I hope you take this comment in the good-natured manor that it was intended. I’d be happy to continue it as a debate if you are open to it.
"Every single interest rate hike has led to a recession,” Yes, that is quite literally what they are intending to do. Well, technically, they are trying to make it harder for businesses to borrow money, so they won't be able to expand, and won't be able to hire more workers so that unemployment increases and those pesky workers will think twice about asking for a raise. For some reason that just happens to crash the darn economy.
You know what else always creates a recession? The government running a surplus.
"Modern Monetary Theory. It suggests that government debt in its own fiat currency never needs to be paid off as it can be rolled over in perpetuity with central banks no matter how big it is. It’s like having a credit card with no maximum limit even if you’re broke. How very kind of central banks to arrange such a system! Consequently, governments should not be afraid of rising debt according to the theory."
Not quite. Congress created the Fed, ultimately it is under congress's control. What MMT actually says is that the national debt is entirely the wrong way to think about government spending for countries that 'borrow' in their own currency.
"2. Monetize the debt, i.e. devalue the currency to make the debt worth less in real terms"
Let’s explore what you mean by this. I'm sure you agree that the US government (including fed and treasury) has the ability to create USD, right? So hypothetically, if the government decided it was no longer going to issue new Treasury Bonds and instead would make all payments above and beyond tax receipts with brand new USD, that would be monetizing the debt, right? But then "devalue the currency to make the debt worth less in real terms” is a bit confused. If we just monetized the debt, it doesn't exist anymore so it's not worth anything in real terms. I'm just going to assume you meant that monetizing the debt would be inflationary, something along the lines "with all those new dollars, dollars will be worth less” aka the quantity theory of money.
Let’s talk about what might cause inflation. Since inflation is broadly when the price of common goods increases, I would say that inflation is when business increase prices. They may increase prices because their employees are demanding higher wages, or perhaps cost of raw materials goes up, the availability of raw materials goes down, or if they think they can get away with it without decreasing sales (certainly easier to do with a monopoly / oligopoly).
So, let's think this through with my hypothetical method to monetize the debt from above. So how is my hypothetical different than what happens now? Well rather than printing brand new USD the government needs to go, hat in hand, and beg the private sector for USD. If they would be so kind the government would promise to pay them back with interest, aka sell Treasury bonds, right? Sort of. We don't have to beg anyone, the fed auctions off treasury bonds to its Primary Dealers (a group of banks who are mandated by law to place a bid at these auctions). So basically, the only difference between my hypothetical and reality is that instead of creating new cash we create new treasury bonds, that we also have to pay interest on.
The reality is that cash and treasury bonds are treated practically the same by most institutions. So actually, monetizing the debt would just deprive the broader economy of the interest payments made on treasury bonds. I fail to see how this would be inflationary.
Which isn’t to say the government can spend as much as it wants consequence free. It can, however spend enough to employe all idle resources, especially the Human ones. And spending to increase the production of resources isn’t a bad idea either. That, is the main point of MMT.
Still don’t believe me? Here is an explanation using double entry book keeping.
Wow super dope article 🔥🔥 I saw your post on Twitter and read this in its entirety.. scary stuff! How would you prepare ?
Great article.
Thank you for explaining the difference between suspense and surprise with examples. It was very clear!
"Prepare yourself accordingly"
Everyone I know who is aware of this has no idea how to prepare themselves accordingly.
Buy gold? Historically, they come and confiscate it
Silver?
Govt bonds - what about those national defaults?
Property is real but would bare land be a better option?
Helppppppppppp :)
I hope you take this comment in the good-natured manor that it was intended. I’d be happy to continue it as a debate if you are open to it.
"Every single interest rate hike has led to a recession,” Yes, that is quite literally what they are intending to do. Well, technically, they are trying to make it harder for businesses to borrow money, so they won't be able to expand, and won't be able to hire more workers so that unemployment increases and those pesky workers will think twice about asking for a raise. For some reason that just happens to crash the darn economy.
You know what else always creates a recession? The government running a surplus.
"Modern Monetary Theory. It suggests that government debt in its own fiat currency never needs to be paid off as it can be rolled over in perpetuity with central banks no matter how big it is. It’s like having a credit card with no maximum limit even if you’re broke. How very kind of central banks to arrange such a system! Consequently, governments should not be afraid of rising debt according to the theory."
Not quite. Congress created the Fed, ultimately it is under congress's control. What MMT actually says is that the national debt is entirely the wrong way to think about government spending for countries that 'borrow' in their own currency.
"2. Monetize the debt, i.e. devalue the currency to make the debt worth less in real terms"
Let’s explore what you mean by this. I'm sure you agree that the US government (including fed and treasury) has the ability to create USD, right? So hypothetically, if the government decided it was no longer going to issue new Treasury Bonds and instead would make all payments above and beyond tax receipts with brand new USD, that would be monetizing the debt, right? But then "devalue the currency to make the debt worth less in real terms” is a bit confused. If we just monetized the debt, it doesn't exist anymore so it's not worth anything in real terms. I'm just going to assume you meant that monetizing the debt would be inflationary, something along the lines "with all those new dollars, dollars will be worth less” aka the quantity theory of money.
Let’s talk about what might cause inflation. Since inflation is broadly when the price of common goods increases, I would say that inflation is when business increase prices. They may increase prices because their employees are demanding higher wages, or perhaps cost of raw materials goes up, the availability of raw materials goes down, or if they think they can get away with it without decreasing sales (certainly easier to do with a monopoly / oligopoly).
So, let's think this through with my hypothetical method to monetize the debt from above. So how is my hypothetical different than what happens now? Well rather than printing brand new USD the government needs to go, hat in hand, and beg the private sector for USD. If they would be so kind the government would promise to pay them back with interest, aka sell Treasury bonds, right? Sort of. We don't have to beg anyone, the fed auctions off treasury bonds to its Primary Dealers (a group of banks who are mandated by law to place a bid at these auctions). So basically, the only difference between my hypothetical and reality is that instead of creating new cash we create new treasury bonds, that we also have to pay interest on.
The reality is that cash and treasury bonds are treated practically the same by most institutions. So actually, monetizing the debt would just deprive the broader economy of the interest payments made on treasury bonds. I fail to see how this would be inflationary.
Which isn’t to say the government can spend as much as it wants consequence free. It can, however spend enough to employe all idle resources, especially the Human ones. And spending to increase the production of resources isn’t a bad idea either. That, is the main point of MMT.
Still don’t believe me? Here is an explanation using double entry book keeping.
https://www.profstevekeen.com/2020/09/06/one-mathematical-model-of-modern-monetary-operations/
"Ask Sri Lanka or Ghana what it feels like when you can’t service your debt anymore."
Because their debt is denominated in USD.