Modern Monetary Theory... non-political!

[Retch The Grate]

Ok, if you are really interested in MMT, here is the primer:
MMT Primer | New Economic Perspectives

If you want a quick overview by an economist, Economics Explained does an ok job but not as good as reading the above material:

https://www.youtube.com/watch?v=N8HOWh8HPTo

In a REALLY TLDR form, the quote njhowie put up above from wikipedia is decent.

MMT makes a LOT of sense, the older models people use don't really work for debt denominated in a currency a government can print.

The way to think about it, imo (again SUPER truncated tldr version), is the govt can print as much money as it wants to fund activities, and manage the excess through taxation to prevent inflation. The downside is as that as the printing of money that the government does expands relative to the supply of money already in the economy, the economy moves from market based to command based. And of course the economy made nothing but hornswagglers, which the government really needed to fight off the alien invasion, but means that no other goods that people wanted were made. So net happiness/utility/whatever economic measure of individual needs satisfaction you want to measure, most likely went down, but of course the government is tasked with making people unhappy when necessary to accomplish needed goals like fighting off alien invasions by making hornswagglers and that's where the political side is.

Imagine there is $100 total held by the 10 individuals in an economy that they use to direct economic activity. If the government decides it wants everybody making hornswagglers, they just fire up the printers and keep paying out as much money as it takes for everybody to switch to making hornswagglers. If that is $1000, that's how much they print. If that's $1,000,000, they print that. Everybody switches to making hornswagglers because it is the only thing that makes sense, and the hornswagglers that the govt wanted gets made. The downside is that the existing value of the currency in the economy is wiped out, but the government manages that by imposing stiff taxes on the 10 individuals, sucking the $1,000,000 back out of the economy.

Now that obviously is an extreme example where MMT converts your market economy into a command economy. The reality is somewhere in between, but reality it is also much harder to use taxation in a way that it pulls out the effects of the money printing without impacting people. So generally, yes governments who have debt denominated in their own currency can print as much as they want and manage it through taxation, but this will definitely cause distortions in the market. The redirecting of effort to goals the government wants to accomplish is the entire point, but we will note that any government spending, regardless of where the money comes from, is technically distorting in this manner. The government buying food production to make sure there is a strategic production reserve in the country is a distortion we have regardless of whether one is using MMT to describe what is happening or Keynesian economics, or Marxist, etc.

So where MMT is useful is for understanding why things like Quantitative Easing aren't having the immediate impacts we would have expected, and to give guidance on how we should be managing them (likely taxing the huge amounts of money that QE is causing to pile up in the top part of the economy).

[Mr._Graybeard]

I'm more concerned about private debt than the hole U.S. (federal state, local) governments have dug. Easy money has made it easy to go into hock for business and individuals. What happens when interest rates go up?

Check out this paper from the St. Louis Fed.

[Animorph]

Quote:

Originally Posted by 82-T/A What you explain (borrowing as much as you can) is good in successful MMT... that is effectively the point. The inflation devalues the debt. The problem though is what results from MMT... that is, when the USD is no longer the global currency. This would happen almost literally overnight. We live in a very connected world, and society as adopted a fast-fail / fast-success mentality. Just like in a stock market crash... everyone starts pulling out so they don't lose in the end. When enough momentum develops that people start pulling away from the USD... it'll happen fast, in the matter of hours to days. This would likely be sparked from a single law passed internationally somewhere, or a negotiation made between several countries, etc. At that point the value of my cash would be worthless, and I'd have tons of debt.

If your debt is in worthless USD's then I don't see a problem. You do have some investments in international economies, right? Won't a USD collapse, global shunning or whatever cause, cause USD inflation? Strictly market action, no MMT needed. Maybe if your debt was denominated in Bitcoin and your portfolio was all USD CD's you'd be in big trouble.

Certainly this possibility, and I agree the USD status as a global currency poses a significant risk, is a great reason to invest globally. Japan was always in the discussion when discussing the 4% rule and what could go wrong with it.

[bjorn2bwild]

MMT explained by professor Stephanie Kelton in this Newyorker article -

Quote:

This spring, Kelton spoke at the Wall Street Journal’s Future of Everything Festival, held in a converted warehouse in Tribeca, where earnest networkers milled around taking notes. On the dais, a Journal staffer introduced Kelton as an economist with an idea “that will either solve the world’s problems or send it into ruin!” She made a face, and then walked onstage.

https://www.newyorker.com/news/news-...int-more-money

[audreyh1]

Quote:

Originally Posted by MichaelB I suspect your guess of this happening when you're 81 is optimistic. It'll take at least that much time.

That was kind of my point. If it occurs very late in my retirement, I probably don’t care much at all.

[copyright1997reloaded]

Quote:

Originally Posted by Animorph As an economy grows the money supply has to grow with it if prices are to remain stable. Otherwise, if your economy has doubled its production but your money supply has remained static everything will cost half as much. I guess in that case your stock prices would constantly be decreasing, but hopefully not as fast as "deflation".

From 1869 to 1879 inflation averaged -3.8% per year (i.e. deflation), while the economy grew at a 6.8% annualized growth rate. We would love to have such a problem.

Think about it: If technology and other factors increase productivity, shouldn't prices GO DOWN?

As you note, if someone believes that MMT will result in ramped inflation one should borrow every dollar and dime that they can, as long as the debt is not indexed to inflation. And one should get rid of every fixed asset they have and replace them with real things that won't as easily be deflated in value: perhaps farm land, precious metals, food stock, real things that have minimal depreciation, etc.

[jurgs01]

Imagine, government and banks a pushing a theory that supports them getting to spend money first and control the economy.

They have managed to trick most of the population that stealing 2% of your savings each year is good for them.

Free markets would normally lead to prices going down due to productivity increases. We proved this could be a great economic model in the 19th century.

[MuirWannabe]

Quote:

Originally Posted by audreyh1 That was kind of my point. If it occurs very late in my retirement, I probably don’t care much at all.

Those of us with kids might care.

Although I confess to not understanding MMT and it’s possible effects. It just sounds bad to me. But I can’t defend that.

[audreyh1]

Quote:

Originally Posted by MuirWannabe Those of us with kids might care. Although I confess to not understanding MMT and it’s possible effects. It just sounds bad to me. But I can’t defend that.

I was specifically talking about the US dollar potentially losing global reserve currency status.

[jurgs01]

The counter to MMT starts with Carl Menger's essay.
https://news.bitcoin.com/carl-menger...igin-of-money/

You have to understand the properties of money, and while money can act as currency, currency doesn't always have the properties of money.

[MichaelB]

Quote:

Originally Posted by audreyh1 That was kind of my point. If it occurs very late in my retirement, I probably don’t care much at all.

I was just showing my agreement to your comment, in my own wordy way.

..

No longer being the global reserve currency would bring advantages and disadvantages to the US. In economic terms the net would probably be advantageous for the US and not so for the other major global economies. The adjustment period would be a bit rocky, though.

Of course, one prerequisite to the US losing reserve currency status is another taking it on. So far, no one seems interested.

[Mr._Graybeard]

Quote:

Originally Posted by copyright1997reloaded From 1869 to 1879 inflation averaged -3.8% per year (i.e. deflation), while the economy grew at a 6.8% annualized growth rate. We would love to have such a problem. Think about it: If technology and other factors increase productivity, shouldn't prices GO DOWN? As you note, if someone believes that MMT will result in ramped inflation one should borrow every dollar and dime that they can, as long as the debt is not indexed to inflation. And one should get rid of every fixed asset they have and replace them with real things that won't as easily be deflated in value: perhaps farm land, precious metals, food stock, real things that have minimal depreciation, etc.

Look up "Panic of 1873."

[MuirWannabe]

Quote:

Originally Posted by audreyh1 I was specifically talking about the US dollar potentially losing global reserve currency status.

I understand. And I’m certainly not crossways with you. But my point still stands. The USD not being the global reserve currency doesn’t sound positive to me. Therefore it’d likely be bad for my kids and grandkids if it could happen 20 years hence.

I find lots of things happening these days that are very concerning. If not for me, then for the future generations. But rather than excessively worry about it, I trust in God and I realize that each generation must deal with the challenges it faces as best it can. That’s the way of the world. I also realize that I don’t know everything and my worries are often wrong.

But yea, if someone’s asking me about MMT (in this case), I give it a [emoji107].

[82-T/A]

Quote:

Originally Posted by MichaelB No longer being the global reserve currency would bring advantages and disadvantages to the US. In economic terms the net would probably be advantageous for the US and not so for the other major global economies. The adjustment period would be a bit rocky, though. Of course, one prerequisite to the US losing reserve currency status is another taking it on. So far, no one seems interested.

I'm not seeing how the US losing their currency as the currency of choice is a good thing. I see much of our success in this world is as a result of this. Certainly our free-market ideals (which erode daily) propelled us, but that the USD became the globally traded currency is in large part what allows us to be #1... not only because it allows us some global leverage on monetary policy and politics... but also because it maintains focus on the US as being the world leader.


Your last comment is not true... respectfully, this is one of China's #1 goal, to replace the USD with the Yuan as the reserve currency. They know the benefits it brings.

[donheff]

Few politicians cite MMT as a basis for printing money. The theory is too counterintuitive to embrace directly. Instead they approach it indirectly, spend massively to address real crises (2008, today), or to fund wars. Cut taxes to either drive the economy or starve the beast, depending on your ideology. All of this spending is accompanied with some fig leaf of promise to make up the difference when things are better. It is in hindsight that both mainstream economists and some politicians are noting that the chickens never seem to come home to roost. Maybe MMT is a more accurate description. The caution is that the theory doesn't predict that you can simply print all the money you want and never get out of control. Instead, increasing inflation should lead to tighter money and eventually increased taxes.

[pb4uski]

The USD losing its status as the global reserve currency might happen someday but IMO is so far away and so unlikely that it is near the bottom of my list of worries... it might be an issue for my great-great grandchildren. And as others have pointed out, even if it did happen it wouldn't be the end of the world, just a different world The time that it has taken me to type this paragraph is probably more time than the concern deserves.

We've had many periods of time where the US has had significant deficit spending with little or modest inflation... so I don't get the alleged connection. The US government budget and finances are NOT anything like a family, company or even state government finances that have to be balanced to avoid financial ruin because the US government can create money where those other entities can't.

I'm not yet totally convinced about MMT, but I think it is interesting and that it's advocates might well be right. I found this Marketplace podcast to be good.

https://www.marketplace.org/shows/ma...c-crisis-rerun

[MichaelB]

Quote:

Originally Posted by pb4uski The USD losing its status as the global reserve currency might happen someday but IMO is so far away and so unlikely that it is near the bottom of my list of worries... it might be an issue for my great-great grandchildren. And as others have pointed out, even if it did happen it wouldn't be the end of the world, just a different world The time that it has taken me to type this paragraph is probably more time than the concern deserves.

Can’t disagree with any of that.

...

What makes the US$ the global reserve currency isn’t just its prominence for payments and transactions around the world. Central Banks prefer to hold it and store some of their reserves for safekeeping. More importantly, countries with positive balance of trade are able to effectively export their savings and store them in US$ but hold them in their own central banks. This is what allows countries like Germany, Japan and China to run such large trade surpluses. Central Banks around the world can use their currency to buy US$ / Treasuries without limit. This is the most powerful tool they have to manage their own exchange rates.

If a country with a trade surplus was unable to store it in US$ / Treasuries and was forced to convert back into its own currency, its exchange rate would quickly strengthen to the point where the trade surplus disappeared, along with a considerable number of domestic jobs. No country wants that. It’s an Atlas-like burden the US shoulders alone.

Being the reserve allows the US to exercise considerable foreign policy and impose on other countries and institutions policy where diplomacy cannot reach. Most countries would like to do away with that, so they are constantly looking for ways to get around it. Still, no other country in the world is willing to allow free and unlimited capital movement, and that is a prerequisite. China won’t even allow that internally, much less internationally, so they’re not even a candidate right now. Neither is the European Union, which has a confusing mix of country sovereign and EU financial policy responsibility, and no desire to see a decline in exports.

[SnowballCamper]

I found this piece informative on the topic of dominant reserve currency and how it might change. I didn't see a date on it.... Note that the British Pound was the last reserve currency, and they surely have a decent lifestyle currently (on average).

https://www.gresham.ac.uk/lecture/tr...-empires-fall/