Core Principles of Modern Monetary Theory (MMT)
The central idea of modern monetary theory is that governments with authority over a fiat currency system can and should print (or create with a few keystrokes in today’s digital age) as much money as they need to spend because they cannot go bankrupt or be insolvent unless a political decision is taken to do so. Some argue that such spending would be fiscally imprudent, causing the national debt to inflate and inflation to spike. However, according to MMT,
1. Large Government Debt Doesn’t Cause Collapse: Large government debt is not the precursor to collapse that we have been led to believe; countries such as the United States can sustain much larger deficits without concern; and a small deficit or surplus can be extremely harmful and cause a recession because deficit spending is what builds people’s savings.
2. Debt Is Money Invested in the Economy Without Taxing it: According to MMT theorists, debt is essentially money that the government placed into the economy but did not tax. They further contend that comparing government finances to those of average households is incorrect.
While defenders of modern monetary theory admit that inflation is potentially a possible outcome of such spending, they argue that it is extremely uncommon and can be dealt with with future policy decisions if necessary. They frequently use Japan as an example, which has a significantly bigger national debt than the United States.