about conflict and resolution.

The Senate has no intention of rubber stamping the House version of the OBBBA. It plans to draft its own version, but it will need to resolve conflicts within its own ranks in order to pick up the 51 votes it needs. Senators Ron Johnson (R-Wis.), Rick Scott (R-Fla.) and Mike Lee (R-Utah) have already expressed strong opposition to the House bill, which they say doesn’t do enough to cut spending. They’re complaining about the bill’s price tag and demanding even deeper cuts to programs like Medicaid. Meanwhile, Missouri Senator Josh Hawley (R-Mo.) is pushing back against some of the draconian cuts to Medicaid and SNAP, warning that they will end up hurting millions of Trump’s own voters while handing democrats a fillet knife to sever them in the midterms. Others are worried about cuts to renewable energy and how those cuts will impact investment and employment in their state.

If the senate strays too far from the House version of the bill, new conflicts will erupt and the process will drag into the summer, maybe even the fall. At the end of the day, republicans will coalesce around a shared package, and the president will sign into law a bill that is neither beautiful nor all that big.

It Ain’t Beautiful

You can argue that beauty is in the eye of the beholder, but gratuitously stripping 13.7 million people of health insurance and taking food assistance away from millions of parents struggling to feed their children is pretty ugly stuff. And doing it to “pay for” tax cuts that will overwhelmingly benefit the wealthiest is both shameful and immoral.

As the economist and former State Senator Reynold Nesiba put it, this isn’t a beautiful bill. It’s an egregious transfer of wealth from the least among us to those who already enjoy substantial economic security.

Republicans like to emphasize the fact that their tax cuts will benefit everyone, not just those at the top. But when you take into account the full range of tax and spending cuts they’re proposing, there are no benefits for those at the bottom of the income distribution. Instead, the Congressional Budget Office (CBO) finds:

CBO estimates that if the legislation was enacted, U.S. households, on average, would see an increase in the resources provided to them by the government over the 2026–2034 period. The changes would not be evenly distributed among households. The agency estimates that in general, resources would decrease for households in the lowest decile (tenth) of the income distribution, whereas resources would increase for households in the highest decile.

It’s not just CBO. Researchers working with the Penn Wharton Budget Model (PWBM) have published similar findings. Those in the top 0.1% of the income distribution—i.e. those making at least $4.3 million per year—would get an average bump in their after-tax income of $390,000 while those in the bottom 20% of the income distribution—i.e. those making less than $17k per year—would lose about $820 per year in after-tax-and-transfer income. In other words, the House package strips resources from those at the bottom in order to provide a massive windfall to a small group of people at the very top. You can read more about the big winners and loser here and here.

Researchers at the Groundwork Collaborative don’t think much of the GOP’s fiscal package either. Instead of a beautiful bunch of tax breaks for American workers, they’re highlighting 13 ways the House bill increases the cost of living for working families.

That’s one reason House Democratic Leader Hakeem Jeffries and other lawmakers have dubbed it “One Big Ugly Bill.”

It Ain’t All that Big

Democrats aren’t just railing against the human and environmental harms the OBBBA will do, they’re joining a handful of republicans to gripe about the bill’s size as well. For example, the ranking member on the House Budget Committee, Rep. Brendan Boyle (D, PA-02), complained that “[e]ven with these draconian cuts, their bill could add more to the deficit than any legislation in decades.”

That’s a message the media has been hyping as well. By pointing to the recent Moody’s downgrade and a supposed rebuke from the bond ‘vigilantes,’ members of the press have tried to dissuade republicans from moving ahead with their big, budget-busting bill. Tobias Burns, who covers tax and the economy for The Hill, wrote How Trump’s big bill is shaking the bond market. Over at Bloomberg, readers were told, The Bond Market Hates His ‘Beautiful’ Tax Bill. CNN’s David Goldman wrote, Why the bond market is so worried about the ‘Big, Beautiful Bill’. And The New Republic declared, The GOP’s Budget Hawks Will Bankrupt the Country.

Republicans are mostly unnerved. They’re responding in the usual way, claiming that the tax cuts (along with some yet-to-be-announced deregulation) will unleash the entrepreneurial spirit, turbocharge economic growth, and generate so much new revenue that the deficit will actually shrink. When told otherwise by CBO, Speaker Johnson referred to their projections as “historically totally unreliable,” adding that 84% of CBO’s number crunchers are donors to democrats. He claimed that CBO is giving them “no credit” for the economic growth that will be spurred on by the tax cuts, and he insisted that when you factor in the revenue from the tariffs, it will be “deficit reducing at the end of the day.”

Treasury Secretary Scott Bessent is also shrugging off (and slagging off) the Congressional Budget Office, calling the rules that are used to “score” the bill’s cost nonsensical.

So how big is the fiscal package?

Well, it depends who you ask. According to the Congressional Budget Office (CBO), the bill's provisions would increase the federal deficit by $3.8 trillion over the next decade(2026-2034). So that’s the “size” of the bill according to the official scorekeeper.

When the House version of the OBBBA was evaluated using the PWBM, the cost came in substantially lower at $2.8 trillion, using conventional methods. With dynamic scoring, the methodology many republicans say they prefer, the size of the bill actually increases to nearly $4 trillion. Either way, the biggest increases in the deficit come in the first three years because many of the bill’s provisions—e.g. no tax on tips, overtime, auto loan interest, etc.—are set to expire after 2028.

All of the big headline-grabbing estimates suggest a massive bill that some warn could add more than $5 trillion to the national debt over the next decade. But as one analyst who closely follows the federal budget observed:

When you see deficit projections around the new tax bill - keep in mind how its scored. For a nano-second, the TCJA individual tax cuts "expire", a new baseline is set & $3.4-$4.6 trillion in tax revenue is "restored" and then immediately "cut" again. This "lost tax revenue" is built into the projection. The actual deficit expansion is much smaller and easily handled by a $30 trillion+ GDP economy.

It’s a wonky but important aspect of the debate that revolves around a very inside-the-beltway budget scoring concept known as the “baseline.”

Basically, there’s a disagreement about whether it makes more sense to “score” legislation using a “current law” baseline or a “current policy” baseline. Under current law, the 2017 tax cuts would expire at the end of this year, and the government would end up collecting more revenue in the years ahead, thereby reducing the deficits that would otherwise occur. By treating future revenue as a fleeting (current law) reality before acknowledging that this revenue will never materialize, CBO paints a much “uglier” fiscal picture over the coming decade.

Democrats, including former Treasury Secretary Larry Summers, don’t appreciate this nuance. He’s accusing republicans of waging a “war on math” by downplaying the true “cost” of their bill. I understand the politics. Having an eye-poppingly large price tag to club your opponents with seems like a good way turn voters against the bill. But to be honest, I’d rather evaluate the size of the package in terms of the net, new stimulus it will provide to the economy. That’s where the inflation risk lies.

So how much is that? Again, it depends on the estimate, but it could increase the deficit by ~$180B per year on average. I’ll readily concede that this is an ugly bill. A cruel bill. But is it a budget buster that puts us on an unsustainable fiscal path? Did it merit a credit downgrade? Will it ignite inflation by pushing out too much money?

I had a chance to share my views in a recent appearance on Bloomberg TV.

"Mostly Economics" is a weekly podcast — released each Thursday — hosted by CEPR Senior Economist and co-founder, Dean Baker. The show explores how US economic policies affect everyday lives — from household budgets to global trade relationships. Each episode delivers incisive analysis that cuts straight to the core of complex economic issues.

Dean and I had a wide-ranging conversation about MMT, the current administration’s economic policies, and the outlook for the US economy. The podcast just launched, and I was thrilled to be part of the debut episode. You can watch the whole thing on the show’s YouTube channel.

The Alarm Bells are Ringing

It’s not just Wall Street CEOs like Ken Griffin who have expressed concerns over looming supply chain disruptions. It’s chief executives at major retailers like Walmart, Target, and Home Depot, who have been warning President Trump that his trade policies will lead to empty shelves and higher prices due to the supply chain disruptions they are already causing.

Because retailers padded their inventories in anticipation of coming tariffs, consumers haven’t been hit with higher prices or acute shortages. That’s about to change.

“Prices are steady right now,” the big box CEOs told the president, but “the shelves will be empty” and this “could become noticeable in two weeks.”

With tariffs on most products coming from China set at 145%, many U.S. companies have been cancelling shipments (or refusing delivery) and halting new orders. It’s just not profitable for many businesses to pay a $145 levy to import a $100 product. You can imagine the havoc:

For importers who aren’t able or willing to pay the tariffs on their goods arriving in the coming weeks, that could result in thousands of unclaimed containers of goods at U.S. ports clogging the supply chain, similar to during Covid, said Stein.

“We could have thousands of containers stuck gumming up the port,” said Stein. “It’s going to be a train wreck.”

But we don’t have to imagine it because the chaos already here. Just take a look at what’s happening to import volumes at the port of Los Angeles right now. Instead of the uptick you would normally see at this time of year, cargo shipments are cratering.

And when you look at shipments from China in particular, well….the ship is hitting the fan.

I don’t think people realize just how much they take Chinese-made goods for granted. For example, I was teaching trade policy last week, and I asked my students whether any of them had ordered from Amazon in the last three months. Every hand went up. Then I asked if they’d be willing to share what they’d purchased: a dog leash, kitchen gadgets, a journal, gardening tools, a coffee maker, printer paper, etc. I speculated that almost everything they bought had been imported from China. Many of them looked surprised, but within a few minutes of Googling they confirmed that 85% of what they bought was made in China.

Things are About to Get Ugly

The pandemic-era shortages were the result of an external shock (COVID-19) that threw sand in the gears of our (otherwise highly efficient) global supply chains. Seeing empty shelves was unnerving, and the resulting inflation was painful for billions of people around the world. This time, the sand is being dumped in by choice. It’s an internal sabotage operation, foisted upon the world by a handful of China hawks in the Trump administration.

As a result, the odds of a self-induced recession are rising. (Some CEOs say it’s already here.)

Self-induced shortages and higher prices are already baked in as the number of ships that should be inbound for California are stuck in limbo at Chinese ports. There is no way to escape shortages at this point.

We’re not just hurting ourselves. America’s trade policies are expected to harm the global economy. The IMF recently revised its 2025 global growth forecast down to 2.8%, noting that further reductions are possible if trade tensions aren’t resolved fairly soon.

And while the U.S. and China may be “talking,” it isn’t clear that a deal will come anytime soon. Indeed, we could be a long way from a meaningful de-escalation between the world’s superpowers.

While Treasury Secretary Scott Bessent (rightly) acknowledges that the current impasse is “unsustainable”, he said earlier today that the path out of this mess would need to begin with China:

A de-escalation, which I think the Chinese are going to have to have. Then I think there can be an agreement in principle.

In other words, the ball is in China’s court, which tells me that we could be a long way from resolution. As the U.S. looks to make deals with other nations in the interim, China has vowed to retaliate if those deals are perceived to harm Chinese interests. Chinese officials have referred to US trade policies as a form of "unilateral bullying." This isn’t getting resolved quickly.

Meanwhile, here at home, the vibes are deteriorating.

Even some of the hard data is getting a bit ugly. Apollo’s Torsten Slok notes a sharp increase in the share of people making only the minimum payment on their credit cards, and Lending Tree reports that 25% of Buy Now Pay Later (BNPL) users are relying on the service to buy groceries (up from 14% just a year ago).

In Closing

As Sam Ro highlighted in his newsletter this morning, the hard vs soft data still looks OK for now. But when the ship hits the fan, the hard data will follow the soft data down the toilet. And the president’s already abysmal poll numbers will plumb new lows.

Right now, 72% of Americans believe Trump’s policies will cause a recession. Only 39% approve of job he’s doing on the economy. Barely a third approve of his tariffs, and 53% say the economy has gotten worse since Trump took office.

And if you think those numbers are bad, just wait until frustrated parents find empty shelves where the back-to-school supplies are supposed to be, and holiday shoppers get fed a steady stream of OUT OF STOCK with every click of the mouse. You might not think of President Trump as someone who tacks to the left, but that’s going to be his (ongoing) direction of travel when the merch isn’t there and the ship hits the fan in the coming months.

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Naturally, I’m hoping to shift as much of the audience as possible in my direction. If you’ve got some free time this evening (or whatever time of day in your time zone), please join the livestream. I know there will be some friendly faces in the audience as well because some of you travelled from afar to attend in person!

As always, thanks for your support!

We started by acknowledging that all of the chaos we’re seeing in financial markets, along with rapidly rising recession risk, is both self-inflicted and designed to produce these outcomes. In other words, the people who gave us this disastrous trade policy—Peter Navarro, Howard Lutnick, and the president himself—are intentionally creating market turmoil and driving the U.S. economy into a ditch. This was never a secret plan. We were repeatedly told to brace for near-term “pain” during the “detox” phase of this experiment.

“WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID” ~D.J. Trump

We didn’t talk about the ridiculous methodology that was used to apply higher (than 10%) individual tariffs on imports from 57 countries. The administration is billing them as “reciprocal” tariffs, with President Trump claiming that “we’re charging them half of what they’re charging us.” But that isn’t remotely accurate, as the economist who is credited with developing the formula explains here.

Since Trump’s tariff announcement, there’s been retaliation from our trading partners, a 90-day pause on the so-called “reciprocal” tariffs (except with China), a a pause in retaliation by the EU, a sharp escalation between the U.S. and China, and now—maybe?—the start of a cooling off period between the two great superpowers.

During our conversation with Chris, Joe and I agreed that the only way to make sense out of this whole trade war is to recognize that China—more than any other nation—seems to be in Trump’s crosshairs. For whatever reason, his long-standing (and almost entirely misguided) beef with U.S. trade deficits is most acutely focused on China.

We’re talking about a dramatic realignment that has damaged—perhaps irreparably—the U.S. dollar’s status as the global reserve currency. As Mosler put it:

His point is that the trade war has a caused a strategic shift that will undermine the desire to net export products to the United States. As Warren likes to say, “Exports are a cost, and imports are a benefit.” He’s talking about the real stuff that gets produced abroad and then sent to Americans who get the benefits that come from consuming whatever we’re importing. In real terms, our trading partners are losing something. In financial terms, they’re gaining something: US dollar-denominated financial assets.

As I explained in this post, it’s almost—but not quite—like getting something for nothing. Larry Summers actually laid it out pretty well here.

Anyway, you’re hearing a lot of people talk about how other countries are turning away from U.S. assets. There’s something to that. Our foreign policy, including but not limited to the way we’re dealing with our trading partners, has damaged our “brand” as a trusted ally and moral leader in the world. But headlines like this one from Reuters are missing a big part of the story.

Ultimately, it’s the desire to export stuff to the U.S. in the first place that results in the accumulation of U.S. dollar assets. If we lose access to a lot of the stuff the rest of the world was happy to produce and ship to us in exchange for credits to their U.S. dollar bank accounts, we really are killing the goose that was laying the golden eggs.

I don’t think anyone knows how this ends. The temporary pause only leaves us hanging in limbo for another 90 days (or until the president’s next change-of-heart). Meanwhile, the ratcheting up of tariffs with China is obliterating trade between the two countries. At some point, the tariffs get high enough to effectively grind trade to a halt. And then what? Can the two leaders work something out before we reach the point of no return? Is President Trump hell-bent on trying to crush the Chinese economy, such that he’s willing to use alternative geopolitical (non-tariff) measures? That would put us in a much more perilous place.

Finally, we touched on what’s happening with the reconciliation package that’s supposed to deliver the president’s One Big Beautiful Bill. We learned earlier this week that the House passed the Senate’s version of the budget framework. I keep hearing Democrats and media pundits reporting that the House did something that will require $1.5 trillion or more in spending cuts, with $880 billion aimed at Medicaid. That isn’t actually right.

Here’s what the Senate budget resolution calls for. The chart below comes from the conservative Cato Institute, and they’re mad as hell precisely because the Senate didn’t insist on any spending cuts to offset the huge cost of the proposed package. Instead, the Senate budget resolution calls for an aspirational $4 billion (over 10 years) cut, which, as I pointed out with Chris Hayes, is effectively zero.

Obviously, the House and Senate are going to have to come together and agree on the actual details. The budget resolution is just a framework to outline the broad contours of what’s to come. Nothing can pass until republicans iron out all of the details and even then it could be a tumultuous few months before anything crosses the finish line.

Many republicans, including the self-proclaimed deficit hawks, want draconian cuts (like the ones outlined in the earlier House version). But cuts of $1.5 trillion (or more) are not baked into the budget agreement that moved through both chambers.

Predictably, democrats are complaining about the budgetary impacts, lampooning republicans for moving forward with a plan that will “blow a hole” in the deficit. Yeva Nersisyan wrote about that here.

As usual, neither side appears to be approaching any of this with an MMT lens—i.e. thinking carefully about real resource constraints and inflation risk. So we’re looking at a package that could usher in $1.5 trillion in new tax cuts as well as $521 billion in new spending, all of hitting the economy when inflation is poised to accelerate due to the tariffs themselves and the supply-chain disruptions that will amplify inflationary pressures.

Buckle up!

Before you hear from either of us, you’ll be asked to register your own viewpoint on the debate resolution:

“Be it resolved, the U.S. federal government should make reducing the national debt a fiscal priority.”

Steve and I will each have five minutes for opening and closing remarks, with a moderated Q&A sandwiched in between. The entire event will run 90 minutes.

We did a pre-event call last week, and I think this will be a lot of fun. Steve has advised President Trump, who has unfortunately abandoned his prior understanding and now has a press secretary ruminating about America going “bankrupt” because of our debt and deficits.

I’ve done this type of crowd-polled debate before, and it’s always fun to watch the audience swing in the direction of MMT by the time we reach the end. I hope that happens again. Set a calendar reminder, and join in the fun with this link.

Our Callous and Clueless Commerce Secretary Disagrees

To try to persuade us that it would be no big deal if those checks didn’t go out on time, Lutnick tells a story about his 94-year old mother-in-law. “She wouldn’t call and complain,” he said. She would simply assume that there was some sort of payment glitch, and she would wait patiently for for the issue to be resolved. Maybe the money would come next month. No big deal.

As clueless as that was, Lutnick actually went further. He argued that you can identify a “fraudster” by waiting to see who calls to complain about not getting their check. Apparently, only liars and cheats rely on Social Security to get by.

It was a disastrous appearance, and Lutnick was rightly pummeled for his callous remarks over the weekend.

Here’s former Republican National Committee (RNC) Chair, Michael Steele, with a rant so intense that it provoked the expression on the right of the screen from one of his co-hosts. (Click below to play the clip.) “You insensitive lug. How dare you!”, Steele demanded. “Your momma’s not gonna worry” because you’re worth 4 billion dollars! “Take your ass into a community where they don’t have those resources available to them.” Then he called Lutnick an “arrogant SOB.”

This is the kind of stuff that’s causing republican members of Congress to cancel town halls and hide from their constituents. It’s the kind of stuff that drew more than 85,000 people to events with Senator Bernie Sanders and Congresswoman Alexandria Ocasio-Cortez in recent days. And it probably explains why a growing number of republicans are privately complaining about the cosplaying president—Elon Musk—who has publicly threatened to eliminate Social Security.

The Third Rail of American Politics

Republicans would do well to remember their history. There’s a reason they call Social Security the “third rail of American politics.”

In 1964 Barry Goldwater lost the presidency in a landslide to Lyndon Johnson in part because of the perception that Goldwater was hostile to Social Security. But it wasn't until the early 1980s that Social Security became known as the third rail of American politics. It was House Speaker Tip O'Neill who coined the phrase and O'Neill who, more than anyone, made Social Security murderous to touch.

Although Ronald Reagan had defended Goldwater in a speech in 1964, he reversed course when he campaigned for the presidency in 1980, pledging to preserve Social Security. In 1981, with Social Security facing imminent shortfalls, President Reagan was urged to back a proposal to cut $80 billion from the program “by reducing aid to students of retired workers, cutting disability payments, tightening eligibility requirements (saving $21.9 billion over five years), and reducing early retirement benefits (saving $17.6 billion over five years).”

The principal architect of the plan was David Stockman, Reagan’s budget chief. Although Reagan was led to believe that it would enjoy bipartisan support, lawmakers balked when it became clear that a low-income worker retiring at age 62 in 1982 would instantly suffer a 33% cut in benefits under the plan. Stockman later admitted, "I just hadn't thought through the impact of making it effective immediately."

With Elon Musk hinting at a sinister plan to eliminate Social Security altogether and Commerce Secretary Lutnick callously musing about skipping payments, today’s republicans are right to be worried. For they surely know this history:

After months of defeats, O'Neill finally had an issue he could rally Democrats around. At a news conference he declared: "For the first time since 1935 people would suffer because they trusted in the Social Security system." A reporter asked if Reagan had made a political mistake. O'Neill shot back: "I'm not talking about politics. I'm talking about decency. It is a rotten thing to do. It is a despicable thing." Republicans knew they were in trouble when the phones started ringing off the hook from workers who had planned to take early retirement in 1982. Representative Carroll Campbell of South Carolina complained: "I've got thousands of sixty-year old textile workers who think it's the end of the world. What the hell am I supposed to tell them?"

A quick vote in the Senate on a Republican resolution showed how badly Reagan had miscalculated. On May 20 the Senate voted 96 to 0 in favor of a resolution promising not to "precipitously and unfairly reduce early retirees' benefits."

Ultimately, Reagan was able to make significant cuts to Social Security.1 While painful, these “reforms” were mostly phased in gradually, which is part of the reason they got away with it. In exchange, voters were told that the program’s “financial difficulties” were being dealt with once-and-for-all. That turned out not to be the case, however, because no one on the Greenspan Commission anticipated the income inequality that accompanied the rise of the billionaire class.

So here we are.

No politician is using the MMT lens to defend the program, and a handful of billionaires are moving as fast as they can to destroy the most beloved federal program in American history. In so doing, they are throwing a lifeline to an otherwise rudderless Democratic Party. As word of Lutnick & Co’s indecency spreads, the phones will ring louder and the rallies will grow larger. The question is: What will democrats do to harness all of that anger?

These “magic money computers”, as Musk calls them, “can just make money out of thin air.” Daddy DOGE seemed genuinely gobsmacked. “It just issues payments.” “They just send money out of nothing.”

Hold onto your hats and clutch your pearls, because Musk and his team have just exposed a huge scandal.

Not

I’ve lost track of the number of people who tagged and/or messaged me to say something like, “Holy cow! Elon just let the cat out of the bag!” I guess they missed it when I shared this clip of Musk saying basically the same thing last month. He was talking about the federal government’s finances, and he blurted out:

You’ve got a situation where the checks never bounce. They’ve got an infinite money printer.

So even before stumbling onto these fourteen “magic money computers”, Musk had already publicly declared: (1) that the federal government can’t run out of money; (2) that it can write really big checks and they won’t bounce; and (3) that money can be conjured into existence at will. (At this point, you should be asking yourself why he keeps saying that “America is going bankrupt” and Social Security is “the biggest Ponzi scheme of all time” when he admits that the checks never bounce because you’ve got an infinite money printer.)

If you tell the average person that the federal government has an “infinite money printer,” they’ll probably envision something like this.

And this kind of machinery is used to create some of the money the government issues, but the vast majority is created electronically, using nothing more than a computer keyboard. There’s nothing “magic” about it, although the government’s computers are special in the sense that they’re plugged into a network that allows them to make payments by “sending money out of nothing”.

I guess Elon missed the MEMO from various central bankers—Alan Greenspan, Ben Bernanke, Jerome Powell, Neel Kashkari, Mario Draghi—all of whom have acknowledged that this is how modern money works. I guess he also missed thousands of articles, books, chapters, working papers, etc. that MMT scholars (alone or in collaboration with others) have written or recorded over many decades.

The point is, there’s no “bombshell” in what Musk told Senator Cruz.

As Mosler likes to say, “the government spends by changing numbers (up) in bank accounts.” The money doesn’t “come from” anywhere. It materializes out of nothing, just like the points that are awarded by the scorekeeper in a football match.1 Bloomberg’s Joe Weisenthal has interviewed most (if not all) of the leading MMT scholars over the years, so he immediately saw the humor in Musk’s “revelation.”

Nothing New Under the Sun

No one who read Warren Mosler’s Soft Currency Economics almost thirty years ago would be the least bit surprised to learn that present-day governments “spend money out of nothing.” And if you’ve read Randy Wray’s Understanding Modern Money, Michael Hudson’s Temples of Enterprise, or David Graeber’s Debt: The First 5,000 Years, then you know that governments have created “money out of nothing” from the very beginning.

You might even say that the ancient Mesopotamians invented blockchain technology some 4,000 years ago. Instead of a network of computers, these ancient societies used clay tablets to securely record transactions that were transparent, immutable, and resistant to tampering. You find the same kind of early blockchain technology throughout the Middle Ages, when English kings issued hazelwood tally sticks as a form of tamper-resistant currency with its own embedded record-keeping technology.

In fact, Mesopotamian clay tablets were so ubiquitous that scientists are still discovering them today. Just last week, The Guardian ran this terrific article about an impeccable new discovery.

Notice the word “spreadsheets.” This is exactly how MMT teaches us to think about the monetary system—as a complex system of intertwined balance sheets, designed to keep track of who owns what and who owes what to whom. Over the millennia, we have upgraded money’s operating system. We have changed the technologies that are used to issue and keep track of government spending, but the essence of money has not changed. It is no more “magic” today than it was 4,000 years ago. From The Guardian:

The red tape of government bureaucracy spans more than 4,000 years, according to new finds from the cradle of the world’s civilisations, Mesopotamia.

Hundreds of administrative tablets – the earliest physical evidence of the first empire in recorded history – have been discovered by archaeologists from the British Museum and Iraq. These texts detail the minutiae of government and reveal a complex bureaucracy – the red tape of an ancient civilisation….

“These are the spreadsheets of empire, the very first material evidence of the very first empire in the world…”

Money was invented for the purpose of moving real resources into the public domain. From the very beginning, it was conjured into existence to build armies, temples, palaces, navigable waterways, granaries, roadways, bridges and more. Whether they used “imprints on Mesopotamian clay tablets, notches on sticks, writing in chalk on slate or, later, fountain pen on parchment paper, stamped and milled coins, inked paper notes, [or] today’s electronic entries store on computer hard drives,” powerful collectives have issued payments out of nothing to maintain the functioning of their societies and further their broader ambitions.

The DOGE “bombshell” is tantamount to a team of archeologists declaring, "I found 14 magic money tablets that send money out of nothing." Nothing new under the sun.

Last night, I agreed to squeeze in one last interview, speaking to a European television audience about “Trump’s trade war.” The problem with trying to explain any of this is that the Trump administration’s own story about what the tariffs are supposed to accomplish is often naive, disingenuous, or internally inconsistent. I don’t know a single economist who feels like they’ve got a good handle on what, exactly, the president hopes to accomplish with all of these tariffs.

I also don’t know anyone who agrees with White House press secretary Karoline Leavitt, who is out there claiming that tariffs are a tax hike on foreign countries and a tax cut for the American people. Like, what?

I’m sure you can find someone with an econ degree running around saying this kind of stuff, but I’m not aware of any serious economist who thinks tariffs work like tax cuts. Wall Street economists certainly know better.

Here’s what Goldman Sachs thinks Trump’s tariffs will mean for American consumers. According to their estimates, foreigners pay 15%, U.S. importers/intermediaries pay 15%, and U.S. consumers bear 70% of the burden of the tariffs in the form of higher prices. Even worse, once you take into account how much domestic prices are likely to increase in response to more expensive imports, Goldman says the cost to U.S. consumers equals 100% of the tariff. So let’s stop with the nonsense about tariffs working like tax cuts. American companies are literally telling us that they’re raising prices—right now—because of the tariffs.

So why is Trump doing this? We’ve been told it has something to do with stopping the flow of fentanyl into the United States.1 We’ve heard that it’s a cudgel to stop illegal immigration and protect our national security. It’s also about “fairness” because the U.S. is “subsidizing” Canada and all of our trading partners are “ripping us off.” The Trump administration wants a manufacturing renaissance, so the tariffs are about bringing good jobs back to America. Sometimes, we’re told that tariffs are just a negotiating tool, a way to bend other countries to our will, like making Canada the 51st state. But they have to be more than just a negotiating tool if they’re going to bring in trillions and trillions of dollars to help “pay for” tax cuts and potentially replace the income tax altogether, which is also something the Trump administration has talked about.

So, what are the tariffs really about? As Trump recently said with respect to crypto, “Who the hell knows, right?”

All I know is that when it comes to Canada, the U.S. has a trade surplus in agriculture, manufacturing, and autos. The entire trade deficit with Canada comes from energy. By the way, the U.S. and Canada have traded electricity for more than a century, and Canada helps power Michigan, New York, and New England. When Canada threatened to retaliate by shutting off electricity to parts of the U.S., Trump complained:

You shouldn’t be playing with electricity. It affects people's lives. Actually, their life, it can depending on weather, it can affect their life so we can't do that. It doesn't make sense that our country allows electricity to be made in another country and sold to us. Who did that deal for the United States?

I’ll give you one guess.

The decision to maintain the free flow of energy across the borders was part of the United States-Mexico-Canada Agreement [USMCA] and negotiated by Trump in November 2018 during his first term. It was signed into law [by President Trump] in January 2020.

The whole trade fight with Mexico and Canada is basically President Trump saying he doesn’t like the trade deal that he negotiated! As CNBC’s Steve Liesman put it, the Trump administration’s trade policies are completely “insane”.

Just this week, Trump announced that he was increasing tariffs on global steel and aluminum imports to 25%. Canada retaliated with 25% tariffs on more than $20 billion of US goods, which will hurt American producers. And then Europe got in on the fun, responding with tariffs on $28 billion worth of US products. Not to be outdone, China slapped heavier tariffs on American farm products. It’s a global trade war, and it’s going to cost the U.S. consumer a bundle.

How much?

The Peterson Institute estimates that the steel tariffs alone will cost US consumers and businesses (in aggregate) $900,000 per year for every 1 job that is saved or created in the steel industry. How will the broader tariffs impact the average American family? Kimberly Clausing of the Peterson Institute says they could cost the typical family as much as $2,000 per year. On the revenue side, she thinks it’s naive to believe the tariffs will bring in $1.5 trillion over the next 10 years. That’s because some of the more optimistic estimates don’t factor in the risks of an economic slowdown.

And remember, republicans are trying to extend the 2017 tax breaks and push through some additional tax cuts. If you think those tax cuts will deliver a windfall that will more than offsets the high cost of the tariffs for most Americans, think again. The Institute on Taxation and Economic Policy (ITEP) estimates that only those in the top 5% of the income distribution will actually come out ahead.

For more on the political and economic impacts of the tariffs, you can listen to Clausing’s conversation with Ezra Klein, which I found thoughtful and engaging (though missing the MMT lens on trade).

Near the end of the episode, they grapple with the question: Why is Trump doing this? Clausing described the tariffs as “misguided.” Ezra called them “dumb.” Liesman says they’re “insane.” It doesn’t really work on television, but I can sum up my stance on the trade war in three emojis.

The bill repealed two provisions—the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO)— that reduced Social Security benefits for certain public sector workers. With those provisions gone, millions of teachers, nurses and other public employees (and their spouses and survivors) will have more money—an average of $360 per month—in their pockets each month.

I’ve been encouraging my own mother, a retired public school teacher, to visit one of the Social Security Administration’s (SSA) 1,200 field offices or use its toll-free number to find out whether she’s among the nearly 3 million Americans who will benefit from the change.

If she calls, she’s going to have to be patient.

Each year, the field offices handle 57 million calls and 30 million in-person visits, while the toll-free line takes in 80 million calls of its own. Staffing at the SSA peaked in 2009, when it had about 67,000 employees who served close to 55 million people. Last year, the program served approximately 69 million Americans, yet staffing had fallen to a 50-year low.

And now, at the behest of DOGE, acting Commissioner Leland Dudek has announced that the SSA is cutting 7,000 of its 57,000 workers and closing six of its 10 regional offices. That means even fewer employees to answer questions and process benefits, just as the Social Security Fairness Act brings more Americans into the program.

As Sen. Patty Murray (D-WA) has warned, “Gutting S.S.A.’s work force will make it significantly harder for Americans to get the benefits they have earned—and much harder to get the help they need.”

And we’re not just talking about longer lines at field offices and longer hold times, which will be bothersome but ultimately non-life-threatening. According to former Social Security Administrator Martin O'Malley, 72.5 million Americans might not receive their Social Security checks on time this year.

"Ultimately, you're going to see the system collapse and an interruption of benefits," he said. "I believe you will see that within the next 30 to 90 days." People should start saving now in anticipation of this, he warned.

That would be an unprecedented event.

For more than 85 years, the SSA has never missed a payment. If that were to change, it would cause anger, hardship, and, for the roughly 1-in-4 Americans who rely entirely on Social Security for their income, maybe even loss of life.

I wonder who voters will call when they can’t reach anyone on the switchboard at the SSA.

I’ve been publishing academic and popular articles on Social Security for at least 25 years, trying—unsuccessfully—to shift the public debate away from concerns over “financial solvency” toward a focus on inflation risk and real resources. As far as I’m concerned, any lawmaker, journalist, or media pundit who talks about Social Security without distinguishing between the following challenges isn’t being honest with American people.

1.) Legal Authority to Pay — Under current law, Social Security can only pay full scheduled benefits if there is enough earmarked funding to do so. Put simply, there must be enough “cash” coming in via payroll tax withholdings or enough “cash” coming in plus “cash” in the Social Security Trust Fund to cover the full cost of paying benefits each year. If the trust funds run dry—i.e. are drawn down to zero—then the program doesn’t have the legal authority (from Congress) to pay full benefits. This would force automatic cuts under current law.2

2.) Financial Ability to Pay— As Alan Greenspan explained under oath many years ago, the federal government cannot “run out of money.” One does not have to embrace Modern Monetary Theory (MMT) to acknowledge that Congress has the financial ability to “create as much money as it wants and pay it to someone,” as Greenspan put it. Social Security is a federal program, authorized to pay benefits to eligible individuals—retirees, their dependents, and the disabled—under the rules established by Congress. The reason there is so much anxiety about Social Security “running out of money” is that the authority to pay benefits is constrained by statute. If Congress changed the law to give Social Security permission to pay full scheduled benefits regardless of any earmarked source of funding, then the threat of automatic cuts would disappear.

3.) Capacity to Provide Real Resources—This is where the rubber meets the road, and this is what MMT economists emphasize. It is easy enough for a currency-issuing government, like the United States, to meet financial obligations that are denominated in a sovereign unit of account. That’s true whether we’re talking about paying trillions of dollars in interest on government securities or trillions in the form of benefits to future retirees. In purely financial terms all of it is “affordable.” But what about in real terms? Greenspan understood this distinction quite well. How can you be sure, he asked, “that the real assets are created which those benefits are employed to purchase?” In other words, what happens after the checks go out and retirees—who are no longer helping to produce the economy’s output—want to book vacations, dine out, play golf, get medical treatment, and so on? With fewer workers and more retirees, the real challenge is this: Will the economy be productive enough, in the year’s ahead, to allow both groups to buy the things they want or will everyone end up competing over a shrinking pool of real resources, thereby driving up prices?

Running Out of Money

If we were having an honest debate, we would acknowledge that Social Security can run out of statutory headroom to pay full scheduled benefits, but the money can always be made available. Alas, we’ve become trapped in an eternal tug-of-war over the program’s “solvency,” not unlike two desperate souls fighting over rocks in Dante’s Fourth Circle of Hell.

Everyone just accepts that the program is “running out of money,” so there’s a never-ending battle over the best way to shore up the program’s finances. It’s not the debate I want to have, but it’s the only one that gets any serious consideration.

So it’s worth understanding how the Social Security Administration (SSA) determines how much runway is left before the program “runs out of money.” It’s actually a pretty big undertaking, and it requires the Trustees of the SSA to make a wide array of economic and demographic assumptions in order to project how much money the program will take in—and pay out—in future years. Here’s a projection from the chief actuary of the SSA, Stephen Goss.

There’s enough “money” to pay full scheduled benefits until 2035. After that, the combined (OASDI) trust fund (which doesn’t actually exist), is depleted and the program is only legally authorized to pay 83% of scheduled benefits. The “good news” is that this is projected to happen 13 months later than the Trustee’s were forecasting in their previous year’s report.

If that seems like a pretty big “miss,” it’s because it’s hard to predict exactly what’s going to happen to things like inflation, unemployment, economic growth, worker productivity, fertility and mortality rates, immigration, etc. Relatively small changes in the underlying assumptions can have a big impact on the size and timing of projected shortfalls.3

The Shortfalls Weren’t Supposed to Happen

Back in 1983, following the prescriptions of the Greenspan Commission, changes were made that were supposed to prevent Social Security from “running out of money” over the next 75+ years. Yet here we are, in the Fourth Circle of Hell, wringing our hands over looming shortfalls and automatic benefit cuts. Why is that? As Stephen Goss put it:

Well, it turns out that some things are easier to predict than others. As Goss explains, it’s not that people are living longer than expected. In fact, “projected life expectancy at age 65 in the 1983 report was extremely accurate.” It’s also not because of an unexpected decline in birth rates, for “this was also known and anticipated in 1983.”

The main issue—what the Greenspan Commission did not see coming—was Elon Musk. Or, more specifically, the “increasing concentration of earnings at the top of the distribution.” As Goss explains:

“The reduced share of earnings subject to payroll tax explains most of the increase in cost as percent of payroll, compared to the 1983 projection.” In other words, rising inequality is the main reason that Social Security appears to be in financial trouble.

Bottom Line

The bottom line is that if you want to engage productively in the debate over Social Security, you need to understand the difference between legal authority to pay, financial ability to pay, and real resource capacity. If you simply want to understand why pretty much everyone believes the program is “running out of money,” you need to understand how the Trustees formulate their projections. And if you want to understand why the Trustees continue to project shortfalls when the whole “problem” was supposedly resolved back in 1983, you need to understand the one big thing the Greenspan Commission didn’t see coming: the rise of Elon Musk.4

Someone on Bluesky asked me if I thought the real reason for the stunt has something to do with a desire to bring back the gold standard. I don’t think that’s it, but I do think there’s a reason the president wants this made-for-TV-moment.

And it’s related to something I wrote about a couple of weeks ago.

Here’s what I think is actually going on.

President Trump wants the American people (in particular) to see that big beautiful stockpile of glistening gold because he wants to revalue it. By showing off “our incredible riches,” the president will explain that we have vastly undervalued its worth. “Can you believe it?” Trump will ask. “We’re valuing all of this gold at $42.22 an ounce. How crazy is that? I can tell you it’s worth a lot more, and we’re going to value it appropriately.”

That will help the Trump administration justify an accounting maneuver that essentially uses gold instead of platinum to invent “cash” for the Treasury.

The Real Reason for the Visit

By pledging to “monetize the asset side” of the federal balance sheet, Treasury Secretary Scott Bessent has already signaled that something like this is coming.

As Gillian Tett recently reported in the Financial Times, one of the assets that might be slated for the monetization scheme is gold. The idea is that the U.S. Treasury could revalue America’s gold stocks, which are currently valued at $42.22 per troy ounce in national accounts. If they were accounted for at current market values—around $2,800 an ounce—Tett reports that “it could inject $800bn into the Treasury General Account (TGA), via a repurchase agreement.”

In terms of the accounting benefits, the maneuver comes pretty darn close to minting a trillion-dollar platinum coin, doesn’t it? It may sound crazy, but it wouldn’t be the first time the Treasury turned to Fort Knox to “find” money.

Here’s a bit of history, courtesy of my friend Nathan Tankus.

As the New York Times reported in 1953 (my emphasis):

When the United States went off the gold standard in 1933, the metal was priced at $20.67 a fine ounce, and the nation owned about $4,000,000,000 worth at that price. After its revaluation at $35 an ounce in 1934, however, the same quantity of gold was worth nearly $7,000,000,000, since each ounce was priced $14.33 higher.

By devaluing the US dollar (revaluing gold) in this way, President Franklin D. Roosevelt, “found” the cash equivalent of $2,819,000,000 in the form of gold. As the Times noted, it was “merely a book-keeping item,” but part of the “free” gold was “used to meet the nation’s subscription to the World Bank and the International Monetary Fund.” The remaining balance, $1,000,000,000, was “carried on the Treasury’s books” until Monday, November 9, 1953, when half of it was “monetized” to avert the nation’s first debt ceiling crisis. For more on that fascinating history, read Kenneth Garbade’s staff report from the Federal Reserve Bank of New York. Here’s an excerpt:

The solution to the debt ceiling crisis…involved a stock of almost $1 billion of “free” gold—that is, gold coin and bullion in Treasury vaults on which gold certificates had not yet been issued. The free gold was what remained of $2 billion that had been allocated (by the Gold Reserve Act of January 30, 1934) to the Exchange Stabilization Fund (“ESF”) out of the $2.8 billion derived from the revaluation of 194 million fine ounces of Treasury gold (from $20.67 per ounce to $35 per ounce) in 1934.

On Monday, November 9, the Treasury announced that it had monetized $500 million of its free gold by issuing gold certificates against the gold and depositing the certificates with the Federal Reserve, and that it had used the resulting credits to repurchase directly from the System Open Market Account $500 million of Treasury notes maturing in December. The action did not affect monetary policy—it merely replaced one asset (the Treasury notes) with another (the gold certificates) on the Fed’s books.

Once the Treasury bought back $500,000,000 in outstanding debt, the securities were canceled and hence no longer subject to the debt ceiling limit. Many legal scholars have long argued that a trillion-dollar platinum coin could be used to accomplish the same thing today.

If I’m right about President Trump’s motivations, I don’t think he’s planning to use “free gold” the way past presidents have done. Rather, I suspect that the Fort Knox visit is really about parlaying the gains from a revaluation of the nation’s gold stock into some new scheme—a Sovereign Wealth Fund, a strategic Bitcoin reserve, or both—that will have nothing to do with Making America Great Again.

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