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2020-10-09

The Fed Has Given MMT Proponents Ample Ammunition

The idea that the government can print money to spark the economy is not that much different than quantitative easing. 

MMT is anchored on the belief that budget deficits don’t really matter. In other words, if a government or central bank is borrowing money in its own fiat currency, meaning a currency backed by nothing but the government’s good word, then it can “print” any amount necessary to cover its debts.

Do not assume this means the Fed would support the ideals of MMT. “The idea that deficits don't matter for countries thatcan borrow in their own currency I think is just wrong,” Chairman Jerome Powell said during his recent testimony before Congress. We share Powell’s concerns, as do Kenneth Rogoff and Larry Summers. 

Devaluing one’s currency as a means of funding government spending has never worked when carried out to an extreme. Venezuela, Zimbabwe and the German Weimar Republic can attest to the hyperinflation that eventually follows. 

That said, QE proved that with proper balance money printing can work in the short term

Bloomberg 11 March 2019

https://www.bloomberg.com/opinion/articles/2019-03-11/mmt-is-a-sibling-of-the-fed-s-qe-experiment


https://en.wikipedia.org/wiki/Modern_Monetary_Theory

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