Jon Stewart Is Not a Monkey
But this was bananas
Last week, Jon Stewart recorded a podcast with the former President of the Federal Reserve Bank of Kansas City, Thomas Hoenig. The conversation drew a lot of attention on so-called “finance twitter” (#FinTwit), where lots of folks piled on to ridicule Hoenig for arguing that monetary policy has been a major driver of inequality over the last decade or so. But the part of the conversation that really went viral had to do with money—where it comes from—and government debt.
This mashup of their conversation is making the rounds on Facebook.
I listened to the entire podcast, and I found it really frustrating. Stewart was asking a pretty straight-forward question—one that I asked (and answered) in chapter three of The Deficit Myth.
“If we really want to make the national debt disappear, there are more painless ways to go about it. The most straightforward option is to do it the way Lonergan described. Simply let the central bank buy up government bonds in exchange for bank reserves. A pain- free transaction that turns yellow dollars back into green dollars. It can be carried out using nothing more than a keyboard at the Federal Reserve.”
I sat down with my friend Rohan Grey (a law professor and MMT scholar) to listen to the whole episode again. Our commentary is interspersed below. We hope it brings some clarity to the discussion.
At this point, Stewart and Hoenig spend some time talking about how the Federal Reserve experimented with Quantitative Easing (QE) after the 2007/08 financial crisis and how the Fed restarted its bond-buying program in response to the COVID-19 pandemic. Hoenig understands that Congress had to act but he doesn’t like the fact that the Fed bought up so many US government bonds, which he sees as ‘printing money’ to enable the government to borrow trillions at very low interest rates. And this is where things go off the rails:
Here’s Mosler.
It would be nice if you, Rohan, or Warren could reach out to Stewart and get on his show to straighten things out.
Stewart has good instincts, which is not surprising, but he doesn't have a clue how all this works. Almost no one does. He says he understands how banks work, but then explains that banks get money from their depositors and loan it to borrowers at a higher interest rate. I guess, like most ordinary people, Stewart would be blown away to learn that banks create the money when they make a loan. People are so used to the idea that money is something almost tangible that is just "out there" so that banks have to "get their hands" on some to make a loan and that governments have to get their hands on some through taxes or borrowing to spend. The truth, as explained by MMT, is not widely understood., to say the least. So I hope an MMTer will go on the show to explain how the financial system really works.