#2 - Recession Fears, Debt Ceiling, and The Trillion Dollar Coin

Unknown: 0:16

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Adam Rice: 0:33

Hello, everybody, welcome to the second episode of applied MMT. Our goal for this podcast is to discuss current events in the economy through an MMT lens. Today, we talk about the debt ceiling recession fears and other issues like minting the platinum trillion dollar coin. Thank you for listening. We're excited to keep this podcast going. Ryan, I'm going to kick us off, I think, you know, we had some big news today, the GDP numbers came out. And GDP in the fourth quarter is higher than expected at 2.9%. Which, to me indicates that we're not in a recession. And I know it's something that you and I have talked about for a while that kind of this recession is has become a meme and my personal thinking on it. My take on it is that a lot of the recession talk was politically motivated around the election, you know, trying to get people to believe that there was a recession and there would be a recession and trying to get people to vote for the opposite party. And then I think there's been a kind of a confluence of things with all these layoffs of big tech companies and people conflate those layoffs with a recession in the wider economy. But by all indications, the economy is doing pretty well. And I think you know, I would love to talk about that from an MMT perspective and why we think that is, but yeah, we'd love to hear your thoughts just to get us going today. Well,

Ryan Benincasa: 1:58

first, first of all, Adam, I mean, you and I were texting each other so much last fall, saying like, are we missing something? I kind of think this whole recession narrative is exactly that. And just a narrative. And there's all this fear mongering and, you know, people talk about the rate hikes and the Fed tightening. I mean, first of all, last time I checked, I don't know about you, but if I have, you know, $10,000 in a savings account, and I buy a US treasury bill, right, because rates are higher now. Right? If I, if I'm getting paid 4%, on that I end the year with$10,400 in my savings account, whereas if, whereas if, if rates are at zero, then I ended up the year with only $10,000. In my account, so I don't really understand how that can be a form of, of tightening as its as it's generally referred to. But But yeah, it's just I feel like, I mean, you know, not that we didn't really have the podcast going last fall, but I kind of I don't know about you, I feel a little bit of vindication and like a little bit of a victory lap. I don't know. I mean, you know, the I guess the consensus was for close to two and a half percent GDP growth that came in initial estimates are seeing closer to 3%. I mean, we're seeing this coming. Right.

Adam Rice: 3:40

Right. Right. And I think, yeah, I mean, I think if you're going, if you're approaching you, if you're approaching the economy with that kind of conventional lens, and you're only focusing on interest rates, I can understand why you'd think there might be a recession, given just how rapid the rate hikes were. But like we talked about in the first episode, and I think, really only MMT understands this, is that, you know, there's another side of the coin here and that interest payments have gone way up. And most of the commentary just ignores the fiscal side of the story. You know, there's when it comes to predicting the economy going forward. There's no talk about increased government spending. There's no talk about the chips bill, there's no talk about the increased social security payments that are going out as of 2023. There's no talk about, you know, the student loan policies. I feel like I'm missing something. Was there another one I'm missing? The inflation Reduction Act? Yes, the inflation Reduction Act. And if you're, if you're ignoring all of that fiscal policy, and you're only looking at it from a monetary policy lens, you know, and the interest rate changes. I can understand through that conventional lens that you think the economy might slow down, but there's so much more to the story than that, you know, it's like, it's just you're operating under a totally incomplete framework.

Ryan Benincasa: 5:06

Right? I mean, that's exactly right. You're you're looking at one side of, of a balance sheet or an income statement and and not looking at the other side, right. Uh, you know, MMT is the only economic framework that recognizes that, you know, increased government spending equals, you know, private sector income. Right. And so when we when the, when the Fed raises rates on government debt, well, who predominantly owns the government's debt? Well, the, you know, households, firms and municipalities in the United States. So, effectively, everyone got a raise, whereas for the over the last, you know, decade, rates were close to zero. So the fact that I mean, you and I, we, like we were I just remember, just constantly text back and forth, like, what are we missing here? Are we crazy? Why isn't this more widely talked about or known? That that when the Fed raises rates, and what's also shocking, too, is if you look at so the, what it's supposedly supposed to do is, is slow down credit growth? Right? It's saying, Okay, you're, the cost of capital is going higher. And so it's supposed to, but there's just, there's no evidence of that. I mean, if anything, growth, credit growth accelerates, because savers have more dollars in their in their accounts, you know, at the end of the year end of the quarter would ever be because the rate has gone higher. So I just, you know, MMT is the only economic framework that recognizes rate hikes. You know, and it depends also on other factors, for example, if debt is only 30% of GDP, well, it's not going to have as as big of an impact, right. The fact that it's, you know, over 100% of GDP means that, you know, it's the, the, the interest rate hikes are, you know, the sensitivity in terms of their and magnitude, in terms of their impact on the economy is, is much higher, right? And what's also funny is like, and I've heard Warren Mosler make this example and say, okay, just just, you know, recognizing this as absurd, but just to make an argument, what if the Fed rate hike, like hiked rates? 200%? Or alternatively, you know, the, the debt as a percent of GDP went from 100% to 100%? Or 100%, excuse me to 1,000%, you know, 10 times the size? I think most people would recognize that that would be highly, highly inflationary, right. Because you're, I mean, again, if you had interest rates at 100%, that means that the, you know, you know, the, and the, the stock of the current balance of debt as a percent of GDP is higher than 100%. So, you're, the government would be paying out over 100% of GDP, so over 30. So, you know, it'd be like $3 trillion a year in interest payments to the private sector, you know, in a in an economy that has an annual GDP of like, 25 trillion. So how, how can that possibly work to stem or to stop inflation? Right? That just doesn't make any sense?

Adam Rice: 9:09

Totally? Well, especially, you know, one of the things that I've, that I've been thinking about is this idea that so, you know, I think kind of the the mainstream narrative is that all of this money was created during COVID, and sent out to people in the form of stimulus tracks or other programs. So people are very flush with cash, and they're spending that cash and that's what's driving up prices. So my question is, for people that think rate hikes will, you know, temper spending? Do people like people if the if the thinking is that people already have money, then how does how does increasing rates affect their spending? Right? Like is like, telling me Do people have the money or are they borrowing the money? Right? Like, from my perspective, that whole thing is kind of backwards as well. It's like, on one hand, we're saying that people have a ton of money on already. And on the other hand, we're saying that we need to stop people from borrowing to reduce their consumption in order to prevent inflation. So it just seems totally consistent to me, and I don't know if that's actually how the Fed thinks about it. But I think that's how a lot of people think monetary policy works.

Ryan Benincasa: 10:25

Yeah, I don't I mean, you know, I don't know what the people at the Fed are thinking. Frankly, I think the Fed just thinks that, you know, raising rates magically will slow borrowing, because it's more expensive. But I mean, I think I, you know, that's what but, but as Moser has pointed out, higher rates, just make just kind of raise generally raised the prices of everything in the economy. Right? If the cost of funding is higher, than everything is just going to be more expensive. And he loves to use this analogy of, like, a, you know, let's say you're a gold miner. And the, you know, the price on gold is, is around$2,000 an ounce or something, and, you know, you have a choice, you can sell it on the spot market, right. And so you take cash delivery today, or, you know, a t plus one, so, you know, tomorrow, or you could sell it, you know, a year in the future on the forwards market, you know, via some sort of forward contract. If interest rates are at zero, right, and you sell on the spot market, then and you take the cash and buy, you know, the, you know, a risk free one year T bill, you're gonna make 0% on that cash. Right? Yep. If, meanwhile, but if rates are at 5%, okay, you take that cash, you buy a one year T bill, you're making 5% on that. So now an economist loves and finance people have talked about opportunity cost. So if you don't adjust your price, like when you when you're deciding to sell it, you know, on the spot market versus foreign market, if you don't adjust, you need to adjust your the price that you would sell it on the foreign market, to recognize the opportunity cost of not having the savings and getting the 5% for free. Right. Right, right. So that's going to make, so that's going to, you're going to demand additional compensation, if you sell it on the on the forward market, if rates are at 5% or 10%. Versus if they're at zero 0%. And so that just makes what he calls the term structure of prices, that just makes everything higher. What I would sort of kind of add to that is, you know, just like a, let's say, You're a you're a large corporation, I mean, you know, I remember reading after third quarter earnings were coming out like Unilever, I think I sent this to you, Unilever reported 11% increase in in prices. And, you know, negative volumes you're on Yeah. So, what happens is, you know, you know, accompany companies frequently, finance themselves, right, they have to, you know, they don't they don't hold, you know, the inventory balances go up and down, things are seasonal, right? And so, you'll often use lines of credit or, or issue commercial, you know, other short term forms of debt, like commercial paper or something, you know, to fund those, you know, the kind of the working capital needs, right? So during the holidays, let's say you're, you're a retailer, and you know, two thirds of your sales come during the holiday season, or maybe even more, you know, you've got to, you've got to draw on a line of credit, usually from a bank to purchase the inventories ahead of time, right, and then you sell them. And then and then you take the proceeds, you pay them and you pay the loan back right to the bank. So and those loans they get priced. Usually there's like a base rate, whether it's LIBOR or Sofer or whatever they get up price at a spread over that that base rate. So all of a sudden, if that if that base rate is way higher, right, then then your interest expense on that. That credit line that you're using to borrow to fund your inventories. That's going to that's going to be a lot more so in order for you to maintain your margins because that's how that's how companies pricings is they think about in terms of margins, if they want to maintain the margins, they have to

Adam Rice: 15:22

raise prices. Right. Right. So

Ryan Benincasa: 15:25

that's where I really, like even basic understandings of businesses would suggest that raising the cost of funding raises prices. Right. Right. And so well, you don't understand. Yeah,

Adam Rice: 15:42

you would think that that would be intuitive, just because, you know, it's, it's, it's a common talking point to say that, you know, if if, for example, taxes were raised on businesses and businesses will raise prices. But, you know, if if, you know, if the Fed is raising rates, and they're increasing the cost of financing, isn't that the same? You know, isn't that at least similar operationally?

Ryan Benincasa: 16:08

For the business? Yeah, absolutely. I mean, it just depends on, you know, who, who's it impacts? income distributions, right? Like, right, if they're raising rates, and that's going to come to the benefit of the lender, the raising taxes that comes to the benefit, using benefit here, you know, with with air quotes, to the, to the, to the sovereign, to the to the government, not that the government benefits from generating more revenues, but but it you know, it just reflects higher revenue collections. Yeah, so that, but yeah, they're, they're, you know, kind of functionally the same. They're functionally attacks. It just, it's just a matter of who gets is, is it the banker or the government? Right, right, exactly.

Adam Rice: 17:02

That's a good way to put it. So what I'm wondering at this point, and I'm actually starting to see this, at least in the media today, you know, with with the news of, with the GDP numbers coming out, I saw that Goldman said, I'm gonna read the quote right now, Goldman said today, business surveys tend to underestimate growth, when sentiment is particularly depressed and fears of imminent recession have been has had been top of mind for several quarters, we expect continued growth and economic activity and employment this year, particularly now that the drag from tighter financial conditions is likely to have peaked. So my question is, what is it gonna take for kind of this narrative to change, that a recession is coming, that we're waiting for this bad recession that everyone knows it's coming, and it's going to come any day? Now? I wonder what's going to, you know, what is it that's going to change? It is it just gonna be a gradual shift in sentiment, and people are going to kind of forget that we were all talking about a recession for I don't know, the last six, eight months a year. That's, that's kind of what I'm curious about. And I think it's also important to recognize that, you know, when so it looks like we've passed peak inflation, it looks like inflation is getting down back to normal. And, you know, not long ago, like three months ago, people big economists were saying we might have to see unemployment go up a few percentage points in order to reduce inflation. So it's like if this stuff, you know, if inflation comes back to normal, if we don't see a recession? Is all this commentary just going to be forgotten about? My My guess is it will and the sentiment will just change the kind of mainstream narrative on the economy as a whole will just gradually change. But I'm curious as to see what happens there. And what are your thoughts on that?

Ryan Benincasa: 18:53

Well, first of all, I'll just point out that Yan hotsy is the chief economist at Goldman. I don't know if you call him an MMT guy, but he's MMT. Adjacent, he has credited MMT. With really and think about the economy in terms of sectoral balances, and that whole framework as being very influential to to his general framework and forecasting. And so something that I feel like, you know, should people should know more that that the chief economist at Goldman is basically in an empty guy. But I don't know the answer my if I had to, about you know, how the narrative will shift if I had to guess it's going to be exactly what you said people will just just start talking about other things, you know, the new cycle is generally pretty fast these days. And, and, you know, people will look back and say, oh, you know, there was there was, you know, all these fears about recession and everyone got it wrong, but, you know, no could have known could have actually predicted that right everyone if everyone got it wrong. The dog From What's so funny is I was reading, I was reading a report, I was investigating a, a company a stock that that, you know, as part of my journal research process, and I was reading old reports, because I was like, you know, from from right after they had gone public, they had actually been spun out from another company back in 2015. So, and this company, they're, they're a chartered bank, they, they focus on consumer finance. And, and what was so funny is I'm reading this report from 2015. And literally, this analyst says, you know, one of the biggest risks, this isn't a recession. Yeah, you know, we really could be entering a recession right now. And, and so I don't know, if this company is going to get, you know, a multiple rewriting, but, you know, it aside from OAE, its business held in blah, blah, but it's just like, this is perpetual fear of recession, because because, you know, these because of these just flawed models, that, that, and that's one thing, I think that that we really have to recognize is that the, the models and the assumptions for the models and that that economists use, like, it's not that they're, I mean, they are wrong, but those models and frameworks of analysis were useful. In a prior period, they were useful, these kind of like more, you know, focus on austerity and stuff that was useful under a gold standard, because under a gold standard, the United States government could not issue money in unlimited quantities, because it by law was restricted to, you know, it promised its creditors that it would, you know, always be able to convert dollars into gold, you know, a price of that set. And so it wasn't until we officially untethered that relationship. Yep. That, you know, that we could see the full power of our, of our fiat monetary system. And the problem is that people haven't they haven't changed their models or their frameworks, they're still using a, a map that assumes that the earth is flat, even though we know that it's wrapped, right. It's a sphere, right? So that's something that I think like, you know, because it can be frustrating at times. It's why people think this way, and it's in the reason it's that is because it's so deeply ingrained. And, you know, things were taught a certain way for a long time. And, and it's just that that's an old model that isn't relevant to the world that we live in anymore. Yep. And we can move past it. Yeah. 100%.

Adam Rice: 23:29

I, I'm wondering if you remember, post 2008, how the big descriptor for the economy was I don't know, it might have been Larry Summers that came up with it was secular stagnation.

Ryan Benincasa: 23:42

I remember hearing about it, I never, I never really dug into the details of what he was saying.

Adam Rice: 23:52

But, but I actually don't know what what he meant, or what what the definition of secular stagnation is in an economist mind. But to me, it seemed like just a term that was used to explain the low growth after 2008. And it wasn't really rooted in reality. I mean, I think if you, you know, if you understand MMT, you can see that basically, after the financial crisis, the government initially, you know, stimulated the economy, and then went straight into austerity. And we had an incredibly long recovery as a result. And I think the, you know, that the mainstream was describing that as secular stagnation. And I guess what happened with long slow recovery, you're saying the slow recovery? Yeah, the very slow recovery, which was unnecessary, you know, and we saw that with COVID. We bounced back very quickly, because the government took a lot of action. So I'm wondering if there's going to be another term to kind of describe what we're going through. I mean, I've already seen people calling this a white collar recession, because because, you know, Goldman's firing people and Google has fired people and all these other tech companies. But in my mind, it's more of just, you know, if anything, it's just a correction. And I just I don't I don't think it's it's I don't I don't see it in the broader economy. You know, I see that a handful of times. Companies and I actually, sorry to interrupt, but there was, I saw a pretty amazing stat. I think Goldman put this out actually, if all of the employees in the US economy that work in I think it was internet search, and media, so those two industries, if all those people lost their jobs, unemployment go up 50 basis points. So it's like you're talking about such a small piece of the economy in the grand scheme of things. Granted, those people generally have high incomes, and they probably support a lot of backed economic activity through their spending. And it's such a small piece compared compared to the whole picture. It just gets so much visibility in the media, you know,

Ryan Benincasa: 26:02

right. And, but, but also, like, these companies, kind of control the media or significant portions of the media, right, and what gets put out there. So I think, you know, I think, you know, ostensibly, they can press their thumb on on certain narratives. And and, you know, despite despite having all of these sort of legal protections, or around, you know, being a platform company, or what have you, I think it's pretty clear that these companies, for better or worse, offensively press their thumb, and influence the content and information that gets disseminated. And so, you know, I think that that, you know, not to sound like a conspiracy theorist, but that has to have some sort of impact, right, you know, are these the companies that control the media, and then dissemination of information or going through layoffs, and, you know, it's probably likely that we're gonna hear a lot about it? Yeah. And that's going to influence how people think. Yeah, definitely. Definitely.

Adam Rice: 27:14

Yeah, that makes total sense. One thing, so one thing I would love to touch on is the debt ceiling talk, oh, and kind of go into the mechanics of what's happening. And, you know, the trillion dollar coin solution. So if you are comfortable explaining the debt ceiling, we would love to go into that.

Ryan Benincasa: 27:40

Yeah, and again, there's the people that understand this a lot better than I do in terms of the legal machinations and so forth. But my, my general understanding is that we have this sort of self imposed. Paul, debt ceiling policy that we've raised, I don't know, somewhere in the neighborhood of like, 60 times over the over the last, you know, for decades, you know, dating back to like, World War Two, I think. And at the same time, you have, you know, that law, it comes in conflict with the 14th Amendment, which says, you know, essentially, the Treasury has to, by law spend what the, what Congress tells it to spend, right. Okay, so you kind of have to sell this, these sorts of laws that are in conflict with one another. And there's, so this is so this creates all sorts of political drama. And it's been used repeatedly by the Republicans as a as a means to cut public spending. And, you know, they were very successful actually, in in convincing them or enforcing Obama to to make remember this. Do you remember the sequestration during the Obama administration?

Adam Rice: 29:20

Vaguely what what happened again?

Ryan Benincasa: 29:24

I mean, they make cuts to the military and other public public spending in return for, you know, the Republicans agreeing to raise the debt ceiling again, and so that so they're trying to, to do this again. Backing up for a second and you you're talking about Larry Summers and secular stagnation? I mean, you know, he was the one who told Obama Hey, like we can't do a trillion dollar stimulus package like people people will freak out

Adam Rice: 29:57

right right. So I think is a is a is a crazy anecdote and more people should should know. So basically, the story is that Larry Summers didn't want to go over a trillion dollars just because a trillion dollars sounds like a really big number. So I think the stimulus after oh eight, wasn't it something like a $982 billion bill?

Ryan Benincasa: 30:16

I thought it was more like 100 billion, but maybe there are other, you know, net effects or something. I don't remember exactly. But but he was, it was him who said, no, no, you can't do a trillion like this just like psychologically, you know, you know, no one will buy our debt. Yeah, yeah. We're gonna fruit the bond market out, and then we won't be. So, um, and then, you know, we go through this sort of jobless recovery. And and, you know, he can't figure out why we're having a jobless recovery until he blames it on someone else and says it's some sort of secular stagnation,

Adam Rice: 30:54

secular stagnation? Yeah, nothing to do with with with

Ryan Benincasa: 30:58

policies. But yeah, so So and, you know, I would tend to think that he was highly influential in in Obama's sort of narrative around, you know, saying that we, you know, we need, the government needs to tighten its belt, you know, in solidarity with the families and the businesses that are tightening the belts right now, during this hard time, not realizing that, by tightening by the government tighten its belt that is causing the financial stress and the belt tightening in the, in the private sector. Right. Right. Which is, which is, it's just, it's sad and frustrating to, to read, to look back and read some of the stuff I mean, him talking about, you know, us having like a, like a, you know, a credit card with China, it's just, it's so wrong. It's just factually, to just not correct, like, China can't buy our debt, unless it has dollars, it has dollars, because we engage in trade with them, right? So they send us their real resources, right, real resources or a benefit, okay. And we send them a bank statement with with a bunch of numbers on it saying dollars, okay, and then they take those dollars. And rather than holding it in what's, you know, the equivalent to a checking account, they transfer it to a savings account when they when they purchase Treasury securities. I mean, that's, that's what is happening there. So, so getting back to this point about the, you know, the debt ceiling, so it's a self imposed, thing that serves no actual financial purpose. And it's sort of it's obsolete, in the in, you know, in a period where, you know, the dollar isn't tethered to any sort of other commodity or other currency, right? It's just, it's, it's, you know, a free floating currency that we control. So, you know, we cannot, it's not like we can it, we can't default on our own debt involuntarily. Now, there's obviously political, there's political risk of defaulting on on debt, right? If you get a bunch a bunch of psychos in there, and, and just decide not to pay back the money that they owe, to people who borrow from them. You know, there's, there's obviously that that is a possibility. But that would be a political choice that our elected officials make, there's no financial constraint, there's no creditor that can that can come to you and say, that can shake you down for for all your money. And you say, Oh, I'm sorry, I don't have any more. Right. But it's not it doesn't work the way a household or a business does. Because, you know, the US government is the monopoly supplier of dollars to the world. It's the original source of dollars, right? The dollars get our bills get printed at the Bureau of Engraving and Printing, they're legally issued by the Fed. So, anyway, getting back to it, you know, and the Constitution actually is very clear. It says that the Congress has exclusive authority to coin money. And there's a lot, you know, the US Mint, part of the US Department of Treasury was established in the I think the Coinage Act of 1792. You know, so we're talking about centuries before the establishment of the Fed or any sort of other contemporary, you know, monetary arrangement and stuff that we have, and there was a law passed in the mid 90s. That said that the the mint Could, could issue high proof coins of any denomination but it had to be Heavy high proof and it had to be platinum. Right. And the thinking behind the law was was that, you know, it was sort of this, you know, this kind of creating like a, like, it was mostly used for like, like collectors coins and stuff. But the way that the law is written is such that, you know, the Treasury can essentially that it can essentially, mint a coin of any denomination at once, as long as it's a high proof platinum coin. So, what has been proposed, and I guess this this, you know, somebody, you know, in a blog comment over a decade ago said, Well, why doesn't the Treasury just mint a trillion dollar coin and deposit it at the Fed? Ran then so what happens? Right, so So if you, if anyone may, if anyone makes a deposit deposits, one of the worst, the worst terms ever created? It's just, it's just, it's just confusing. Yeah. But essentially, and the way that Morgan Morgan Rick's who who's not like a MMT guy, per se, but he's very much MMT adjacent, when he described it in his book, it's like, it's to think about banks as entities that like to think of deposits as an instrument that the bank issues, right, rather, rather than something that it collects, right. Yeah. So so the bank takes in, in this case, the Fed, which, you know, which is the fiscal agent for the US Treasury, would take in, would accept the platinum coin and issue a deposit or, you know, a credit to the Treasury general account, in exchange for it. Okay, so now the Fed holds the coin, the trillion dollar coin, as an asset on its balance sheet, and credits a reserve liability to the Treasury general account. Now the Treasury can spend that money without having to issue debt without without having to, you know, issue Treasury securities, it can just it just because I guess there's there are, I don't know the specifics around like the I don't think the Treasury general account is supposed to go below zero. But I also read recently that if the Treasury runs out of money, technically, the Fed staffers have, as part of their operations manual, they're supposed to just like book a negative balance. Right, which is effectively alone. Even though the Fed is not supposed to lend to the Treasurer anyway, this is all that's my general understanding is that, you know, there is a legal and constitutional solution to this really stupid political crisis that that we find ourselves in. And I guess it upsets a lot of people because it's not really considered sophisticated. You know, treasury secretary. Yeah, Janet Yellen had, who also was head of the Fed, has called it a gimmick. Now, of course, the Fed, actually currently, this is a fun fact. So the Fed because of the rapid rise in rates, the liability, the Feds liabilities. So the interest paid on reserves are now higher than the interest that it earns on its on its assets. So its assets are our US, like US Treasuries, okay, and our agency mortgage backed securities and stuff. So because of the rapid rise in rates, it's now paying out more on its liabilities, and it generates on its assets. So it's, it's actually operating at a loss. Typically, it operates at a game and remits 100% of that of those profits to the Treasury. But now, it's operating at a loss. And so how does it How does does that work? Well, it just puts a different asset to offset the operating loss liability. I mean, is that not extensively when accounting gimmick?

Adam Rice: 39:56

Right 100%. Right. So

Ryan Benincasa: 39:58

we kind of was a very political thing about what gimmicks we choose to, to solve these problems, right? It's, it seems legitimate to just book a deferred asset to offset an operating loss at the Fed but, but you know, accepting a trillion dollar hype A high proof platinum coin is is considered heresy. Right. But But that's it, it'll be interesting to see how this showdown kind of plays out. Right, I guess there are, quote unquote, extensive measures that the Treasury can take, I haven't looked exactly what that means. But essentially, you know, it can continue to fund, you know, paying its obligations until about without issuing treasuries until around June or so it projects. So it's gonna be interesting to see, you know, this this how this political situation plays out, Biden has has come out adamantly that they will, they will not be cutting any spending that that that, you know, essentially it's on the the Republicans to, to stand down. Janet Yellen, to her credit, while she calls the coin solution, a gimmick. She has not ruled it out and has not, and has not said that it's illegal. Right. And that brings up the question of okay, you know, because there's different potential solutions, right, like some people have said, well, you know, the, the Biden administration could just ignore the debt ceiling. Yeah. Because, you know, it has to it has these two laws that are incompatible with one another. On the one hand, Congress has mandated by law that that they make, that they spend these dollars that they make these payments, and, on the other hand, says that, that the Treasury is not allowed to issue securities that would, you know, bring reserves back into its general account, to that would be used to actually make the payments rounds were just like a bookkeeping thing than anything else. And so those laws are incompatible. So, you know, there's a legal theory that the Biden administration could just ignore the debt, the debt ceiling and in favor of the 14th amendment. And the point about the coin is that it is a constitutional solution. It's a legal solution. So yeah. So in a sense, like, Biden and Jenny on are, are obligated by law to do this, because it because there is no other, I guess, there have been other things that have been proposed, like some sort of high like high rate, low face value, Treasury security, because because the way that the law is written is like, it looks at face value more now. But, but to me, like the platinum coin solution is cleaner. And as a reminder, the These payments are for laws that have that have already been passed. Right, like people will try to say things like, Oh, this is, you know, this is inflationary? Well, no, it's just meeting the, like, the funding obligations that you have already committed to there's no additional tires being injected into the economy, if anything, if you start financing things with with, you know, Platinum coins that don't, that don't earn any interesting income, then the government would, you know, wouldn't have to pay interest. Yeah. And so that would actually be deflationary. Right, because it would it would cut off the interest paid on on, you know, the currently pays interest on on debt securities, you would cut that off, and we're here kind of saying that. Yeah, I think that the interest paid on the government's debt has actually been helpful in avoiding a recession. Right, exactly. Because it's added to the deficit, it's added to the private sector surplus, right? It's accruing in people's in real people's bank accounts. Right, every single day, your your savings balance is growing, because the government is paying a higher rate on its debt. Right. And that's helping keep us out of the recession. And that's something that like, yeah, anyway, so So that's so that's the deal with the with the coin and one and one other thing I would just like to say kind of building off how we finished last. Last week's episode is, like Thomas Jefferson was adamant about how you know, like, minting minting coins is money. It was was it's not like a purely utilitarian exercise. It's very symbolic in the sense that it is a, it's a declaration of your sovereignty, right, you stamp your face on the coin. And and it's a declaration of your freedom. And so for people who try to say like, this is unAmerican This is unserious. I would, I would just point out that that that's completely inconsistent with the founders and with what Thomas Jefferson in particular, would have said.

Adam Rice: 45:55

That's a great point. That's a great point. Yeah, it'll be interesting to see what happens. I my I suspect that, you know, the Democrats will make some kind of concessions. And they'll ultimately, you know, agree to extend the debt ceiling, like they always do, and everything will be fine. But I've been wrong in my political predictions before. So who knows? Who knows until so, I mean, it's until what the until late fall? That they have to figure it out.

Ryan Benincasa: 46:25

All I thought was till June.

Adam Rice: 46:26

Is it till June? I was thinking it was till September for some reason, but maybe it is until June.

Ryan Benincasa: 46:30

Well, September would be the end of the fiscal year. Yeah. So maybe that's right. But I had read that it's that it's until June. Okay. But again, I could I could be wrong about that. But, ya know, it'll be interesting to see what they, what they what becomes this, it seems like Biden is trying to hold firm. And he obviously has ambitious spending plan, like, like he wants to see, you know, the dollars go to work, you know, that was passed in the inflation Reduction Act, the chips act. So, you know, in my opinion, they should just mint the coin again, get this over with because it's just why why wait, like, just let's just end this, this, you know, Srei, unnecessary yet self imposed crisis and just move on. Right? There's just so many other there's so many other things. You know, good things. I mean, I mean, think about this for a second, right. So we just saw the early estimates for fourth quarter GDP growth was 2.9%. Okay, that is coming off of a very high base, right. Like we had very high economic growth in 2021. So, so, so you kind of had a little dip in the first half of 2022. And it came back in, in a significant fashion 3.2% In third quarter, 2.9% in fourth quarter. Okay, those are solid GDP prints. I mean, I remember, like Larry Kudlow was, you know, he was a head of the National Economic Advisors or whatever, to Trump administration. He's like, a Wall Street guy. Right. So he, he kind of, you know, went around saying, okay, like, you know, we're, we're shooting for 3% 30 year GDP growth. And in a very kind of, you know, Wall Street fashion, it's like, okay, here are the numbers. This is, it's like a company saying, Okay, here's our, our earnings per share projections. This is what we this is what we're aiming for. And then, you know, the analysts can kind of can kind of use that as a benchmark for how they did right and can kind of say all, you know, did they hit their numbers or not? Well, ostensibly, the Trump administration never hit that 3% goal for a full year. And I don't understand why that isn't widely. A I don't understand why that isn't more widely talked about. It's like, where are the tough Wall Street guy saying, like, Hey, you didn't hit your numbers. But but be that like, like, so 3% That was like the goal, and you couldn't even hit it. Biden, Biden just did that, you know, you know, over 3% run rate for the back half of, of 2022. Yeah. Yeah. Just I mean, I feel like that's such an important context over over the state of the economy. And meanwhile, you have people running around, like screaming recession, and they're putting a better number better GDP numbers in than the Trump administration ever did. It's like, it's just, it's just amazing. The gaslighting that goes on in terms of communicating all this stuff. Going back to your point about like the, the white collar recession, I mean, I went to a financial conference hosted by Goldman A little over a month ago, and Brian Moynihan, the CEO of Bank of America was there. And he may have been borrowing this from someone else. But he was like, Yeah, you know, we had this sort of jobless recovery in 2010 1112. Well, we may have employment, less recession in 2008. What's interesting is like, he was kind of saying, like, you know, this is really good, the consumer is in great shape, they're spending money they have, you know, there's their savings balances are multiples of what it was pre COVID. Right. There was always talked before the pandemic about how, you know, so few Americans have even $400 to meet like a, like an emergency. So he was saying that the average savings balance is multiples of what was pre coded for, for people. And they're spending money and, and things look pretty good. And he was like, but, you know, my economists say that we're having a recession next year, and, you know, we expect to enter in in third quarter, or excuse me, the first quarter and for the last three quarters, and it'll be mild, and then we'll be done. So that's, he's gonna say like, there's this is really good. My economist says this. It's not gonna throw him under the bus. Right? Sort of like your take it as as, as your so that's why he's just like, Yeah, I guess we'll have like an unemployment less recession. We covered had that. Yeah, right. There was all this. All this talk about, you know, all the BLS is changing the rules for the Biden administration last year when you know, or I guess, is it the BLS? That's a BA? Yeah, that deterrent that determines whether, you know, country's in recession or not, you know, because we had two quarters of GDP declines in the first half of 2022. Now, what was noticeably missing from anyone who, you know, isn't, isn't familiar with MMT. And in terms of the narratives and discussions around, you know, the GDP contraction in the first half of 2022, is the fact that the US Treasury collected, literally record tax receipts in, in the first half of 2022. I mean, April itself was the largest monthly collection of taxes ever. And that coincided with, you know, a drop off in public spending programs year on year, right, because he had these these big stimulus programs and 2021. They were not repeated, even like the well, I forget exactly what it was, but like the child credit, tax credit thing that ensured, you know, kids wouldn't go hungry, that was unfortunately cut off in the beginning of 2020. So, so you had this huge drop off in, in, you know, federal spending, combined with literally the largest tax receipts ever, in the first half of the year. And that was a combination of some one off things, right. Like, like really high capital gains taxes, right. A lot of people sold businesses and companies went public in 2021. People are sitting on huge capital gains taxes. So they had to pay the taxman come April 2022. So you have this. So to me, that is the tightening. Yeah. Right, that ostensibly, you're taking dollars out of out of people's bank accounts, and you're, and you're transferring them to the Treasury's account the Fed, and so Americans had less dollars and Biden was going around saying, you know, we reduced the deficit, we reduced the deficit. I mean, they were just the deficit by a trillion dollars. That's ostensibly true. And, you know, hopefully people have have heard that and they're like, and, you know, none of that I'm not just, you know, blowing smoke over here, like, like, they've been the Democrats have inherited that narrative home. Well, guess what, when you reduce the government deficit, that means you're reducing the private sector surplus, so that causes a financial tightening. And then what also happened was, was the war in Ukraine had this energy spike, right. So I mean, things were things were horrible in the summer gas prices went nuts. You know, Americans weren't spending and it was just, you know, a lot of them were just like, This is too expensive. So you had this double whammy tightening of tax receipts, and, you know, energy price spikes, and also maybe to an extent, like, you know, the stock market kind of rolled over that may have had an impact on on you know, just people's moods. I don't know if it actually impacted spending behaviors. You know, I was just reading this past weekend that luxury retail sales hit another record high in 2002, despite the despite all this stuff about the wealth effects and everything else, retail luxury sales, made another record in 2022. And that's I mean, we could spend an entire episode kind of talking about that. But but, you know, so that's what, that's how, you know, to sum up 2022 Is you sort of had this massive fiscal tightening in the first half, you had two quarters of negative GDP. Now, I get it, there are anomalies. You know, it's something about like, inventories and or lack of inventory growth as a as a drag on GDP and, and what have you, So, but, you know, we had, you know, huge, like millions of jobs created and ended the year with record, low unemployment rates. And so that's why it wasn't called a recession. That's why people are making up these terms like a unemployment, less recession, and they're like a white collar. Only recession. I mean, partly the, the characterization of this as being like a white collar. Recession is it's not like a, it's actually not a terrible characterization. I mean, I haven't looked at the latest figures, but the last time I looked at unemployment rates in, which I think was, you know, q3 you know, unemployment rates in energy, mining and quarrying than those sectors. It was it was less than 1%. Wow. Like, it was 0.9%. Yeah, unemployment, right. So people working in, you know, the, you know, real, real industries and, and such, they all have jobs, right. It's just, it's just like, kind of tech, tech and finance that's having like, a little bit of a contraction right now.

Adam Rice: 57:23

So, which, by the way, you know, everyone was everyone was mocking all those companies for over hiring or for offering, you know, insane benefits. And then suddenly, they decide to cut costs, and people see it as a sign of, you know, economy wide recession, which I don't understand.

Ryan Benincasa: 57:42

I think a lot of those workers, you know, software engineers and stuff, I think they will, they will be will probably relocate to, you know, maybe doing similar work in other parts of the economy, maybe, you know, other corporations need to beef up their, their tech infrastructure, and then, you know, they need better software solutions and stuff. And that'll probably be a net positive, right is, is to distribute these talented, these talented people, you know, across different different sectors of the economy, I think that would be, I think that would be a wonderful thing.

Adam Rice: 58:22

The Southwest Airlines thing is a good example of that, like, how their whole system crashed because the tech was so outdated. Now they have an opportunity to hire, you know, some engineers from Google. So maybe it'll be a net positive.

Ryan Benincasa: 58:37

I think that's that's a great point. You have one other thing Adam that I want to I want to point out is something to think about and maybe we'll have to you know, this is something we could touch on to the later episode but so one company that I follow that I follow is h&r block. And what's interesting is autofill released these reports on you know, kind of like because they have all this data they collect all this time tax you know, payment data and stuff. So they have a really kind of intimate look at what's going on in the US economy and they released this report pointing out that so many Americans are are turning to either ride sharing Yeah, or, or like Airbnb ease as as sources of income. So when you think about that, like that is a completely new phenomenon and these and there was like, There's millions of Americans that are doing this, it's growing, you know, doubled. Like I think like 40 ish percent a year or something like that. And when you think about that, like, you're going to if if your car or your house or your second house or you know your carriage house or whatever, is is a significant source of income. You are going to invest to support that income, right, so I think that this is kind of an under talked about under appreciated concept that we might, you know, it's something I'm going to keep my eye on is like, you know, how much are Americans spending to, you know, keep there, if you if you run an Airbnb, like you got to, you got to keep it you got to, you know, you can't just let things fall apart, right? Otherwise you're gonna get horrible reviews and people are gonna have bad experiences and, and they're not going to come back. So it's kind of an interesting, new dynamic at play. That could be kind of a boost for like, you know, investments in, in people's homes and, and autos and stuff. So just, it's kind of something to think about that and how and another reason why, you know, maybe things aren't so horrible. Yeah.

Adam Rice: 1:01:15

Yeah, for sure. All right. I think we should wrap it there. That's it's been about an hour. Anything you want to close with?

Ryan Benincasa: 1:01:23

Um, no, no, this has been just been it's been great. Yeah. Let's, uh, let's keep it rolling.

Adam Rice: 1:01:30

For sure. And everyone who's who's listening. Thank you for listening. If you're listening on YouTube, it'd be great. If you could subscribe, subscribe, and we will see you next time. Thanks so much.