Former Deputy Secretary of the U.S. Treasury Department Endorses Modern Monetary Theory (MMT)

By Stephanie Kelton

Three months ago, Frank Newman sent me a book entitled Freedom From National Debt.  I finally got around to reading it — all 89 pages.  It’s a little book, packed with evidence that America is being held back by incorrect assumptions and misguided fears about the national debt and government finance in general. Here’s the takeaway:

America has convinced itself that it can no longer afford many of the productive things that it has done so well over its history. Infrastructure repair, jobs programs, military modernization, tax reduction…have all been stifled because of this fear.

Like the proponents of MMT, Mr. Newman is frustrated by the pervasiveness of these falsehoods and their devastating effects on our social and economic well-being.  He sees what we see, the potential for a vastly more prosperous, more stable, and more secure America that is being kept out of reach through the adoption of economic policies that were designed for a country whose currency was still tied to gold.

He draws many of the same “unconventional conclusions” reached by proponents of MMT:

  • Saving cannot generate productive business Investment; it’s the other way around: Investment generates Saving.
  • Deficits do not reduce national Saving or Investment
  • Issuance of Treasury securities (deficit financing) cannot “use up” equivalent amounts of funds intended for private-sector use.

He recognizes that this runs counter to the conventional wisdom, but he insists that these truths simply follow from an accurate portrayal of “how the system actually works.”  And he should know.  He served as Deputy Secretary of the U.S. Treasury. Prior to that, he was Vice Chairman of the Board and CFO of BankAmerica Corporation, and Executive Vice President and CFO of Wells Fargo Bank.

So when Mr. Newman writes, “This author recommends Mr. Mosler’s book, as well as various writings by academic proponents of ‘Modern Monetary Theory’,” it really means something.



28 responses to “Former Deputy Secretary of the U.S. Treasury Department Endorses Modern Monetary Theory (MMT)

  1. “He recognizes that this runs counter to the conventional wisdom, but he insists that these truths simply follow from an accurate portrayal of “how the system actually works.” And he should know. He served as Deputy Secretary of the U.S. Treasury. Prior to that, he was Vice Chairman of the Board and CFO of BankAmerica Corporation, and Executive Vice President and CFO of Wells Fargo Bank.”

    Yeah I guess. Hopefully you took a look at his background before citing him as a supporter. From first appearances (i.e what is written here) he looks eminently qualified to be one of Bill Blacks indictment lists.

    • Stephanie Kelton

      Unless you have some reason to suggest that Mr. Frank has committed a crime, please help us keep NEP classy and refrain from that kind of thing. Thanks.

  2. Great news! MMT only continues to gain more mainstream exposure as more and more people become disaffected with the status quo. It is counter-intuitive to what most people have been taught their entire lives and even to someone looking for a new paradigm it comes across initially as “too good to be true.” Speaking for myself, it took quite a bit of reading (through most of Randy’s Primer) before I completely understood how everything connected. Now, I find I can’t even listen to economic news (NPR, CNN, MSNBC etc.) without wanting to yell at the commentators. Keep up the good work.

    • Detroit Dan

      My sentiments exactly, aj…

      • Excellent post AJ this has been my experience exactly. I tell all my friends and acquaintances to study for themselves as you and I have and like you, we see the silliness of those pundits on the msm. I think it was Warren Mosler that said on one of his lectures, the war has been won and any economist that speaks of the US being broke gets laughed off the stage. That’s what it’s coming to, and it’s refreshing. Keep teaching economic outlaws we’re listening and telling others.

    • Sunflowerbio

      Ditto, AJ

  3. Why not include this on your list of MMT scholarship:

    Warren Mosler: Full Employment and Price Stability, Journal of Post Keynesian Economics, Vol. 20, No. 2, Winter 1997-98

    Scott T. Fullwiler: An Endogenous money perspective on the Post-Crisis Monetary Policy Debate
    Review of Keynesian Economics, Vol. 1 No. 2, Summer 2013,

    Scott T. Fullwiler: Interest Rates and Fiscal Sustainability

    And why have two articles by Brett Fiebiger in your list, if all he does is demonstrate that he doesn’t understand MMT?

  4. Brett Fiebiger is the foil for the real MMT authors. You should have read the piece.

  5. Gregory Long

    Here is a huge question for me. Frank Newman served as Deputy Secretary of the U.S. Treasury under Bill Clinton. Does he have Bill’s ear, and, if and when Hillary chooses to run for President, could she runas a pro-MMT candidate?

    • DC is so crazed up about balancing the budget that we can’t even get Bernie Sanders to give MMT the time of day. This Monetarist/Gold Standard garbage has been pounded into a generation of economists and DC pols, and it isn’t coming undone soon.

  6. I read his “Six Myths that Hold Back America” which tackles some of these same falsehoods. That book made the case but I don’t remember it offering much in the way evidence, so this newer book sounds like the perfect accompaniment.

  7. It is all very simple!
    Learn what fiat money implies for the economy and the power it gives to the president.
    Study National Income Accounting and the Flow of Funds Analysis (Social accounting) so one can understand macro-economics.
    Find out why Social Security is not part of the “Deficit” and why it isn’t really in trouble.
    Simple but not easy!

  8. Frank N. Newman is from old-banking school. He served under Carl Reichardt, President of Wells Fargo 1978-84 who was one tough no-nonsense banker. I worked as accountant at Wells Fargo during this period which included the famous S&L crisis-Charles Keating, Lincoln Savings & Loan which almost sank the careers of Sen. John McCain (R-AZ), Alan Cranston (D-CA) and John Glenn (D-OH). Carl Reichardt was one straight-talking bank exec. who would have not bought the line “that you could not measure risk for Derivatives or CDOs”. Wells Fargo Bank under Reichardt at end of 2008 would had some risky assets on its books but would not have been caught needing a bailout from Bush administration. Yes, during 1980’s S&L crisis, Wells Fargo had some bad loans but not more than it could handle. It spend over 5 yrs selling off the secured assets on those loans (I worked in WFB dept. that accounted for them). During that same period Bank of America was the biggest bank in US but Wells Fargo was considered to have the best stock price of all US banks.
    Now moving to current times. From my perspective if Frank Newman is qualified enough to be current CEO of a Chinese development bank (Shenzen Dev. Bank) you should take his point of view seriously.

  9. From my experience, the rich always get everything first, then sell it to the rest of us. Perhaps Wall Street/Washington has already discovered MMT and is now “market testing” the theory (and lining their pockets) with TARP, QE, etc. Will the rich someday begin to share MMT with the rest of us and start QE for student loans?

  10. Stephanie,

    re the ‘MMT scholarship’ list. Do you have any links to papers that discuss inflation in depth (its causes, etc)?

  11. Like many others who comment on various MMT blogs, I am not an accredited economist. After stumbling across Mosler’s popularizing pamphlets I have read Wray’s Modern Money Theory, and check several blogs on a daily basis. My initial mission was to find the ‘fatal flaw’ in MMT, and I have been unsuccessful in doing that.

    As I attempt to explain MMT to friends and family (and even to wrap my own brain around it) I find the greatest amount of resistance is to the acceptance of the concept that the creation of trillions of dollars out of this air will not necessarily result in massive inflation. Pointing to the actions of the Japanese and the Fed pumping trillions into the money supply without any movement upwards on the inflationary front doesn’t seem to shake the seemingly ingrained notion that it, sooner or later, will result in trips to the grocery store pushing wheelbarrows full of currency.

    If it were possible to put forth an explanation which can be grasped by the non-economist as to why ‘printing money’ will not necessarily lead us down the path of the Weimar Republic or Zimbabwe it would be a big step forward in the acceptance of MMT. The arguments about hyperinflation occurring only as the result of chasing debts denominated in foreign currency, or whatever, result in a ‘Huh?’ rather than an ‘Aha!’ moment.

    Until MMT can break the stranglehold that current classical economic paradigms have on the thinking of the general public it will continue to be held hostage to the ‘its just nuts’ argument. In the view afforded by the classical paradigms it is nuts.

    Perhaps there is no easy road to that ‘Aha’ moment with regard to the biases associated with the mass production of money. It would certainly speed the common intellectual, and political, acceptance of MMT if one could be found.

    • Stephanie Kelton

      Hi Linus,

      You might give this a quick read to prepare yourself for future conversations like these.
      That way, you can dazzle your friends with some surprising facts — there have been fewer than 60 cases of hyperinflation in the HISTORY OF THE WORLD — and also help them understand what has, historically, led to hyperinflation. Loss of war, something really bad happening on the supply side, political upheaval/regime change. Also, I would avoid using the term “printing money,” because it conjures up the wheelbarrow image so you inevitably get ZOMG! Run them through a thought experiment: What would happen if the Treasury printed/minted a $100 trillion coin and deposited it into its account at the Fed? There can be no “chasing” of goods simply by printing/minting money. Demand-pull inflation (too much money chasing too few goods) requires actual spending in excess of the economy’s current capacity. MMT is about keeping total spending (by all sectors) at the “right” level, which means avoiding demand-pull inflation. There was a time when this was hardly controversial. Ch. 19 of Paul Samuelson’s iconic book is titled “Fiscal Policy and Full Employment Without Inflation.”



      • Sadly, he took it back, as outlined in this anti-fiscalist article:

        There has been a debate in the blogosphere lately about “Econ 101”. I took Econ 101 back in 1977, and learned it from an earlier edition of Samuelson’s textbook. I feel like a fish out of water in the current environment, because a lot of the people who have learned introductory Economics post-1980 have learned a very heavily monetarist- influenced version of the subject, and their brains are now stuffed with a whole battery of anti-democratic and anti-fiscalist arguments – Ricardian equivalence, public choice theory, deficit crowding out, etc.

      • I appreciate your response. I think I may have been overly enthusiastic in framing the concerns I perceive in terms of “hyper-inflation” if hyper-inflation means inflation of 50% a month. The concerns I was alluding to would exist if inflation was 5% a month, or even 15% a year.

        I am beginning to develop a rudimentary understanding of how creating multi-trillion dollar increases in the money supply may not have an effect on the price of eggs, but I am not sure that we are not creating the economic equivalent of “super-heating.”. I suspect that the concerns I am trying to address are not specific to MMT.

        Again, thanks for your feedback… I remain very interested!

        • Paul Boisvert

          Hi, Linus,
          You are absolutely correct that flawed understandings of inflation are the main impediment to greater acceptance of MMT for most people. I know this because I understand and agree with MMT, read lots of mainstream econ blogs, and readers’ comments, and am a professional educator whose job it is to explain clearly the intricacies of calculus to students–and, more importantly, to understand what notions are confusing them when they don’t understand it. It’s obvious to me (and, I would think, to all who read econ blogs) that the single most important part of what’s confusing people about MMT (as well as many other economic doctrines) is the notion of inflation held by those confused people. MMT needs to do a much, much better job of addressing this.

          The confusion is between a little inflation, moderate inflation, high inflation, and hyperinflation. All four are routinely referred to as “inflation” by both mainstream and MMTers, though the latter are better (though not good, I would say) about differentiating the types. Here are some questions that are utterly conflated in a routine reader’s mind: what is inflation? what are the various definitions in the academy and blogosphere and how does having a certain definition affect one’s theory? what’s the difference between demand-pull and supply-push? what’s the difference between no inflation, stable positive inflation, accelerating positive inflation? is a little inflation bad? how much is ‘a little’? why is it bad? how bad? who is it bad for? why do those who oppose it most seem to be those who suffer from it least (or not at all?) does it also have some good qualities? who is it good for? [same long list of questions for moderate inflation, and for high inflation.] Moreover, is the latter bad not just per se, but because it can feasibly lead to hyperinflation (which everyone correctly agrees is bad)? What caused “stagflation”? Do sticky wages or other factors mean we can get inflation at below full employment–since the obvious correct answer here is yes, it behooves care with saying inflation is only a problem at full employment, which MMTers say a LOT! Are problems attributed to inflation really caused by other factors which we can solve separately so that inflation doesn’t result in said problems. What is the difference between inflation, a problem with inflation, serious inflation, a serious problem with inflation, etc. And many other questions loom…

          People lump the myriad issues above, which have complex and often surprising answers, into their staunch, blunt opinion that “(all) inflation is bad”. This is a lot like believing that “(all) taxes are bad”. It’s a meaningless statement in such an oversimplified form. Since MMT largely agrees in public with its opponents that inflation is bad, while (correctly) saying its policies can successfully avoid (serious/problematic) inflation, here is what the confused reader takes away: MMT admits inflation is bad, as everyone knows. They claim their (weird, new) policies can avoid it. But opponents of MMT also want to avoid bad inflation by doing the same old same old, which has indeed avoided serious inflation for most of American history. So they have a track record of being right, and they think MMT will lead to inflation–so I think I’ll stick with the MMT opponents.

          Here’s what I think would be a better MMT message: low to moderate inflation is not bad or a problem. At all. Ever. Period. The downside is so minor it’s not worth worrying about. And that’s all that modern government spending will realistically create, even at full employment. MMT opponents are trying to scare you by even mentioning inflation as being a problem–they are counting on confusing you about it. Here’s our Primer on Inflation carefully and in detail explaining why by answering with examples and specific numbers ALL the conflated questions above, and addressing (while explaining the political motivations behind) the mainstream shibboleths that are often cited against MMT’s understanding. MMT’s weird new policies therefore only have an up side (stimulating the economy, jobs, etc.) So Let’s try it! ps: the policies will also avoid inflation if it IS a problem, but it is Never going to be a problem. Period.

          I found it interesting that none of the list of articles and books Stephanie linked to is categorized under inflation. Yet inflation is the main bugaboo preventing lay readers from accepting MMT. Until someone gets MMTers all on the same page with a simple and reassuring explanation and message about inflation, the growth in acceptance will be unnecessarily low. (That someone should not be Bill Mitchell, who has the only relatively good overview to come up near the top when you google “Inflation and MMT”. For example, it basically admits at the start that routine inflation causes no serious problems whatsoever–but then immediately switches to a very lengthy discussion of how MMT can avoid inflation. My question immediately was, why waste your breath, if it’s not a problem in the first place? Regardless, Mitchell, though a great economist, is not a great writer–he is notoriously prolix and tangential, which are not good pedagogical features for the average lay reader, as they even test my patience quite a bit!)

    • Curiously if you revisit Randall Wray’s MMT Primer and the introductory article No.1 you will find the following statement:-

      “In this primer we will examine the macroeconomic theory that is the basis for analysing the economy as it actually exists. We begin with simple macro accounting, starting from the recognition that at the aggregate level spending equals income.”

      This is a Keynesian statement and forms the basis of “balance sheet macroeconomics” which is the main focus of MMT. The deceptively simple statement that “at the aggregate level spending equals income” is simply not part of most people’s starting point in understanding economics although they come close in an intuitive notion that balancing budgets like a household economy should be a core precept in understanding macroeconomics. Of course, what they fail to understand is that the non-government sector is on aggregate always “in the red” or in deficit without government created money injected by spending. This is simply because somebody’s profit is always somebody’s debit. It can, therefore, never operate in the same way as a household budget! Even running a current account surplus will back down the line be a consequence of other foreign governments creating money and/or the population spending future income through private borrowing. All these, of course, represent balance sheet entries. These understandings are the basic entry point to getting true insight into “balance sheet macroeconomics”.

  12. Anne Ominous

    Dan Kervick

    In that article, Samuelson says many of the things I stated here earlier… however he was a bit more polite in the stating. Which is probably why my comment was censored. I didn’t swear or anything… but I did use phrases like “long-discredited Keynesian dogma” or some such.

    The truth is that MMT is advocating some things that are known to have failed miserably in the past, not just once but repeatedly. Which causes me to question the terms “modern” and “theory”.

    Whether you find THIS comment “suitable” for your delicate audience, moderator, is of course up to you. Just please remember that what you censor says as much about you as what you say.

  13. Pingback: Former Deputy Secretary of the U.S. Treasury Endorses MMT | Modern Money Mechanics

  14. Keith Newman

    To Anne Ominous:
    It would be helpful if you explained the reasons for your belief that “Keynesian dogma” is “long- discredited”. Presumably they are not the reasons given by Samuelson (according to the article) since they do not apply. Here are the reasons Samuelson wrote that fiscal policy is useless, according to the article:
    1-” increasing delays (a year or more) between changes in the economy and Congressional action on the budget;
    2- ineffectiveness of deficits or tax cuts to stimulate consumer spending;
    3-and the enormity of the national debt, which severely limits the ability of lawmakers to run higher deficits to fight recession”

    My comments:
    Point 1 may or may not be true according to circumstances but it relates to political issues not fiscal policy per se. This belief was definitely not true at the start of the current financial crisis that began 5 years ago. Additionally, whatever political paralysis there may be in the United States has not necessarily occurred elsewhere to the same extent.
    Point 2 is clearly a false statement.
    Point 3 is also clearly false for a country that controls its own currency as does the US.

    Thanks in advance for your clarifications.

  15. Anne Ominous

    Keith Newman:

    Since presumably you, as well as the rest of the audience here, were not privy to my prior comment, I have no obligation to go into the detail I would have otherwise.

    I will leave it at this, which is adequate to answer all of your points: Samuelson says, in so many words: GOVERNMENT INTERVENTION DOES NOT WORK. [emphasis mine]

    Period. Point made. End of discussion.

  16. Aloha! First I have to ask the authors and the commenters here if you have ever owned or run a business over more than a five year period to qualify for an SBA loan? That is if you own a home free and clear you can post as collateral. My definition of an SBA loan is “you qualify so long as you can prove you don’t need one”! There is a whole “other world” out there for small business owners that we face. Maybe that is why the NFIB Optimism Index is running at record lows since 2008, but the DOW isn’t the economy. The definition of “inflation” surely must at some point consider “whose inflation”. While maybe the CPI reports low inflation in July 2013 as a business owner none of my inputs have ever decreased yet since I started small business in 1991. In fact I just got a letter from my cardboard box supplier that the cost of boxes is going up 8% at the end of July. What in your opinions is not shipped by FedEx in cardboard boxes? Whose inflation is that 8%? If there is a deflation input that offsets that 8% I have not seen it yet.

    Consider labor units, but not in the same sense a Harvard Economics professor would. When I first started working in 1970 I was paid $1.75 an hour, but during those times I could buy $1.75 worth of goods and services to survive. I would appreciate it if the Social Security Administration would add onto my benefits that I receive in 2018 the same purchasing power I had in 1970. In 1970 at the LA Playboy Club I could spend a night at Hef’s Playboy Dinner Show with bunnies serving me and have a Filet Mignon dinner for $3.50. I should know as I still have the original menu. Can I get a McDonalds Big Mac with fries and a milk shake for $3.50 now? This debate on “inflation” meaning the “price of goods and services” is a little too narrow for the common man who has been working since 1970. You debate CPI this year as if this was the year the US government and its central bank was first created. Yet you ignore vast decades of currency debasement. Never mind your Forex definition of currency. Just because you feel no pain do not assume the entire world shares your views. Does not government expenditures compete for goods and services in the market place?

    I certainly cannot understand a doctrine that William Black espouses where government and regulators and banks are criminal enterprises unpunished yet he would assume these same types could somehow be trusted to carefully guide Congressional expenditures from unchecked nonstop deficits to full Nation prosperity. Can we trust corruption to self regulate? What we really have here are two monopolies. One political(rep and dem) and one money(central bank). They serve each other only to retain power over the masses.

    I think the C WORD is the ultimate decider of what markets and a USD is worth and it is more tied to the “greater fool” principle whereby the C in C WORD is “confidence”. Without confidence in the currency, the life blood, how can there be any confidence in any law or any market economy, debates included? Where is “value” in anything today? Where is equity? Those are the questions the unsophisticated minions ask. It is quite simple. There is a huge divergence of fiscal and economic realities in America today that is staggering. When it comes to long term value of a USD there is no 99% or 1%, we’re all the 100%! Does it matter that deficit spending has no consequence or that Social Security can never go broke? Not to the retiree eating cat food. Perhaps Karl Marx is smiling from the grave!

  17. I know it may seem extraneous to devoted MMT adherents but shouting down those who repeatedly throw up the claim that the “free market” would or could solve everything must be given some priority in our discussions.
    The current saga of Sears under the fist of an Ayn Rand Libertarian highlights the need for the MMT folks to make a chorus of the song “There ain’t never been no free market anywhere in the world at any time in the history of earth”. Markets have always been controlled either by sovereigns or local chieftains. Now they are controlled by oligarchs for the benefit of oligarchs. All corporate business organizations must be controlled by the “people”. for the “people”. Those castles on the Rhine River were not built to be summer homes for rich people from Berlin!