When quantitative easing (QE) was introduced, it was likened to a drug, with central banks making an emergency injection of money to resuscitate the global economy. Now it seems that some politicians have gotten addicted to this drug, going as far as to claim that government deficits don't matter and the money printing can just continue unabated.
Central Banks Create Trillions Out of Thin Air With QE
In the wake of the 2008 global financial crisis, central banks embarked on a gargantuan QE policy, expanding their balance sheets by many billions of dollars worth of government bonds and other financial assets each month. Now, more than a decade on, this policy is considered to be largely over but major central banks still hold trillions on the books. As of the end of April 2019, the U.S. Federal Reserve's balance sheet stood at $3.89 trillion, the European Central Bank's balance sheet was $5.3 trillion and the Bank of Japan's balance sheet was $5.1 trillion. These figures are respectively comparable to 18.5% of the GDP of the U.S., 40.3% of the GDP of the eurozone and 102.2% of the GDP of Japan.
This is after central banks were unwinding, or tapering the process, in 2018, with the ECB for example dropping from a high of €80 billion per month in asset purchases to just €30 billion each month from January to September 2018. This further declined to €15 billion a month from October to December 2018, for a total of about $452 billion in 2018.
As if the central banks' massive balance sheets were not enough cause for concern for the public whose wealth they endanger, some politicians are also now claiming that government deficits don't matter. Under the newly touted Modern Monetary Theory (MMT), actions to counter deficits such as cutting spending or raising taxes are only needed when inflation is out of control. Two obvious problems with this reasoning are that first, it is like saying that jumping out the window is not dangerous until you hit the ground, and second, that governments can simply lie about inflation being low.
[Ron: Typically this author ignores the real issues which are: WHO should issue "money" (however described); and that it should be properly and equitably distributed, free of interest (usury), to fulfil needed community functions. As I understand it, a valid application of MMT must ensure that ONLY sovereign communities should issue money under properly supervised and transparent conditions that are adequately and publicly audited by duly authorised community representatives. Once usury and hence debt, is eliminated the money issuance problem is reduced to ensuring that the monies issued are duly made without fraud to appropriate individuala and organisation to meet the cost of necessary and desirable community projects and services. And of course the quantity of money created and issued must be carefully tailored to not exceed the capacity of available labour and the physical materials required to accomplish the assigned projects and services. The only limitation on the amount of money issued by a sovereign community is the capacity of available labour and the availability of sufficient materials needed to utilise it. IF that constraint is properly observed money can be freely created and issued without fear of inflation occurring to devalue it.].
If politicians tell people that deficits don't matter and we shouldn't try to balance the books now, how will they be able to convince the public of the need for harsh measures when inflation bites to prevent it becoming unsustainable and spiraling into hyper-inflationary territory?
[Ron: This is Central Bankster rhetoric. It relates to usurious commercial banking which NEVER creates ANY money to pay the usurious interest the banks demand and so there is always a shortage of money in circulation which the banksters operating the PONZI scheme temporarily overcome by encouraging the population to borrow ever greater amounts of money (to cover the shortage). Eventually people cannot borrow any more money because they cannot sustain any more interest and capital repayments. The result is a reduction in the availability of money because loans are only book entries and when loans are repaid the money ceases to exist. This causes a recession or depression in which the banks foreclose and, in effect, STEAL for pennies on the dollar, the property of borrowers who can no longer repay their loans and interest thereon.
In a genuine sovereign community, interest free money creation arrangement, THERE IS NO DEFICIT because the community issues its own money and doesn't become indebted to some private bankster cartel as happens in the current fraudulent usurious private corporation owned global Central Banking cum commercial banking system. Rhetoric about deficits, inflation, harsh measures and unsustainable and spiraling into hyper-inflation is bullshit. It is bankster propaganda designed to put the stupid general public to sleep.].
In many countries, when the government or central bank refers to inflation, they only factor in some consumer goods and services, thus overlooking assets bubbles developing in fields such as stocks and real estate. In fact, for most people, buying a house is the biggest purchase of their lives so ignoring real estate when calculating inflation makes it irrelevant as a measure for the burden on the average person. This has already caused the emergence of a generation of young people who can't buy a home in many developed markets around the world while inflation has officially been flat for years.
[Ron: In an honest sovereign community controlled, usury free, money creation system, the ONLY constraint upon EVERYONE having/owning their own home is the availability of labour and materials. Money would cease to be part of the equation. The individuals responsible for governing the community could not pretend that the availability of money could prevent the building of housing for everyone if labour and materials are available. The paradox of having massive unemployment AND inadequate housing availability would be immediately seen for what it is, namely false and fraudulent rhetoric.].
Modern Monetary Theory 101 [Ron: Snigger, snigger!].
Modern Monetary Theory takes the concept of fiat money to a logical extreme, describing currency as a public monopoly which the government is a price setter of and claiming that anything less than full unemployment is evidence that it is over-restricting the supply and needs to print more. Most leading economists reject the claims of MMT, including New Keynesian economists. [Ron: WHY?!] Even (?!) Paul Krugman came out against it in 2011, admitting he wished he could agree with the theory but that "it's just not right" and demonstrated how it can lead to hyperinflation. However, for politicians who wish to avoid taking unpopular austerity measures, the idea that governments should not worry about deficits because they can always print more money is just too seductive to pass up.
[Ron: I have discussed this bullshit above. If you don't pay interest to private banksters who create fiat debt tokens out of thin air and charge interest (usury) on it, there can be NO DEFICITS! Klugman is a member of the tribe. Enough said.].
The place where MMT is most heatedly debated right now is Japan, where, as noted above, the central bank's balance sheet is already worth more than 100% on the country's whole GDP due to QE. A strange mix of politicians, starting from the conservative side and stretching all the way to the Japanese Communist Party, are using the theory to justify their opposition to a sales tax hike needed to prevent a government deficit. The Japanese Finance Minister called this "extremely dangerous" and warned against Japan turning into a test site for MMT.
[Ron: yabba, yabba, rabbinical rhetoric yabba.].
In the U.S., the theory is mainly gaining traction with the left wing of the Democrat party. For example, Stephanie Kelton, who is a leading contributor and advocate for MMT, served as an Economic Advisor to Bernie Sanders' 2016 presidential campaign. "There is no budget crisis in Japan," Kelton told WSJ. "And there is no inflation problem, so why would you risk slowing consumer spending-and thus the economy-with a hike in consumption tax?"
[Ron: IF a community issues its own money on a proper basis, there can be no reason for any taxes other than a reasonable tax on imports and, say, a 14% tax on new items of furniture etc that are not ordinarily essential for living. Income taxation is contrary to divine cosmic law and hence unlawful as are most other personal taxes, licence fees and charges currenly levied by governments using force and violence to ensure compliance.].
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What do you think about the claims of Modern Monetary Theory? Share your thoughts in the comments section below.
Avi Mizrahi is an economist and entrepreneur who has been covering Bitcoin as a journalist since 2013. He has spoken about the promise of cryptocurrency and blockchain technology at numerous financial conferences around the world, from London to Hong-Kong.
This article was sourced from Bitcoin.com