The New York Times looks at MMT and how it looks with our current inflation. Time For a Victory Lap* *Some terms and conditions apply. Modern Monetary Theory, the buzziest economic idea in decades, got a pandemic tryout of sorts. Now inflation is testing its limits. Ms. Kelton, 52, is the most familiar public face of Modern Monetary Theory, which posits that if a government controls its own currency and needs money — to make sure its citizens have food and places to live when, say, a global pandemic pushes many out of work — it can just print it, as long as its economy has the ability to churn out the needed goods and services. In the M.M.T. view of the world, “How will you pay for it?” is a vapid policy question. Real-world resources and political priorities determine how much lawmakers can and should spend. It is an idea that was forged, and put to something of a test, during a low-inflation era. When Ms. Kelton’s book, “The Deficit Myth,” was published in June 2020 and shot onto best seller lists, inflation had been weak for decades and had dropped below 1 percent as consumers retrenched in the pandemic. The government had begun to spend rapidly to try to prop up flailing households. But by a chilly January afternoon, as ducks flew over the frosty estuary outside Ms. Kelton’s house near Stony Brook University, where she teaches, inflation had rocketed up to 7 percent. The government’s debt pile has exploded to $30 trillion, up from about $10 trillion at the start of the 2008 downturn and $5 trillion in the mid-1990s. I think for normal people, this is going to be a much harder sell than in the days before inflation exploded. But it's kind of a cult so the true believers will not be bothered much.
It's not even really a theory, it has no macroeconomic models, it's just a bunch of self referential policy proposals that are essentially "print it, do it." Of course it's inflationary. Another smart mom, ready to vote a straight Republican ticket for sanity!
MMT is warmed-over chartalism...the idea isn't even new, it's century old, but it became popular with leftists during a time of low inflation because they argued for over a decade that the response to the 2008 crisis was tepid. Now that we have high inflation I hear a lot less people talking about it, probably due to embarrassment and real-time education in what high inflation actually means. I will be honest, though, personally I was initially not expecting inflation to get this bad. I think Fed policy of ZIRP and buying MBS has fueled asset bubbles but I was skeptical about this for a long time, as the Fed was doing this between 2010 and 2015 and we didn't see anything near this type of inflation. I think the secret ingredient, this time, is the unnecessary degree of fiscal stimulus which gave money to people who didn't need it via direct payment, student loan forbearance, mortgage forbearance, enhanced UI, eviction moratoriums, etc. as well as the Biden admin's whackadoodle energy policy.
I believe the reason the Fed printing money did not seem to cause observable inflation was because, leading up to the 2007 Housing Crisis, there was a "housing bubble", with all sorts of "money" and "wealth" in bank accounts which did not actually exist. (Because what banks do is turn debt on houses into money in bank accounts. That money can disappear if the house loses sale price value and the borrower defaults on the loan) So the inflation had already happened, while the bubble was growing. The inflation went unnoticed at that time because of the seeming prosperity the bubble was creating, before it popped. When the housing bubble popped and started rapidly deflating, the Fed essentially substituted one form of inflation for another, when they printed money to buy up all the toxic mortgage equity, preventing banks from failing and propping up housing prices (in unit dollar terms). If the housing market had been allowed to deflate, we would have seen monetary deflation. The Fed made it an intentional policy to try to prevent that at all costs, and was intentionally embarking on a policy of propping up housing prices. This policy ended up "cementing" the inflation that had already happened, making it permanent. In other words, there was certainly an inflationary effect from printing money, but that inflationary effect was almost exactly cancelled out by the deflationary effect of the housing bubble deflating. This was the entire point of the Fed's policy. We can of course debate whether that was a good policy. The media never even seemed to raise that debate to the public. But that would be a discussion for another thread. Seeing all this, I believe, emboldened MMT theorists and proponents, for a time (at least until around the middle of 2021). Their theory was embraced by some wacky Left-leaners who liked that it was a convenient excuse for increased government spending, even if the government could not raise taxes to pay for it.
Yes, inflation killed MMT. There was no denying it when it came. It's time to put that theory to bed. One theory down how many more to go? A lot of economic theories remain untested in the real world, but we need to find one that works before the population collapse later this century brings not growth but economic shrinkage.
When the dollar was the only medium of international exchange, then as international trade increased did that mean more dollars could be issued and there would be demand for them so the value would not decline so there would be no inflation? And that issuing too little credit would cause problems possibly including deflation? I've never studied economics, but I got worried that when the Biden Administration and therefore the US government banned Russia from using SWIFT and forced it to organize an alternative with countries they trade with, that as countries changed over to the alternative exchange medium and moved off the dollar, that this would lead to a surfeit of dollar credit and therefore inflation as demand for dollars declined below the amount of dollars available. In short I'm worried Biden's actions will devalue the dollar.
I was worried about that too. Not for inflationary reasons, but because alternate systems of payments threaten the supremacy of the dollar, and the US economy and it's debt is a house of cards resting atop the fact that there is a near unlimited demand for dollars due to it's reserve currency status. If the world doesn't trade in dollars, we're sitting on a mountain of debt that we can no longer roll over.
MMT is based on the premise unemployed labor is a wasted resource and has an economic cost on the nation which cannot be recouped in the future. Idle hands during times of unemployment can't make up for the loss of production in times of high demand for labor (unless, of course, the labor works twice as many hours and produces twice as much the following year). So, the MMT solution is to keep increasing the money supply until you aren't wasting any of the precious labor resource, saving the unemployment payments to idle labor. It is just another attempt by Socialists/Keynesians (and communists to undermine the US and other Western capitalist nations) to encourage wrong-headed socialist policies. In fact, it is almost by definition just Keynesian economics arrived at by a different rationale. You could accomplish the same savings in wasted labor resources by lowering taxes to drive up demand for labor to reach full employment. Doing so also provides a myriad of other economic advantages which aren't so short sighted, wrong-headed and naive enough to think you can get something for nothing. As for several of the other posts in this thread, the reasons listed for past and present inflation appear to miss the mark. In economics few variables are isolated. Impacts on inflation and other economic measurements tend to ripple through the economy like waves in a pool with multiple occupants moving about at various points in time/location with varying amounts of vigor. This is why it is so easy for economists to confuse the public on why a particular snapshot in time has resulted in the current economic realities. All reasons given above are valid and have caused ripples. None are comprehensive. Suffice it to say, given a fairly fixed amount of production, the only remaining comprehensive inflationary stimulant is the printing of money (increasing money supply). It is important to understand, deficits, etc. don't necessarily all increase the money supply. At least not immediately. To visualize a nuance of the situation, let's say there are 100 dollars in circulation in the fictional country of Davidia. Davidia has a citizen, namely me, with all the available currency (I've saved the profits from my labor well). My plan is to finally rest and pay others to work in my stead. The Federal Government of Davidia decides they need to spend more than it receives in revenues so they can buy votes in the next election. So, they issue Treasury bonds for 10$. If I buy those 10$ worth of Treasury bonds the money supply does not increase one iota. There is still 100$ in circulation. 90$ left in my wallet and 10$ has been added to Davidia's Treasury account. When the US government issues bonds and US citizens purchase those bonds (in exchange for future repayment plus interest), there is ZERO effect on inflation (at least not for the duration of the term of the bond). A similar (though slightly different) situation occurs when foreign governments (China) purchases those bonds. Dollars need not be printed... yet. The term on many bonds are 5, 10, or even 30 years out. This is great for socialist legislators who wish to buy votes now in exchange for promises to be repaid by future Congress's long after they are gone. Even if they are still in office when the bill comes due, voters are unable to discern who is responsible. Even those astute enough to understand the why can't be certain with all the other variables (waves on the pool) from various other sources the extent of impact caused by any single source. When there are insufficient buyers/lenders for these bonds the Federal Reserve of Davidia must purchase them (the buyer of last resort). This is when the printing essentially takes place and inflation is impacted in the NEAR TERM as the spending wave spreads through the economy. I know they don't necessarily print the physical currency immediately (though they soon must). What the Fed does is take possession of the unsold Treasuries and just adds a huge number into the computer ledgers of the US government. In an instant Biden essentially printed close to 5 Trillion $ in each of his first 3 years in office (not borrowed from bond purchasers but printed). The excess spending was unprecedented. Even more unfortunate is the excess spending for the most part bought the taxpayers little of value. Climate change BS for the most part, payoffs to China, Russia, Iran and other friends of the DNC. This is why the resulting inflation was different than we have seen from previous reckless spending. We are now having to repay the loans on the bonds from previous administrations, as well as immediately suffer from the consequences of Biden ridiculous overspending. Biden's deficits are well beyond the demand for purchase in the markets. This can be partially offset by increases in the interest paid on the bonds (yield) making them more attractive for purchase. We have seen rate increases. The problem is, the US Government is already carrying such a huge debt load, increasing the interest rate paid will exceed the total revenues taken in. Increasing rates to relieve inflation makes it more difficult to spend in excess. As some point it precludes them from spending anything after interest is paid. The US government is finding itself closed in on from both sides of the inflation sandwich. The only way to decrease inflation is to raise rates. But raising rates to what is necessary will result in the collapse of the value of the dollar and the US government. Over the last 25 to 30 years China has purchased the bonds used to cover the spending in an effort to keep the value of the dollar high. This made it cheaper for Americans to buy Chinese goods. Since the Chinese bought the bonds there was no need for the Fed to print. This of course hurt the American worker but helped the American consumer. All while permitting China to achieve dramatic gains in production. China is now shedding it's bond holdings instead of holding them, creating even less immediate demand for bond market purchases. The only real answer to the problem is to cut spending (dramatically) and cut taxes to help grow the economy. However, the window of interest rate values necessary to reduce inflation without forcing drastic reduction in services may be unreasonably narrow or even non-existent. Cutting spending is also not baked into the whole Washington Beltway process/status quo. Now more than ever, The People look to the government for the relief of free "food and services". Legislators know what they must do, but implementing the solution will be very painful for The People and will almost certainly result in their ousting. Losing power is their real concern, not the good of the nation. Some actually do want what's best for the nation, as long as it doesn't result in their loss of power. Even the legislators most ardently proposing lower spending, often cave and support it when they can do so after having obtained cover for the hypocrisy. The final act in the drama will play out according to which side of the inflationary sandwich the legislators decide to eat. They could attempt to assuage The People's pain by continuing down the socialist path, printing an ever-increasing number of dollars until the cost of a #1 at McDonald's is 100,000$ (or likely more in Zimbabwe's case). Or they may cut out all payments on Social Security, eliminate food stamps, the millions of other wasteful programs and entitlements, huge reductions in defense (at least until ne'er-do-well tyrants take an opportunity) until a starving, unemployed, deprived populous takes it out on the last legislators seated. There also seem to be indications all this isn't entirely by accident. It may well be forces in the shadows are purposefully bringing about a nefarious catastrophe. I know I'm not the only one who notices peculiar events. We live in a time where the POTUS demanded documents incriminating the FBI be turned over. The FBI refused citing the information was "classified". Since when is ANYTHING above the classification of the POTUS? The POTUS orders it declassified. Again, the POTUS is rebuffed saying the FBI must check with all the other government agencies to see if they too have anything sensitive which would preclude release. This cat-and-mouse persists for an entire 4 years until the term of the POTUS is exceeded! The highest levels of the FBI concocted and entire scheme to alter the 2016 election by creating falsified documents accusing the opposition candidate of accepting bribes from foreign advisories. They did so in collusion with the Clinton campaign and continued to foster the attack on the sitting POTUS for his entire 4-year term and NO ONE was prosecuted or even adequately investigated! What was uncovered clearly implicated many bad actors. The FBI is notified the sitting President has mishandled mountains of classified information going back many decades. The information has been haphazardly stored for many years in at least 5 of his residences. 1 of which is paid for by the Chinese government and provided to Biden free-of-charge (very odd). The Chinese landlords have complete access to the facility and the documents are in no way secured. This potential public relations disaster is conveniently averted when 2 months AFTER discovering Biden's crimes the FBI decides to raid FORMER President Trump's residence and charge him with an identical offense even though he has informed them they are welcome to look through it and take possession of anything they deem the national archives might want to keep for historical purposes. Trump is subsequently prosecuted with the utmost fervor, even though the basis of the charges is far less conclusive. No warrants are issued to search Biden's residences, nor is any semblance of a thorough investigation completed. The results of the incompetent investigation which was done were just announced as, "Yes the POTUS has been mishandling classified documents for many decades now, but after speaking with him we realized he is old and his memory is bad. We viewed him as a sympathetic character and decided not to prosecute". WTF? Their decision is POTUS Biden is too old and senile to be prosecuted for the intelligence breaches he has been committing for almost the last 50 years? He wasn't old and senile when he committed the crimes, just too old now to prosecute... and they apparently like him not Trump!!!! This hardly compares to the fervor which the investigation hastily concocted against Trump was given. The coverage given couldn't be more diametrically different, with the FBI intentionally leaking information and making public statements which turned out to be lies or at the least exaggerated. When asked about the Biden investigation they don't comment saying, "we don't comment about ongoing investigations". The Biden investigation took forever and reading through the report NOTHING was really pursued. The reason given? They felt simpathetic towards Biden because he was old? Yet for some reason they inform the judge they have to forego discovery and various other legal processes so they can finish their case against Trump in time for the election? Since when does a judge throw out Habeus Corpus because it helps a particular political party by election day? A party without standing in the case unless you consider the Judge's and prosecution's party affiliations. Irregularities in the ballots supplied to numerous heavy Republican counties in the 2016 Georgia election are found to have a misplaced centering mark which causes the voting tabulator to read Trump votes for Biden. The results compared with previous elections seemed to indicate a complete flip in these counties results. The Federal Judge issues a subpoena for these ballots and orders them not to be destroyed until the court can examine them. 2 days later the FBI (who has no jurisdiction in Georgia state election matters) conducts a massive gunpoint raid on the Georgia ballot office, then confiscates and shreads all of the subpoena'd ballots. In a scathing rebuke by the Federal Judge the response from the FBI was, "we just wanted to make sure Georgia election laws were followed (citing a Georgia statute mandating all ballots be retained until AT LEAST 90 days after an election). Note the statute makes no mention the ballots MUST BE SHREADED 90 days after an election... just not before. And under subpoena is even more incredulous (even if it was an FBI matter, which it wasn't). If this incident didn't make your radar ears go up and realize something is afoul nothing will. This should alarm all patriotic Americans regardless of party affiliation. Reminds me of 1930's Germany under Hitler when the NAZI's burned down the ReichStag and blamed it on the Communists. It was used as the basis for the arrest/torture/murder of the opposition party members, taking control all future elections and the eventual elimination of elections altogether. And I'm sure all of you can add 100 more incidents which indicate The People may not be in charge now and certainly not for much longer... as could I.
Seems an awful lot of people think the deflated money will *somehow* (magically) effect 'the rich' instead of everyone else. The cult is strong...
Let us roll back to a ten cent tour of: "how did we get here". "Here" had little to do with economics. It had to do with economic spite of a vindictive, senile president. The first thing Biden did was attack energy supplies, and then he attacked the future planning of our energy companies by making future exploration more risky by announcing his intent to put them out of business, and turn America into an electron gulping EV nation. Fossil fuel energy is an input to everything we manufacture, transport, or eat. Prices started climbing. This intentional dislocation of resources is what blew up prices alerting the population to inflationary times ahead and "buy it now before prices go up." In addition to that, a lot of Covid money was unspent. This deficit funded money fueled higher demand during a time of rising prices due to higher input costs of everything. This led to people demanding raises to pay the higher cost of living. It is going to be a good ten years before the supply chain normalizes. Unfortunately presidents prior to Trump were too intimidated by China to slap a tariff on them, and fortunately thanks to a few clear thinking democrats that fought Biden on lifting the tariffs, manufacturing is slowly coming back.
We got here via corruption in the financial sector that began in the early 1960's, when both Left and right wing technocrats got together and began rolling back the banking safeguards and anti-monopoly rules put in place by the New Deal, starting with the 'certificates of deposit' scams lobbyists for Citibank got rolled through and created an illegal market for. The rest is just a series of ever larger financial bubbles and larger and larger bailouts of crooked banks and stock brokers. Nothing mysterious or hidden about it. It just gets ignored by both left and right wing ideologues.
