Today I decided to try and understand MMT. I've heard of it before, but never really looked into it in detail. Even though I didn't think I would agree with the theory I tried to be open to it. One day is definitely not enough to fully understand it, but I want to make this post so that I can get some feedback on what I've understood so far and hear some of your opinions.
MMT proposes that a country that is the sole controller over their monetary supply, like the United States, can never default on their debt because they can manipulate other things to prevent that from happening.
To me, MMT makes the system seem inflexible. For MMT to work, debt needs to be low so interest rates will not be able to rise up again. In fact MMT would prefer the interest rate to be 0 permanently. It proposes that treasury bills are not even needed and the government should just print the money.
Although I am struggling to grasp how this could work I do have to look at Japan. Japan currently has a debt to gdp ratio of over 200%. Somehow Japan is still staying afloat with negative interest ratio. However many people would say that inflation should be increasing, but in Japan the inflation rate is only around 0.8% and the central bank has been trying to get it to 2%. Overall, what a weird situation. I wonder what Japanese investors think of all of this.
I don't know if I would call Japan a success story. Reading about MMT does make me believe that things could be prolonged much longer than expected in the United States. MMT seems like long-term it will limit options and may be the path to the end. The government can keep interest rates at 0% and force people to invest instead of save of their money and lose 2% each year to interest. This artificially keeps stock prices high. Then since there would be no option as people earned more they would continue putting money in so that deep recessions could be avoided? Because there isn't much leverage with 0% except printing more money(which they are for). Yes the printed money can generate more tax dollars and future profits, but I can't wrap my head around how it would work long-term. It seems like a bit of a gamble that requires continued growth. Whether or not we can expect continuous growth is another topic. It also seems like MMT works in a system were people are bad with their money and the printed money is spent. As a whole MMT appears to me a solution that tries to embrace a broken system.
What are your thoughts on MMT? Do you struggle to understand how it is going to work long-term? This upcoming recession will be a real test to see if these concepts have any validity. If you are pro MMT I would be even more interested to hear your perspective so please do not be afraid to share.
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