The US Real Progressives had a friendly debate between Steve Keen and Warren Mosler in 2018 on monetary transactions in trade surplus and current account surplus economies. You can see this in the first 10 minutes of this video. You can stop when Steve Keen says “Oh C’mon!” if you like.
From hereon out they continue to disagree.
What we can see is that although the process starts as money creation, the desire to get rid of currency risk pares that back to a simple exchange of savings.
Anatomy of an FX transaction
So in an attempt to reconcile these two positions, I used Neil Wilson’s Anatomy of a FX transaction and approached both Steve Keen and Warren Mosler separately. I approached them separately to avoid any bias towards or against America and Bill Mitchell. Wilson’s example uses a transaction between the UK and Norway.
I approached Mosler via email and Keen via Twitter.
Keen tweeted:
Mosler wrote:
That’s for a specific situation where two clients each do their own fx transaction with their bank,
with the banks assuming subsequent fx risk.
.
So despite the media circus on RP, the two guests actually agree.
Neil Wilson writes:
What we can see is that although the process starts as money creation, the desire to get rid of currency risk pares that back to a simple exchange of savings.
So look at that no reserve currency involved and no antagonism to one of the co-developers of MMT.
Immediately after the debate, Bill Mitchell had up a post explaining the FX transactional mechanics identically to Mosler. It is easy to see in the images laid out below. Click ont he images to go to Bill’s site.
After all these steps in the transaction, what has changed is the ownership of the Yen and the Australian dollars – no new Yen and no new dollars have been created. There is no new net money creation as asserted by Keen in the opening video.
Recently, US Real Progressives have followed this up with their Macro N Cheese podcast with Steve Keen and Michael Hudson, linked below:
I confess to not having listened to it all since for me it was blood boiling erroneous as I like to think I demonstrated in good faith above.
A few weeks later US Real Progressives followed up with a Macro N Cheese podcast with Bill Mitchell on Imports and Exports. Also linked below.
Even more recently Bill was at the Levy Institute Summer Seminar where Professor Mitchell presented on Thirlwall’s law and how the external economy fits into Modern Monetary Theory MMT. I have placed it below but it echoes all the sentiments we have already covered.
Overall it recognises the financial constraints, real resources constraints and political constraints. Ultimately we are talking about political constraints. This aligns with what I wrote in my FAQs as quoted below.
What about Balance of Payments Constraints/Crises?
It depends. It depends on a lot of political factors and choices of both domestic and foreign nations.
Balance of payment crises are usually but not always a political confection of those who own or hold sway over particular foreign currencies along with political sanctions. Balance of payment issues are nearly always a political power play by an actor. However, there are developing nation situations where it can occur naturally due to inappropriate political choices.
None of these events negate anything espoused by Modern Monetary Theorists.
I highly recommend the Thirlwall’s law video above and clicking on the FAQs link to do the further reading.
Thank you for taking the time to read, watch and listen to this today.
Australian Real Progressives 