Krugman and Robin Brooks mention MMT today
James Keenan
Here's an excerpt from Paul Krugman's blog today (Mar 21 2026), where he talks with macroeconomist Robin Brooks of the Brookings Institution:
"Talking With Robin Brooks: Trying to figure out the Hormuz shock"
Brooks: ... Japan ... is just a fascinating case study because debt is 240% of GDP, gross debt. Interest rates are heavily managed. The Bank of Japan remains a gross buyer even today. It is, however, constantly and increasingly being torn between capping interest rates to preserve fiscal sustainability and letting interest rates rise to prevent the yen from depreciating more and more and more. And so the ultimate tension when in 2020, MMT was a big topic of debate, we can issue lots of debt because we determine our own interest rates.
Krugman: For listeners, MMT is modern monetary theory. Not going to jump down that rabbit hole, but we could.
Brooks: But the idea was, we can administer interest rates basically with our central banks and issue lots of debt and interest rates won’t rise. The idea was that that’s not great for your currency and your exchange rate might go down the toilet. And Japan is a case where that is happening. The yen keeps falling. And this idea that debt doesn’t matter really is an illusion. So I think Japan is perhaps the most obvious place that is in trouble at the moment. But there are many others: the UK, France, Italy, Spain. The list of countries with low debt is small and shrinking, and those countries are being rewarded in markets more and more. So Switzerland, Sweden, all of the Nordics have done over the past year tremendously well.
Comments?
Jay Mills
Brooks is conflating solvency with exchange rate effects.
Japan actually validates the core MMT point: a currency issuer can run very high debt and keep yields low via central bank operations. No bond vigilantes, no funding crisis.
What he’s pointing to is the FX channel, not fiscal sustainability. The yen’s decline is mostly about rate differentials (Fed up, BOJ capped), not “too much debt.” That’s standard open-economy dynamics.
MMT never said “debt doesn’t matter.” It says the constraint is inflation and real resources, not arbitrary debt ratios. In Japan’s case, the relevant issue is import prices (energy) and terms of trade—not financing risk.
You can set rates and sustain high debt, but you may accept currency depreciation depending on your policy mix. That’s a trade-off, not a breakdown.
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Warren Mosler
Thanks Jim,Brooks is conflating solvency with exchange rate effects.
Japan actually validates the core MMT point: a currency issuer can run very high debt and keep yields low via central bank operations. No bond vigilantes, no funding crisis.
What he’s pointing to is the FX channel, not fiscal sustainability. The yen’s decline is mostly about rate differentials (Fed up, BOJ capped), not “too much debt.” That’s standard open-economy dynamics.
MMT never said “debt doesn’t matter.” It says the constraint is inflation and real resources,
not arbitrary debt ratios. In Japan’s case, the relevant issue is import prices (energy) and terms of trade—not financing risk.
You can set rates and sustain high debt, but you may accept currency depreciation depending on your policy mix. That’s a trade-off, not a breakdown.
--Best,JasonOn Mar 21, 2026, at 2:00 PM, James Keenan <jke...@pobox.com> wrote:Here's an excerpt from Paul Krugman's blog today (Mar 21 2026), where he talks with macroeconomist Robin Brooks of the Brookings Institution:
"Talking With Robin Brooks: Trying to figure out the Hormuz shock"
Brooks: ... Japan ... is just a fascinating case study because debt is 240% of GDP, gross debt. Interest rates are heavily managed. The Bank of Japan remains a gross buyer even today. It is, however, constantly and increasingly being torn between capping interest rates to preserve fiscal sustainability and letting interest rates rise to prevent the yen from depreciating more and more and more. And so the ultimate tension when in 2020, MMT was a big topic of debate, we can issue lots of debt because we determine our own interest rates.
Krugman: For listeners, MMT is modern monetary theory. Not going to jump down that rabbit hole, but we could.
Brooks: But the idea was, we can administer interest rates basically with our central banks and issue lots of debt and interest rates won’t rise. The idea was that that’s not great for your currency and your exchange rate might go down the toilet. And Japan is a case where that is happening. The yen keeps falling. And this idea that debt doesn’t matter really is an illusion. So I think Japan is perhaps the most obvious place that is in trouble at the moment. But there are many others: the UK, France, Italy, Spain. The list of countries with low debt is small and shrinking, and those countries are being rewarded in markets more and more. So Switzerland, Sweden, all of the Nordics have done over the past year tremendously well.
Comments?
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