I discuss MMT (Modern Monetary Theory) with Steven Hail from the University of Adelaide, who makes the case for a different way to think about public debt, and the potential benefits of running a (controlled) deficit.
The Merits Of MMT
2 thoughts on “The Merits Of MMT”
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We’ve had this experiment with fiat currencies since 15 August 1971 and it has turned into a dismal failure.
We used to laugh at the way Japan handled its problems after 1989 by allowing their banks to turn into zombies instead of allowing the successful banks to take them over quickly.
The West told Japan that the recession was a normal part of the business cycle that enabled mistakes
by risky companies to be scorched from the system.
However, here we are all following Japan down the sink hole with more and more government debt.
I have greater faith in Hoisington and Hunt than the good gentleman from South Australia.
“How would MMT be implemented and what would be the economic implications? The process would be something like this: The Treasury would issue zero maturity and zero interest rate liabilities to the Fed, who in turn, would increase the Treasury’s balances at the Federal Reserve Banks. The Treasury, in turn, could spend these deposits directly to pay for programs, personnel, etc.
Thus, the Fed, which is part of the government, would be funding its parent with a worthless IOU. In historical cases of money printing, the countries were not the reserve currency of the world, as the U.S. is today. Thus, the entire global system could be destabilized in very short order if this were to occur.
There would be no real increase in services or money since very little time would lapse before people realized increasing inflation was not increasing real purchasing power.
If the government responded by issuing more central bank legal tender, the inflationary process would become self-perpetuating, and as was the case in numerous historical instances this would lead to hyper-inflation.
Moreover, the central bank would have no capability of reducing the money supply. All they could offer would be the zero maturity, zero interest liabilities of the government, but there would be no buyers. This would mean that hyper-inflation would be difficult to stop.
—Van R. Hoisington Lacy H. Hunt, Ph.D. April 2019