Interview of L. Randall Wray by Dasha Chernyshova, Moscow reporter for the Sputnik News Agency

Q: In simple terms, how is the slowdown in China affecting the Eurozone?

A: I think the impact is overstated. China is still growing relatively rapidly. Her consumers enjoy rising incomes. They want high quality foreign manufactured goods—prestige goods, luxury goods. Over the short run, the Eurozone will still enjoy positive growth of Chinese demand. The bigger impact could be on commodities exporters (Russia, Brazil). China is learning how to economize on use of natural resources in her attempt to move toward sustainable growth.

However, over the long term, the EZ faces huge problems—some of their own making, and some that have to do with movement of jobs abroad. China will get some of the jobs, but Eastern Europe and Southeast Asia will get more. And robots will be the biggest winners as manufacturing increasingly succumbs to robots. China will lose more jobs than Europe—this is a global phenomenon. It is relatively easy to resolve through government creation of replacement jobs—largely in the public services and in infrastructure investment—but governments won’t do it out of fear they’ll “run out of money”.

Finally, you must understand that stock markets neither reflect economic activity nor impact economic activity. They are simply spheres for wild speculation. In the US the average holding period for stocks has fallen to less than a year—even lower than in 1929 before the stock market crash. The Chinese stock market is fueled by speculation on steroids. Lots of Chinese middle class households have extra cash and want to get rich quick; this is money they don’t need. They can lose it without much if any impact on their lifestyles. Of course they are now mad that the government cannot seem to do anything to stop the fall—but it won’t have much impact on their spending.

Q: Given that the stock markets continue to slide into negative territory, do you think the problems lie in the Fed monetary mismanagement or China causing pain to others via yuan devaluation?

A: When a stock market is driven by speculative fervor, anything can set off sales. Yes, the currency devaluation (which itself followed pressure on export sales) might have been the spark. But any news or rumor could have started the sell-off. Note that the US stock market is similarly driven by speculation plus corporate stock repurchases (to fuel value of executive stock options) to euphoric heights. So it, too, can easily be turned around.

Q: Is Eurozone prepared for another crisis?

A: No. The EZ has proven itself incapable of responding to crisis. The only thing we can say that is positive is that some within the EZ have come to realize that the EZ as structured cannot respond to crisis. While it looks like we have a Greek problem, we actually have an EZ problem. Country after country will face attacks until finally the center—Germany—cannot hold. The euro was designed to fail; it is not a sustainable system—and unsustainable systems ultimately implode.

Q: In this regard, what about eurozone’s quantitative easing program?

A: A narrowly defined QE program will have as little effect in the EZ as it had in Japan (for 20 years) and the US more recently—zip, nada. If the ECB goes out and buys troubled sovereign debt—which is actually disguised fiscal support—it can have a positive effect. This goes against the ECB’s DNA—and so far it has been done by the ECB (and other Troika members) only reluctantly and with strings attached (austerity). Fundamentally, QE is all about taking earning assets out of the banking system and substituting lower interest earning assets. Why would that help anything? It won’t. Only if QE focuses on buying trashy assets that face default would it do any good—and it would do most good by taking government debt out of the markets.

Q: Overall, what should we expect for Eurozone by Christmas time?

A: Forget Santa Claus—he’s not coming. Politics trump all decisions right now, and the politics of the “winners” (mainly Germany) dictate forcing more austerity on all the losers (approximately four-fifths of all the members). This will not end well. Eventually it will drag down Germany too—as her markets stumble. And there is no way German workers can win the eventual race to the bottom—against the east and far east. Will all of this happen by Xmas? Probably not. Expect more disappointing growth from the EZ and more wild fires that will trigger reluctant support with more austerity demanded.

Q: What about the US economy? What is the impact on the US recovery?

A: The US is the world’s consumer of last resort. Slower US growth (which is already in evidence) makes things worse for the rest of the world. So I’d put it the other way around: if the US continues to falter, global prospects are worse. The US can—if it wants to—continue to recover and that would help the rest of the world. Will she choose robust recovery? I do not think so. The austerity disease has taken hold in Washington, too.

To put this in highly technical terms, we’re all pretty much screwed.


  1. Bayard Waterbury

    Lets face facts, folks. It is simple. The world’s governments enforce economic policies not based upon the general national (or international, many times) financial, fiscal and economic health, but upon the needs of the plutocrats of the world. They all understand what is at stake for the top .01% and act accordingly. Knowing what is ahead due to climate change, they need to plan economic strategies that will result in as many deaths globally as possible. So their economic policies are intended to kill as many of us as possible. Machiavelli is alive and well and global.

  2. James Cooley

    Hum, I am not too certain I understand the highly technical term “screwed”. Is that approximately the same as being stretched over a barrel and repeatedly ravaged?

  3. roger erickson

    To put this in highly technical terms, we all continue to select politicians who agree to screw their electorates.

    Definition of mass insanity?

  4. Washington is running hot and cold at the same time. From Minsky: Big gov, big defense/mil (largest in the world) and large transfer payments are all inflationary. To offset those, the government institutes deflationary policies elsewhere in the economy to prevent destabilizing inflation. Flood of cheap consumer goods. Large foreign trade deficit. Both deflationary. And offshoring/outsourcing of jobs. So the ‘main-street’ economy gets the wet towel. Austerity will not ever touch defense spending, so someone else has to go short, by their logic. More robots will simply mean more transfer payments, for the displaced. So the trend will get worse. Will gov ever do right by main street? (That’s rhetorical.)

  5. If Jeremy Corbyn were to become Labour leader in Britain and his PQE policy gain popular appeal, could you see a serious debate on sovereign debt emerging and spreading to other EU and EZ countries?

  6. Dr. Wray noted in 2011 that the U.S. stock market was overvalued (podcast interview). I am unsure of his thoughts since then, but it seems he still believes the market to be overvalued.

    Warren Mosler often indicates that a 5% deficit/GDP is appropriate long term. What would be Dr. Wray’s proposed deficit considering this economic climate? Would a doubling of our deficit un-screw us?

  7. The Global Resource Bank settles the world’s public debt.

  8. Thomas Bergbusch

    Justin Trudeau, the leader of Canada’s Liberal Party, just promised three years of deficit spending and the largest expenditures on infrastructure in Canadian history. Meanwhile, Canada’s supposed social democratic leader, Thomas Mulcair, has gone about promising cuts and lauding Thatcher! He really is a kind of fascist, but the good news is that at least one major party is promising bold growth-promoting measures! go Trudeau!

    • J Christensen

      I would be cautious making predictions about what Liberals in Canada would bring should they be elected to form the next government given their recent history. If you will recall they were the party that actually did cut enough to produce a budget surplus, in the process forcing provinces to inflict terrible damage to the public healthcare and education systems.

      Canadian Conservatives and Liberals (the only two parties to have formed a government in modern times) openly and unashamedly use every one of Warren Moslers 7 deadly “innocent” frauds in ways that suggest they are simply using them to game voters for political advantage while more or less leading an unsuspecting populace into a position were they may well lose all of their hard won public assets, governance and free economy to a global corporatacracy serving only the most wealthy people on the planet.
      The phenomenon of Stephen Harper (conservative) seems to have attempted to lock in advances to the neoliberal progress made during the tenure of the previous three Prime ministers while supporting neo conservative causes outside of the purely economic sphere. This project may well be completed if he gets another term in office.

      All three main parties in Canada have generally shown support for neo liberal ideas such as private public partnerships and none have so much as mentioned in public the fact that Canada’s banking act specifically allows the central bank to provide interest free loans to provinces and municipalities; a practice that has not been permitted by a government since the 1970’s.

      I feel certain (with good reason) to believe that Conservatives, Liberals and New Democrats are fully aware of the realities described by MMT and yet prefer to keep the public in the dark still. In the case of Conservatives and Liberals alike, the political damage “the light of other days” shone on them by MMT would foreclose their political futures. As for New Democrats the future is still open, but they need to be concerned that they might well have a political trojan horse for a leader. They are the party holding the cards and can call the bugetary bluff of the other two main parties at any time.

  9. I dont think Dr Wray is right, we arent ALL screwed. Although I do believe that many of the folks cheerleading for TPTB dont realize how much they wont like their lives when they become the new low man on the totem pole when the rest of us are eliminated. Thats the problem with Neoliberalism, it always finds a new whipping boy.
    Some of the folks who think they are sitting pretty right now wont look so good in a little while….. Ill bet the cry for a bit more “socialism” when its THEIR hides ready for the rack!