Why Modern Monetary Theory Won’t Work

Why Modern Monetary Theory Won’t Work BY CHARLES HUGH SMITH for Daily Reckoning

Editor’s note: We’ve discussed Modern Monetary Theory, which is essentially money printing on a colossal scale, in The Daily Reckoning before. Today Charles Hugh Smith gives you an objective account of MMT and arrives at a disturbing conclusion.

Dear Reader,

We’ve heard a lot about Modern Monetary Theory (MMT) for several months now. The Daily Reckoning has been on top of it the entire time.

MMT is presented as a means to painlessly fund the large-scale infrastructure/alternative energy spending the nation needs to rebuild and modernize.

While most people support the goal of useful fiscal stimulus (as opposed to paying people to dig holes and fill them), the question remains: Will MMT work as advertised?

Rather than dismiss it out of hand, I’m trying to approach the subject without ideological bias.

What exactly is MMT?

The basic idea of MMT (as I understand it) is that the economy is not running at 100% capacity — there are capital, equipment, people and resources that could be put to work to better society, and the chief impediment to making full use of our capacity is a lack of funding for projects that would benefit society.

In other words, the only thing standing in the way of broad-based, socially beneficial spending/ progress is a lack of money (funding).

In the view of MMT advocates, a blindingly obvious source of funding is already available: The federal government can issue however much new currency it wants, so the government could fund large-scale socially useful projects if the political will to do so were present.

We have to pause at this point and distinguish between borrowing money to fund projects, which is the current model, and issuing (printing) new currency.

In the current model, the federal government sells Treasury bonds and uses the proceeds to fund government spending.

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