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The government piggy bank

When Stephanie Kelton said, “The real answer is that Congress will authorize the spending and it will take place so that the government pays the tab rather than the rest of us,”  maybe she was alluding to your oft-made point that the US government cannot go bankrupt because it essentially can create money out of thin air.  We see that that Congress often authorizes spending of money the US government does not actually have.

Hi @lucas,

I am not entirely sure what she meant. They often speak in an indecipherable/contradictory language, which is part of the problem with MMT. In any case, MMT people tend to argue that the govt doesn’t need to “fund” its spending because it can just print money.

I honestly don’t think they understand how the govt funds its spending. They believe that govt spending is “self funding” because the govt has the printing press. This is extremely wrong. The govt funds its spending at the cost of inflation. That is their cost of funding. This really shouldn’t be complex. If the govt spends $100 on a tank in 2019 and then inflation surges by 100% then they will need to spend $200 on a tank in 2020. Their cost of funding went up by 100%. In other words, their currency was re-priced by 100% against real assets. The private sector’s demand for money declined which resulted in an increase in the govt’s cost of funding.

So, when MMT says that the govt doesn’t fund its spending and instead spends first so it can tax second, they are actually making a very basic mistake about how the govt funds its spending and relies on private sector demand for money.

There are pieces of MMT that are useful. Their ideas about govt funding, reserve accounting and net saving are highly problematic and wrong in rather basic ways.

 

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

In a civilized society we all respect each other, work, and exchange our goods and services with one another.   Money is just the medium of exchange we use.

MMT is not only the act of debasing the value of that money, but sabotaging the viability of the entire system.

Right now, this insanity is essentially offsetting deflation to create a stable value for money.   Once that changes, the value of money in real terms will be irreparable.   Got Gold?