Modern Monetary Theory... non-political!

[copyright1997reloaded]

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]

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]

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-the-nature-and-origin-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]

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]

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]

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]

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/m...-answer-to-the-covid-19-economic-crisis-rerun

 

[MichaelB]

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/transcript/print/when-currency-empires-fall/