Thursday, September 27, 2012

More on modern monetary theory


MMT has a solution to the debt problem:  let the Congress, which has the Constitutional authority to “coin” money, make some more money to put people back to work in productive and needed ways, like rebuilding the infrastructure, and educating our children.

My previous criticisms of MMT fall under the rubric of “problems with fiat money,” namely its tendency to be produced in excess.

My question this morning is:  okay, so Congress coins money and puts people to work, what happens to the value of the dollar internationally?  I get that if the increase in the “quantity of money” is matched by increase in “goods and services,” that the price level need not rise, and presumably the trading value of the dollar would remain stable, ceteris paribus.

There is still the problem of the mountain of debt on the backs of the people, much of it bad, that the banking system has succeeded in keeping on its books.  What happens to that?  Even if the MMT-style stimulus produces healthy real growth, such debt might still be essentially unpayable.

In the end, I believe the temptation to inflate out the bad debt is insurmountable, even if the MMT-style stimulus were undertaken.

However, in the short run that we all live in, the MMT solution produces real growth and social welfare benefits.

Our global fiat monetary system is going to go super nova either way, as I have been writing for some time.

Last week, Reps. Michael Honda, Keith Ellison, Raul Grijalva, Jan Schakowsky, John Conyers, Barbara Lee and Lynn Woolsey stalwarts of the Congressional Progressive Caucus (CPC) begged for mercy from “the Gang of Eight” in a letter.

Here’s what they said and my commentary on their “loser liberalism.”

”Thank you for your work – past and present – towards solving one of the greatest policy challenges facing us today: the unsustainable path of our national debt. We appreciate the bipartisan and collaborative spirit with which you’ve approached your negotiations. . . .”

Thanks vanguard progressives for embracing the major premise of the austerity ideology, namely that the national debt is on an unsustainable path. I’m here to tell you that this idea is false and also terribly harmful to progressive aspirations to end economic stagnation and get everyone, who wants to be, employed at a living wage. You can’t win an argument if you start by agreeing with your opponent’s false premise.

The US has a non-convertible fiat currency which it allows to freely float on international markets. It also has no debts in any currency not its own. It also has the constitutional authority to issue currency and coins in unlimited amounts to pay any debt obligations when they fall due. It also has a central bank, the Fed, that can determine the interest rates paid on new debt issuance unilaterally and in spite of any desire on the part of private markets to raise those rates. So, it should be obvious to you and everyone else that it doesn’t matter how high our national debt, or our debt-to-GDP ratio is, the US always has the capacity to deficit spend what it needs to in order to buy any goods and services for sale in USD, including the services of all the currently unemployed or under-employed who would like full-time jobs at a living wage.

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