MMT Sounds Great In Theory…But

If you haven’t heard about Modern Monetary Theory, or “MMT” for short, by now, you will soon. It is highly likely that MMT will be increasingly touted by economists and politicians from both sides of the aisle, as the economic prescription, even panacea, to cure our economic ills. Regardless of your view, MMT will have large effects on all asset classes, so we urge you to read this article, and others, describing this economic theory.

Kevin Muir recently penned an article “Everything You Wanted To Know About MMT” which delves into what MMT proposes to be. To wit:

“Modern Monetary Theory is a macroeconomic theory that contends that a country that operates with a sovereign currency has a degree of freedom in their fiscal and monetary policy which means government spending is never revenue constrained, but rather only limited by inflation.”

Kevin goes on to summarize the basic policy implications of MMT:

“Sure, the government owes dollars, but they have a monopoly of creating those dollars, and not only that, the creation of more and more dollars is essential to the functioning of the economy.

Here are the policy implications of accepting MMT:

  • governments cannot go bankrupt as long as it doesn’t borrow in another currency (sovereign currency issuer)
  • it can issue more dollars through a simple keystroke in the ledger (much like the Fed did in the Great Financial Crisis)
  • it can always make all payments (can print money to pay debts)
  • the government can always afford to buy anything for sale
  • the government can always afford to get people jobs and pay wages
  • government only faces two different kinds of limitations; political restraint and full employment (which causes inflation)

The government can keep spending until they begin to crowd out the private sector and compete for resources.”

So, there you have it.

Debts and deficits do not really matter as long as the Government can print the money it needs to pay for what it wants to pay for.