by Megas Alexandros (alias Fabio Bonciani)

After earning a place among the supporters of Modern Monetary Theory (MMT) for his work defending its monetary insights—particularly through models demonstrating how money flows from the banking system into the real economy—Australian economist Steve Keen has, in recent weeks, inexplicably launched a campaign via his social media channels, aimed at discrediting both Warren Mosler’s thought and MMT itself. His attacks focus primarily on issues related to trade deficits and foreign debt.

To be precise, the conflict between Mosler and Keen dates back to July of last year, when Keen was disinvited from the international MMT conference held in Leeds, United Kingdom. He was denied a platform precisely because, as a post-Keynesian economist, his views on trade deficits from international exchange align closely with those of neoclassical and mainstream economists—those who for decades have championed neoliberal ideology and portrayed public debt and government deficits as major problems.

It should be clear to any reader how damaging and misleading his presence would have been at a conference dedicated entirely to MMT. And frankly, Keen’s reaction—marked by an almost childish sense of victimhood expressed in the name of political correctness—seems to reveal more a lack of understanding of the subject than a legitimate grievance.

In a post dated July 15, 2024, Keen attempts to present his version of the events surrounding his exclusion from the Leeds meeting:

“In other words, my intention was to praise MMT, not to bury it. I would have ignored the 5% I
criticize in order to support the 95% I agree with—and if you’re an ‘MMTer’ and doubt those
proportions, ask yourself if you’d still be an MMT activist if the only thing it claimed was that
‘Imports are real benefits and exports are real costs’.”

These words are profoundly misleading and force us to get straight to the heart of the matter. To argue, as Keen does, that MMT’s explanation of monetary operations in the context of trade represents only 5% of the theory, reveals a failure to grasp the remaining 95% of Mosler’s thought—despite his claims of understanding and endorsing it.

To put it simply: if one has internalized the idea that a sovereign state’s public debt, when denominated in its own fiat currency, is not real debt, and yet insists that foreign debt and trade deficits—also in fiat currency—are real debt, then one falls into a fundamental contradiction.

And if that contradiction is accepted, the entire structure of MMT collapses like a sandcastle at high tide.

With his alleged “5% disagreement,” Professor Keen in fact undermines the very foundations of MMT, effectively demolishing the whole edifice.

How could the founding father of MMT, after hearing Keen’s position, allow an economist once thought to be an ally to attend the conference—where, whether consciously or not, he might have planted conceptual landmines capable of detonating Mosler’s entire theoretical framework?

And so, with bile rising and sleepless nights spent vainly seeking a nonexistent key to refute one of the core tenets of MMT, Professor Keen recently went so far as to invoke the support of the “devil” himself—none other than financier Warren Buffett—in an attempt to salvage his position.

The phrase that Keen cannot stomach, and for which he seems metaphorically willing to sell his soul, is the now-famous MMT maxim:

“Imports are real benefits. Exports are real costs.”

Warren Mosler coined this striking phrase precisely to reorient economic discourse toward material reality—an urgently needed correction in a world saturated with financial abstractions, where mainstream economic narratives have long subordinated the real economy to the financial one.

There can be no serious doubt that consuming a good produced by the labor of others constitutes a real benefit, just as working to produce a good and then relinquishing it to others constitutes a real cost. And any residual ambiguity vanishes entirely when such transactions are carried out in today’s fiat currencies—currencies that, by legal definition, are no longer convertible.

Once we acknowledge the non-convertibility of sovereign currency, we must accept that, in macroeconomic terms, when a nation exports a good, it receives, in return, not tangible value, but rather a deposit record—denominated in the importing country’s currency—credited to a reserve account at that country’s central bank.

Yes, that’s correct: the exporting country gives up real resources, and in return receives a string of digits—numbers that do not even leave the importing country’s banking system, but remain recorded in its central ledger. This is how monetary operations function in international trade today.

What is Keen’s critique of Mosler?

Keen claims that, according to his models, an import/export transaction leads to the destruction of money in the importing country and a simultaneous increase of financial assets in the exporting country. Thus, he argues, exporters enjoy a greater potential financial capacity for investment and are therefore hypothetically more advantaged in terms of economic growth.

This argument is deployed in an attempt to discredit the now well-established MMT position: that reliance on mercantilist economic policies poses grave dangers, and that imports are, in real terms, a benefit.

But the very idea that a country needs to obtain money from abroad in order to invest and grow contradicts the foundational insight of MMT: namely, that a monetarily sovereign government can issue its own currency in unlimited quantities. This alone should make it evident why Mosler and other MMT economists opted to exclude Keen from the Leeds meeting.

Keen is effectively dragging monetary theory back into the ideological shadows of a bygone era, as if currency were still tied to a gold standard or subjected to fixed exchange rates. In doing so, he inadvertently bolsters the rentier class’s agenda—those elites for whom the MMT principle of monetary sovereignty is a threat to their domination.

Even worse, Keen cites Warren Buffett to suggest that the Chinese, having amassed dollars through exports, could use them to acquire U.S. assets and thereby force Americans to work harder to support Chinese rentiers.

Hearing such an argument from Buffett—a man who has built his massive fortune precisely on the backs of American labor and Washington’s government deficits—is, to put it mildly, ironic.

To be blunt: whether a nation’s citizens labor to sustain domestic oligarchs or foreign elites, the real-world effect on their quality of life is much the same. The key point is that trade deficits do not in any way constrain the fiscal capacity of the U.S. government—or of any sovereign government—to achieve full employment and ensure economic stability. Governments retain the full power to promote the well-being of their citizens through fiscal policy, leveraging the
monopoly they hold over their own currency.

Now, let us turn to the arena in which Keen is most competent: building accounting models for monetary flows, which he uses to bolster his arguments.

That said, for those who truly understand the concept of the state’s monetary monopoly, a solid grasp of basic accounting is sufficient to model monetary operations correctly—without resorting to Keen’s complex simulations.

When I personally interacted with him on Elon Musk’s social media platform X, I discovered that the model Keen uses to criticize Mosler was in fact constructed based on trade flows within the Eurozone.

But the Eurozone is a fixed exchange rate system propped up by the European Central Bank, which refinances the banking systems of member states through the TARGET2 payment system. It is precisely this TARGET2 structure that likely misled Professor Keen. In the EU, when a trade transaction occurs between member states, there is a destruction of currency in the importing country and a creation of currency in the exporting one.

However, this is because all members share the same currency!

Moreover, EU member states have voluntarily and significantly limited their monetary sovereignty, having imposed political constraints on their ability to run fiscal deficits. These limits, coupled with a common currency, effectively place Eurozone countries back into a fixed-exchange-rate regime, rendering the euro functionally similar to a gold-standard currency.

In contrast, in the case of the United States and China—the example cited by Keen and Buffett—China’s dollar surpluses do not automatically generate an increase in the domestic money supply (yuan). This increase only occurs if the Chinese exporter exchanges the dollars for yuan via a loan from a commercial bank (using the dollars as collateral), or if the central bank itself buys the dollars in exchange for yuan—what Mosler calls an “off-balance-sheet deficit” for the
Chinese government.

But as previously explained, the Chinese government does not need foreign currency in order to issue its own.

Professor Keen, as a post-Keynesian, unfortunately shares with many of his school’s adherents the tendency to treat modern money as if it were still convertible. This is evident in his recent endorsement of Keynes’s “bancor” proposal—a mechanism designed to manage trade imbalances between countries.

To be historically accurate, Keynes conceived the bancor plan during the gold standard era, when currencies were still legally defined as convertible into gold.

And one may reasonably presume that, were Keynes alive today, he—thanks to his legendary intellectual brilliance—would be the first to acknowledge that in a world of non-convertible currencies and floating exchange rates, his bancor would be entirely superfluous. Warren Mosler himself closed the debate definitively. With the clarity and genius for which he is known, he delivered a short tweet that decisively indicates where the balance of real benefit lies
between imports and exports:

“Imports are real benefits. Exports are real costs.”
No translation required.

by Megas Alexandros