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MMT coming soon to an economy near you?
Old 05-02-2019, 07:56 PM   #1
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MMT coming soon to an economy near you?

https://www.cnbc.com/2019/05/02/ray-...nevitable.html

Hedge fund maven Ray Dalio thinks the Modern Monetary Theory, favored by far left, will be irresistible to politicians seeking higher growth.

MMT is basically a belief that deficits don't matter as long as people accept the money you create. More traditional economists fear such a theory will precipitate violent inflation.

Hope I'm not still around if this happens.
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Old 05-02-2019, 08:05 PM   #2
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Hmm, seems like whichever side is in power decides deficits don’t matter. Witness the last big tax cut and recent demands to lower interest rates. Nothing new here.
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Old 05-02-2019, 08:20 PM   #3
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MMT is basically a belief that deficits don't matter as long as people accept the money you create.
How is this different from today, exactly?
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Old 05-02-2019, 09:11 PM   #4
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The US Dollar is backed by the "full faith and credit" of the United States. Essentially, the Dollar is backed by Treasury bonds. What is backing Treasury Bonds? the "full faith and credit" of the United States. What could possibly go wrong?

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Old 05-03-2019, 05:29 AM   #5
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The MMT theorists are interesting. They seem to be saying that a sovereign like the US can do all the infrastructure etc it wants by just printing money. The only constraint is inflation. If it starts climbing past acceptable limits back off. Seems to have worked OK during the Fed's quantitative easing phase.

I like Platinum Coin Seigniorage - the idea that the Executive Branch can bypass everybody to get around the insane debt ceiling by directing the US Mint to coin a trillion dollar coin and deposit it in the General Account. This seems like a variant of MMT. I wish someone would have the balls to try it the next time a debt ceiling default looms.
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Old 05-03-2019, 05:40 AM   #6
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The US Dollar is backed by the "full faith and credit" of the United States. Essentially, the Dollar is backed by Treasury bonds. What is backing Treasury Bonds? the "full faith and credit" of the United States. What could possibly go wrong?
The US dollar doesnít exist in a vacuum. It competes with other countries currencies. Itís not like other countries are significantly better off, in fact lately other countries havenít been doing as well.
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Tax Code Changes Needed
Old 05-03-2019, 06:01 AM   #7
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Tax Code Changes Needed

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How is this different from today, exactly?
Not an expert, but my understanding is that, for MMT to work, it needs a system of taxation that responds quickly to inflation. I believe that a VAT could be such an animal. So, if MMT is being seriously considered, I think there would likely be big changes in the tax code.
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Old 05-03-2019, 06:44 AM   #8
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It seems real fiscal responsibility is a thing of the past. I really hope I am wrong. With the current deficit being ~$1,109 Trillion, and 2020 predicted to be $1,103 Trillion. I cannot see the USA getting it's head above water in our lifetime without some serious belt tightening, and that is not a popular solution.
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Old 05-03-2019, 07:10 AM   #9
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From the link in the OP:

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In my opinion, for these MP3 [Monetary Policy 3] policies to work well, the system would have to be engineered in a way that decision making would be in the hands of wise, not politically motivated, and highly skilled people. Itís difficult to imagine how the system will be built to achieve that.
Yes, it is difficult to imagine how that would work.
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Old 05-03-2019, 08:27 AM   #10
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Originally Posted by audreyh1 View Post
The US dollar doesnít exist in a vacuum. It competes with other countries currencies. Itís not like other countries are significantly better off, in fact lately other countries havenít been doing as well.
+1

If total debt, or even debt to GDP ratio were the only criteria to judge a country's ability to repay its debt then East Timor, Libya and Afghanistan and Russia would be at top of people's places to invest.
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Old 05-03-2019, 08:40 AM   #11
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That map is deceptive. It portrays all countries as red or green. The missing color shades in between are relevant, IMO.
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Old 05-03-2019, 08:49 AM   #12
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That map is deceptive. It portrays all countries as red or green. The missing color shades in between are relevant, IMO.
Not deceptive, there are percentages in the columns for the top 30 for each category
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Old 05-03-2019, 09:04 AM   #13
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This is an interesting one. It compares Household Debt to Income. So if the majority of households have a high debt to income ratio it may be comparable to the countries debt too. The USA is higher than Japan and the others in this one.

This was just the first one I found when Googling the term, personal debt to income ratio in the USA.

https://www.creditloan.com/blog/amer...her-countries/
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Old 05-03-2019, 09:39 AM   #14
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I've been pondering that if The Debt is mostly held by US persons it is not as worrisome an issue as otherwise. In a way this situation is like taking a loan against your own assets. The Debt is akin to the US Government printing money and giving it to citizens. If the citizens determine that is unwise, they can vote to give it back (via taxes).
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Old 05-03-2019, 10:01 AM   #15
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So, if MMT is being seriously considered, I think there would likely be big changes in the tax code.
And that's why the term "being seriously considered" doesn't fit with today's real world.
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Old 05-03-2019, 10:03 AM   #16
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The US Dollar is backed by the "full faith and credit" of the United States. Essentially, the Dollar is backed by Treasury bonds. What is backing Treasury Bonds? the "full faith and credit" of the United States. What could possibly go wrong?
The US Dollar in its current form is only backed by the capacity (of future generations) of the tax payer to service the debts/promises racked up by the "government". The only reason we don't have hyperinflation after the last 11 years of money printing is the world economies are all in a "race to the bottom" trying to devalue their currencies too.



Debts get repaid via three ways: growth, default, inflation (assuming inflation is faster than the rate of debt growth).



If the funds raised by issuing that debt is not invested such that the return on investment (growth) enables the future generation to repay, the debt won't get repaid (default).

Its a game of musical chairs. The music will stop sometime. The bankers have their seats reserved. What are you going to be left to sit on?
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Old 05-03-2019, 10:29 AM   #17
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In a recent interview, this is what Dr Lacy Hunt had to say with regard to the practicality of MMT ------


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Dr. Hunt: Well, there are some folks out there, mainly the modern monetary theorists, that want to make the liabilities of the Federal Reserve legal tender. In other words, allow the Fedís balance sheet to sort of operate as a cash cow and to pay for the Treasuries bills.
The Federal Reserve does not have that authority at present. The [Federal Reserve] 1937 Act, the principal author was Senator Carter Glass of Virginia, who also wrote the Glass-Steagall Act, did not intend to give them that authority. He consulted with Irving Fisher of Yale and other great monetary thinkers of the time, and they did not give the Fed that authority.
The Fed can only use its balance sheet to buy a select group of assets from the banks, government, and agency securities Ė and then those proceeds have to be held at the Federal Reserve bank. So the money supply is equal to the monetary base and the money multiplier, which is endogenous and which the Fed does not control.
And, regardless of what you have heard Ė and there was once a statement, which was eventually corrected, from Ben Bernanke that in quantitative easing the Fed was printing money Ė but the Fed does not have that capacity. It doesnít have the mechanism or the tools to print money. For them to be able to print money you would have to rewrite the Federal Reserve Act.
Now you could go down that route. But what would happen in that case is in very, very short order we would get hyperinflation. Because the aggregate demand curve would shift upwards, the money multiplier would no longer be relevant, and prices would rise as fast as the increase in the money supply and eventually faster.
And something called Greshamís Law would take effect. The bad money would chase out the good money. People would not be willing to exchange money for commodities, return to barter. There would be massive inefficiencies.

https://www.macrovoices.com/podcast-...alance-of-2019
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Old 05-03-2019, 10:47 AM   #18
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In a recent interview, this is what Dr Lacy Hunt had to say with regard to the practicality of MMT ------

....
And, regardless of what you have heard Ė and there was once a statement, which was eventually corrected, from Ben Bernanke that in quantitative easing the Fed was printing money Ė but the Fed does not have that capacity. It doesnít have the mechanism or the tools to print money. For them to be able to print money you would have to rewrite the Federal Reserve Act.
...

https://www.macrovoices.com/podcast-...alance-of-2019
Thats a little bit of "toMAYto/toMAHto". It's still a red fruit used to make ketchup. The Fed extends new credit generated out of thin air (a spreadsheet entry) to banks which the banks use to buy Treasuries... then the banks put the Treasuries at the Fed as reserves where they sit on the Feds balance sheet. They didn't physically print money, technically they only issued new credit that somebody else then spent on their behalf.
https://www.thebalance.com/how-is-th...g-debt-3306126



Which is why some are sarcastically asking "how is MMT any different than what we're doing now?"
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Old 05-03-2019, 10:52 AM   #19
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What comes after trillion?
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Old 05-03-2019, 10:54 AM   #20
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What comes after trillion?
Trillion and one.
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