Modern Monetary Madness Will Lead To Higher Taxes and Inflation

Tuesday, February 26, 2019
By Paul Martin

by GoldCore
ZeroHedge.com
Tue, 02/26/2019

Modern Monetary Madness Will Lead To Higher Taxes and Inflation

– MMT: Modern monetary madness and pet economists
– Can this really be a thing? Actually printing money as an economic policy?
– Begin structuring portfolios and lives to avoid being in a tunnel with an oncoming train

by John Mauldin via Mauldin Economics

More than 10 years ago some Australian readers begin regaling me with the ideas of economist Bill Mitchell of the University of Newcastle in New South Wales. He was teaching about something he called (and he coined the term) Modern Monetary Theory. I looked into it and fairly quickly dismissed it as silly.

Actually printing money as an economic policy? Get serious.

MMT is a revival of an early 1900s idea called chartalism. Now it is influencing the thinking of new socialist-like movements in the US and other places and cited by politicians. MMT is increasingly appearing in mainstream media like this sobering Financial Times article.

Since it is increasingly discussed in more public venues, you should know more about it and that will be today’s topic.

Modern Monetary Madness
Essentially, MMT espouses that the public through the government owns the process of money creation, and that in addition to borrowing and taxing, should simply issue currency as payment for its obligations. This is not the sleight-of-hand that quantitative easing was. This is direct monetization in lieu of borrowing.

If that sounds like printing money, that’s because it is. Upfront and in-your-face as a serious economic proposal. Most of the time when I am talking with my fellow writers and economists, when somebody mentions MMT, everybody smiles, maybe chuckles, and shakes their heads. The problem is, what seems like a joke is actually getting traction.

Let’s get the official definition of MMT from Wikipedia. My comments inserted are in brackets.

In MMT, “vertical” money (money created by the government and spent in the private sector) enters circulation through government spending. Taxation and its legal tender enable power to discharge debt and establish the fiat money as currency, giving it value by creating demand for it in the form of a private tax obligation that must be met. [And thus higher taxes create more demand for the currency and help to maintain the value thereof.]

In addition, fines, fees and licenses create demand for the currency. An ongoing tax obligation, in concert with private confidence and acceptance of the currency, maintains its value. Because the government can issue its own currency at will, MMT maintains that the level of taxation relative to government spending (the government’s deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government’s activities by itself. [The more you want the government to spend, the higher the taxes have to be in order to keep from creating inflation, or so the theory goes.]

Proponents argue that unemployment is caused by lack of demand and lack of demand is caused by insufficient money entering the private sector, a problem the government can solve by creating money and spending it in the private sector. Voilà, demand is created and unemployment goes down. Inflation? That can be controlled by higher taxes. Hey, it’s their theory. Don’t ask me to explain it.

The Rest…HERE

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