According to MMT, the only limit the government faces when pumping out money is the availability of real resources: raw materials, workers, construction supplies, etc. It is only when an economy hits physical or natural constraints on its productivity, when these resources have been fully put to use, will inflation result if the government continues introducing more money into the economy. Unemployment itself is the result of a government spending too little.
While the theory is controversial, much of what MMT says about US government creation of dollars and inflation is true. MMTers are not the only economists who say it. Former chair of the Federal Reserve Alan Greenspan remarked: "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default."
Another former Fed chair, Ben Bernanke, likewise commented that the federal government's $1 trillion bailout of the banks due to the 2008 financial crisis caused by their fraud did not come from raising taxes:
"It's not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. It's much more akin to printing money than it is to borrowing. And we need to do that, because our economy is very weak and inflation is very low."
Former IMF chief economist and president of the American Economic Association, Olivier Blanchard declared: "Put bluntly, public debt may have no fiscal cost" given that "The current US situation in which safe interest rates are expected to remain below growth rates for a long time, is more the historical norm than the exception."
Moreover, the US has run up its national debt, has not reached full employment, nor put in play all economic resources, and has not endured inflation, just as MMT predicted. The US government this spring created $6 trillion out of thin air to fund corporations, banks and to a lesser degree, working people, during the stock market crash and COVID pandemic. Yet the rate of inflation rate is less than 1%, lower than in 2019. The Quantitative Easing program (their term for creating money out of thin air) likewise conjured up $4.5 trillion from 2009-2014, and this also caused little inflation here.
Nations Possessing a Sovereign Currency
The key question for MMT is which nations besides the US have a "sovereign currency." While definitions of monetary sovereignty provided by MMT authors vary, there are central elements. One, the government issues the national currency and imposes tax liabilities in that currency. Therefore, countries that do not print their own currency, such as those using the euro, do not have a sovereign currency. Two, the currency is fully floating, meaning it has a flexible exchange rate system determined by market forces of demand and supply of foreign and domestic currency, and where government intervention is non-existent. According to the IMF, 31 countries have "free floating currencies;" however, 19 of them use the euro [1] . The remaining 12 are Australia, Canada, Chile, Japan, Mexico, Norway, Poland, Russia, Sweden, the UK, Somalia [2] , and the US. Three, the nation has no debt denominated in foreign currency. It receives foreign loans and repays them in its own currency. A country with an MMT sovereign currency is able to conduct trade with other states in its own currency.
Third World nations, a central MMT economist Randall Wray explains, "are not international reserve currency issuing countries." If countries peg their currency to the dollar or the euro and if they receive loans payable in foreign currency:
Next Page 1 | 2 | 3 | 4 | 5 | 6 | 7
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
