The US dollar is losing importance in the global economy – but there is really nothing to see in that fact

Since we began the Modern Monetary Theory (MMT) project in the mid-1990s, many people have asserted (wrongly) that the analysis we developed only applies to the US because it is considered to be the reserve currency. That status, the story goes, means that it can run fiscal deficits with relative impunity because the rest of the world clamours for the currency, which means it can always, in the language of the story, ‘fund’ its deficits. The corollary is that other countries cannot enjoy this fiscal freedom because the bond markets will eventually stop funding the government deficits if they get ‘out of hand’. All of this is, of course, fiction. Recently, though, the US exchange rate has fallen to its lowest level in three years following the Trump chaos and there are various commentators predicting that the reserve status is under threat. Unlike previous periods of global uncertainty when investors increase their demand for US government debt instruments, the current period has been marked by a significant US Treasury bond liquidation (particularly longer-term assets) as the ‘Trump’ effect leads to irrational beliefs that the US government might default. This has also led to claims that the dominance of the US dollar in global trade and financial transactions is under threat. There are also claims the US government will find it increasingly difficult to ‘fund’ itself. The reality is different on all counts.

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The arms race again – Part 2

This is the second part of my thoughts on the current acceleration in military spending around the world. The first part – The arms race again – Part 1 (June 11, 2025) – focused on background and discussed the concept of ‘military Keynesianism’. In this Part 2, I am focusing more specifically on the recent proposals by the European Commission to increase military spending and compromise its social spending. The motivation came from an invitation I received from the Chair of the Finance Committee in the Irish Parliament to make a submission to inform a – Scrutiny process of EU legislative proposals – specifically to discuss proposals put forward by the European Council to increase spending on defence. The two-part blog post series will form the basis of my submission which will go to the Joint Committee on Finance, Public Expenditure, Public Service Reform and Digitalisation on Friday. In this Part, I focus specifically on the European dilemma.

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The arms race again – Part 1

The Chair of the Finance Committee in the Irish Parliament invited me to make a submission to inform a – Scrutiny process of EU legislative proposals – specifically to discuss proposals put forward by the European Council to increase spending on defence. This blog post and the next (tomorrow) will form the basis of my submission which will go to the Joint Committee on Finance, Public Expenditure, Public Service Reform and Digitalisation on Friday. The matter has relevance for all countries at the moment, given the increased appetite for ramping up military spending. Some have termed this a shift back to what has been called – Military Keynesianism – where governments respond to various perceived and perhaps imaginary new security threats by increasing defence spending. However, I caution against using that term in this context. During the immediate Post World War 2 period with the almost immediate onset of the – Cold War – nations used military spending as a growth strategy and the term military Keynesianism might have been apposite. These nation-building times also saw an expansion of the public sector, which supported expanding welfare states and an array of protections for workers (occupational safety, holiday and sick pay, etc). However, in the current neoliberal era, the increased appetite for extra military spending is being cast as a trade-off, where cuts to social and environmental protection spending and overseas aid are seen as the way to create fiscal space to allow the defence plans to be fulfilled. That trade-off is even more apparent in the context of the European Union, given that the vast majority of Member States no longer have their own currency and the funds available at the EU-level are limited. We will discuss that issue and more in this two-part series.

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Australia’s lowest paid workers get some real wage relief from the latest adjustment to the minimum wage

On June 3, 2025 Australia’s minimum wage setting authority – the Fair Work Commission (FWC) issued their decision in the – Annual Wage Review 2025 – which provides for wage increases for the lowest-paid workers – around 0.7 per cent of employees (around 88 thousand) in Australia. In turn, around 20.7 per cent of all employees, who are on the lowest tier of their pay award (grade) receive a flow-on effect. The FWC provided a 3.5 per cent nominal wage increase for the lowest paid workers in its 2025 National Wage Case decision. Against the current CPI growth, that provides for some modest real wage increase for this cohort. However, note the discussion above as to the best purchasing power measure to use. Against the more applicable Employee Selected Cost of Living Index (SCLI), the decision provides for barely any real wages growth and fails to redress the massive real wage cuts in recent years. The media has failed to pick up on that reality, and has instead given oxygen to the employers’ responses which called the decision irresponsible while at the same time pocketing record profits as a result of their profit gouging. But at least the lowest-paid workers gained some relief as a result of the decision as the FWC largely ignored the whining of the employers.

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Australian National Accounts – GDP growth slows significantly – slipping towards recession under current policy settings

The Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Product, March 2025 – today (June 4, 2025), which shows that the Australian economy grew by just 0.2 per cent in the March-quarter 2025 (down from 0.6 per cent) and by just 1.3 per cent over the 12 months. GDP per capita growth was negative -0.2 per cent as output growth was outpaced the underlying population growth. There was a major slowdown in household consumption expenditure growth and the government sector overall contracted. While the overall slowdown led to a decline in import expenditure (which adds to growth), the decline in exports was greater, which means that the external sector detracted from growth overall. The problem is that as the overall growth rate declines, it is getting to the stage where unemployment will start to rise.

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The neoliberal destruction of Australia’s higher education system

Today, I am fully engaged in work commitments and so we have a guest blogger in the guise of Dr Scott Baum, who will soon be joining us at the Centre of Full Employment and Equity (CofFEE) at the University of Newcastle as a senior research fellow. Scott has been one of my regular research colleagues over a long period of time and we currently hold ARC grant funding together to explore regional disparities as a result of the COVID-19 pandemic. Scott indicated that he would like to contribute occasionally and that provides some diversity of voice although the focus remains on advancing our understanding of Modern Monetary Theory (MMT) and its applications. Today he provides analysis of how lost the Australian tertiary education system has become in this neoliberal period. While focused on the Australian situation, the analysis unfortunately has relevance to higher education systems in most countries.

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The Webbs knew more than a century ago that if you pay high wages you get high productivity

During the recent inflationary episode, the RBA relentlessly pursued the argument that they had to keep hiking interest rates, and then, had to keep them at elevated levels, well beyond any reasonable assessment of the situation, because wage pressures were set to explode. They claimed their business liaison panel was telling them that wages were becoming a problem despite the facts being that nominal wages growth was at record lows and real wages (the purchasing power of the nominal wages) were going backwards at a rate of knots. The RBA massaged that argument by adding that productivity was low and that there was no ‘non-inflationary’ space for wage increases as a result, as if it was the workers’ fault. Yesterday (May 28, 2025), the Productivity Commission (a federal agency that morphed out of the old – Tariff Board – published an interesting research report – Productivity before and after COVID-19 – which lays bare some of the misinformation that the corporate sector has been pumping into the public debate about productivity growth. In particular, it demonstrates that forcing workers to work longer hours undermines productivity growth, that work-from-home is beneficial, and the lack of investment in productive infrastructure by corporations is a major reason for the lagging productivity growth in Australia.

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Japan sales tax debate continues – Reiwa are the only Party that understands the reality

On July 22, 2025, the – 2025 Japanese House of Councillors election – will be held. I have a good friend who is standing for the – Reiwa Shinsengumi – which is a genuine progressive, Left-wing party, not like the fake progressive parties these days that masquerade as social democratic parties (for example, British Labour, Australian Labor, US Democrats, to name a few of many). My friend is the endorsed candidate for the Kyoto Electoral District (頑張ってね、みなこ). One of the major policies that Reiwa proposes is the abolition of the consumption tax. In fact, this election has spawned widespread opposition to the consumption tax from other parties as well. It has been a highly contentious issue in Japan for several decades and its introduction and regular increases to the present level of 10 per cent reflects the dominance of neoliberal misinformation about the fiscal capacities of the Japanese government. Perhaps, this election we will see some more sensible outcomes.

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Commentary on Moody’s downgrade gives the game away – finally

We sometimes encounter commentary that blows away the smoke that provides cover for important myths in the world of economics and finance. Whether that commentary knows the import of its message is questionable but it certainly has the effect of casting aside a myriad of fictions and redefines the sort of questions that one can ask. Such was the case last week following the decision by the ratings agency Moody’s on May 16, 2025 to ‘downgrade’ US government debt ratings from Aaa to Aa1. While many commentators acted in Pavlovian fashion and crafted the ratings downgrade as signifying that the US government was “more likely to default on their sovereign debt”, one influential opinion from the mainstream came out with the conclusion that “there is next to zero chance the government won’t be able to pay its creditors”. Which really game the game away and exposed these ratings agencies as political attack dogs representing sectional interests that want less government money going to welfare and more to them – among other things.

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