The Deficit Myth (MMT) by Stephanie Kelton
Higashiyama
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This is a quite interesting book, worth reading, by a former economic advisor to Bernie Sanders.
Higashiyama
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warning just in case
Don't Get Political
MMT cheerleaders claim that national deficits don't matter when a nation prints its own money AND owes no debt in foreign currencies (why it cannot work for countries like Argentina and Zimbabwe). While internal deficits don't matter to those who can create money to meet government expenditures and to fund popular government programs, there is a cost to those left holding that newly created and immediately devalued money who have provided labor, risk or production to acquire it. Money is no different than any other commodity, as you increase the supply of it you reduce it's real trading value.
Nothing of value is free. . . including money. When those who can create money at no cost are exempt from the same accountability and spending limits that users of that money are faced with, that money will have its value destroyed. We have slowly witnessed this first hand for over 100 years. Magic Money Tree nonsense will only accelerate a fiat currency's destruction, and is far from the answer to maintaining a stable currency.
MMT is not a new. It is just a new name to an old scam; "how to spend money you do not have." It is no different than the old "Deficit Theory." History shows us what creating money out of thin air can do to the purchasing power of that new money as well as to the existing "old" money. There is a cost for freely printed money, and that cost, loss of purchasing power (inflation) of all money, is eventually passed on to those who are forced to transact with that money. Additionally it reduces the value of their stockpile (savings) of "old" money, discouraging them from saving, and leading to an increase in their need to borrow.
Why MMT will not work? The author says it best herself (while providing herself an escape clause for when reality sets in):
"Can we just print our way to prosperity? Absolutely not! MMT is not a free lunch. There are very real limits, and failing to identify—and respect—those limits could bring great harm. MMT is about distinguishing the real limits from the self-imposed constraints that we have the power to change. (Kelton 2020, p. 37)"
Not much different than trying to warn a borrowing legislative body about the limitations of the debt it creates. And surely to have the same result.
Ancient Rome had it's own form of MMT: Slowly reduce the silver content of it's coinage. Remember that Rome was not overthrown, it simply overspent. History has also repeatedly shown us that attempts to stretch a legislature's spending ability will always result in further money debasement and eventually lead to rejection of the currency. Fortunately for the money creators the debasement of their new money doesn't begin until after they have initially spent this new money into the marketplace. It's us "second generation" users that always have and always will pay the price.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
What "self-imposed limit is she talking about? I don't see no self-imposed limits by the Fed or Congress, either one. They do whatever suits their purposes. Money for nothin', but only for the select few on top and the useful idiots on the bottom.
Arbitrary picking of winners & losers, having exactly nothing to do with productive enterprise.
Does the book cover malinvestment due to misallocation of all the free money? I think not.
I knew it would happen.
MMT is just another rationalization to justify stealing someone else's property or work effort. That such foolishness is actually believed as a potential "solution" is also an indication that those who otherwise should know better are aware that exponential debt increases are approaching the "end game".
It could in theory work in an economy composed of robots who act like most economists occasionally believe. It's never going to work in one populated by actual humans beings.
MMT works as long as interest rates are low.
But not after that.
Here's a warning parable for coin collectors...
Thanks for the various comments above; I absolutely agree with the sentiments expressed.
However, the book is worth reading as a fairly slick presentation of a deeply flawed "theory" aimed at a naive audience. The author herself, though almost certainly sincere, is rather naive.
Although we should definitely take @MsMorrisine 's caution seriously -- don't get political -- it is interesting to read reviews of the book; both liberal and conservative commentators point out errors and errors of omission. Yet, the book and MMT have a following and it does not take a stretch of the imagination to expect that this following may grow. The basic idea (that currency issuers have not fully used the power inherent in being able to create money to 'invest' in infrastructure and solve social problems) could easily become intoxicating.
As is often the case, flawed theories have elements that are correct, and this may make them more salable. That is certainly true with MMT. @dpoole points to an interesting issue, which Stephanie Kelton actually claims to address in the book. Basically she says that with the new found understanding provided by MMT, the Federal government, not the markets, will control interests rates, for the benefit of all!
aren't they already?
Benefit for all? Good luck wid dat.
Government control is a not a "new found" understanding. Control has been the purpose of governments from the day they were created, rarely for the benefit of all, usually for the benefit of a few. It is why there are three economic classes of people in a society.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
When it comes to their own pocket book or ideology, most people believe what they want to believe, not because it is true or there is a reason to believe it.
With MMT specifically, somehow these proponents have convinced themselves that there is something uniquely different about the US Federal Reserve and government which doesn't apply to most (if any) others. It isn't just that these other places borrowed in a foreign currency that resulted in the subsequent economic problems. It's that no one can live indefinitely beyond their means. This applies to individuals, countries and every level in-between.
End result?
It's what I said before. The standard of living of the typical American is destined to decrease and for most, noticeably. Same outcome most everywhere else. The only thing suspending reality is artificially low interest rates and collectively, the lowest credit standards in history.
Fiscal stimulus, QE and MMT can only postpone reality where the future consequences will be even worse.
Interesting points.
MMT stands for Magic Money Tree.
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
MMT works as long as interest rates are low.
But not after that.
It only "works" in the sense that the numbers don't blow up immediately.
The caveat is that in order to keep rates low, even more money has to be created, exponentially in order to roll over even more debt - thus insuring a blowup.
I knew it would happen.
The true endgame for MMT.
Venezuela Orders 71 Tons of Paper To Print New Banknotes Worth 23 Cents Each
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
MMT stands for Magic Money Tree.
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
@derryb said "The true endgame for MMT"
Stephanie Kelton would presumably observe that the Venezuelans missed the part about using tax policy (and other measures) to mute inflation.
Mostly tax policy, yup.
The reality of MMT
100,000-Bolivar Bills Worth Just $0.23.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Just how much tax can be collected from a population earning poverty wages who are already collecting massive government subsidies? Taxes can be a policy only when the population has the money to pay them. MMT requires a capitalistic economy where there are taxable incomes and even then ever growing taxes will eventually reduce the economy to a socialist existence.
Socialism works until you run out of other people's money.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
MMT will result in inflation in commodity prices. Watch nickel and copper especially. Inflation has not been too noticeable in the US yet because of very low interest rates and currently high unemployment. Inflation is now delayed by COVID and its effect on employment. Delayed, but not postponed.
"They see Modern Monetary Theory as the answer – create money at will under the new theory that there will never be inflation." -- Martin Armstrong
MMT is the 'solution' to having run out of other people's money.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
@derryb, you should read the book, you'd find it entertaining.
Stephanie Kelton does mention this Margaret Thatcher quote, and, of course, says that Thatcher just didn't get it. Kelton says that if you can print money, you don't need anyone else's money. You just go ahead and print. After that, if inflation begins to creep up, then you might start taxing people to mop up excess money in the system.
I've read enough about MMT to know it is a dangerous replacement for monetary discipline and restraint, as is QE. Like QE it is an effortless, temporary 'solution' for leaders without the guts to do what is right. It is just a different shoe kicking the same can a little further down the road. It only delays the day of reckoning. The longer that delay the worse the reckoning. Imagine where we would be now if we had bit the bullet and applied a proper, painful fix to the 2008 crisis.
Kelton is the one who doesn't get it. MMT simply replaces "other peoples money" with "nobody's money:"
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
MMT also circumvents the process of prioritizing government spending and makes reckless social engineering experiments much easier.
I knew it would happen.
The Magic Money Tree is here:
23.6% of All US Dollars Were Created in the Last Year
Which means:
Hyperinflation is here
Gold, the simple math:
Paper Money Supply Growth Will Outstrip Available Gold
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
The Covid pandemic has required massive infusions of cash to keep people afloat. Well and good.
However, the seduction of injecting massive infusions of cash to deal with whatever may terrifyingly be here to stay, for all Congressional and presidential leadership hereafter. Who will be left standing with any clout to say them nay?
Here's a warning parable for coin collectors...
It's just paper and some random numbers on a computer screen. Print away, and don't forget to send me and the misses another stimulus welfare check. I need a new zero turn and end of season is the best time to buy. Thanks!
The whole worlds off its rocker, buy Gold™.
Load back up on more of that gutter metal Blitz! You know you can't help yourself.
Click on this link to see my ebay listings.
If she breaks back down under $20 it will be tempting. Guess I'm a sucker for punishment. lol
The whole worlds off its rocker, buy Gold™.
Ha, I can remember when the mention of "QE Forever," like price manipulation, was just another conspiracy theory. LOL
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Must of been before my time here. My only recollection of conspiracies involved, the comex is imploding. JPM owns so much silver they are gonna make the price go to the moon, Bulguaria is set to take over the world etc.
The whole worlds off its rocker, buy Gold™.
Pretty bad when Japanification of the US economy is actually the best outcome we can now hope for
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Well, they can't print gold:
New Gold Standard: Orderly or Chaotic?
"The dollar collapse has already begun and the need for a new monetary order is now emerging. I believe it will involve gold. The question is whether it will be an orderly process resulting from a new monetary conference, or a chaotic one."
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Rickards often has some interesting things to say.
One comment in the piece posted by @derryb above: when thinking about the decline of the dollar, we should look at the history of the British pound. For all practical purposes, US dollar hyperinflation is a zero probability event. A long and occasionally painful decline is quite possible.
As crazy as it may seem to mainstream finance people, it is not out of the question that gold may play some role in a new global currency agreement. We will definitely not go back to anything that resembles the 19th century gold standard or even Bretton Woods. But, gold might help to mute rivalry of the dollar and the renminbi, both of which have serious issues as long term reserve currencies.
For all practical purposes, US dollar hyperinflation is a zero probability event.
How many trillion dollar bailouts for people, states, corporations, hedge funds, junk bond funds, ETFs and municipalities will it take before people figure out that they're being had and they lose complete confidence in the US currency?
The Ctrl Prt key does seem to be stuck. John Williams notes unemployment at 28% - more than the Great Depression, and 60% of the lost jobs are said not to be coming back. Doesn't seem to bode well for the tax base in most places.
The bailout money seems to be going mainly into the stock market, which begs the question as to whether or not company profitability justifies the rise, since actual sales performance isn't driving the increases. It's an amazing phenomenon, but it's not real.
Be advised.
I knew it would happen.
I don’t think you know what “begs the question” means
I don’t think you know what “begs the question” means
I had to look it up, and I see nothing wrong with my usage of "begs the question". When money is created out of thin air and the majority of it goes into the stock market when the main economic event seems to be high unemployment, it does not seem logical that stocks would be valued higher without commensurate increase in sales and/or earnings.
What is YOUR interpretation? Do you somehow see higher profitability from lower sales numbers, layoffs, bailouts and cutbacks in company spending? Please explain.
I knew it would happen.
Stephanie Kelton -- MMT and the Deficit Myth (w/ Marshall Auerback) Via Real Vision
It means one is assuming or restating their conclusion without actually supporting it with any facts.
It doesn’t mean a statement that raises a question that is just begging to be asked.
Merriam-Webster defines "begging the question" as "to pass over or ignore a question by assuming it to be established or settled." In other words, it means that you're stating as fact what you are trying to prove.
I knew it would happen.
It appears to me that Stephanie 1) believes in unconstrained government spending and 2) has never run a business.
I knew it would happen.
Modern Monetary Theory is nothing new, just a new name. It is intended, by it's marketing "experts," to bring an updated, positive outlook to old, negative issues such as "runaway debt, endless printing and QE." That magical word "Modern" ain't gonna do the trick. If we were to call it what it is, Dollar Destruction, it just might get properly addressed and eventually fixed.
The FED's balance sheet (the true measure of Quantative Easing) is up 90% in the last 13 months. Not very promising for a "recovering economy" or its currency. Unfortunately that which affects our currency affects all of us.
One must realize that the financial press is not exempt from the corrupt corporate ailments that have destroyed the reliability of the mainstream press. Of course, destroying the reliability of information we receive is small potatoes to destroying the currency we trade in and depend on.
No currency can be "infinite." History has shown, for different reasons, they all have a breaking point. That said, there is no good reason to purposely expedite its demise.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
John Rubino gives a fairly good summation of the debt problem and its inevitable endpoint, in a recent interview with Greg Hunter on USAWatchdog.
I knew it would happen.
Yep, I think we are all going down like a turd in a well, it will float for a while and then deteriorate and fall to the bottom.
MMT?
Simon Black calls it "classic empire arrogance."
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Ghana Becomes First Country To Officially End MMT Experiment
"Alas, in light of the entire "developed" world conversion to banana republic status, it's probably not surprising that the smartest central banker can now be found deep in Africa."
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I think we should lock up the Fed presidents in the same room with the "infectious disease experts" (and Bill Gates) and see who wins.
I knew it would happen.
American Billionaires got richer during COVID
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Well and good. . . for those who benefited.
Coincidence? $15 Trillion in new global money in 2020. $15 Trillion gain in global equity market cap in 2020.
"While much of the world grappled with soaring unemployment and plunging growth, Bloomberg notes that the 0.001% benefited from an unprecedented period for wealth creation. The world’s 500 richest people added $1.8 trillion to their combined net worth in 2020 for a total of $7.6 trillion, according to the Bloomberg Billionaires Index. Equivalent to a 31% increase, it’s the biggest annual gain in the eight-year history of the index and a $3 trillion jump from the market’s nadir in March."
That extra $1400 would have been "well and good" for Americans who need it. Our leaders found it more important to send that money out of the country. Americans obviously don't pay them near what foreigners do.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
You are absolutely correct, it is an informal logical fallacy and not always easy to recognize. Petitio principii is the fallacy of circular reasoning - assuming what you have to prove. Examples abound
In modern parlance, it's what you later stated, and jmski quoted from the dictionary in its non-technical sense.
99% of the time when someone writes or says "it begs the question," like you, I say to myself, "No, it doesn't, you mean raises/invites the question" --- but usually keep it to myself. So, for the 1% of the time, since you started it, I get the chance to chime in. Gracias. And no disrespect to the preeminent jmski.