What is Modern Monetary Theory?

What is Modern Monetary Theory?

According to the alternative macroeconomic theory known as modern monetary theory (MMT), nations like the United States, the United Kingdom, Japan, and Canada that have complete control over their fiat currency are free to spend, tax, and borrow in that currency without facing revenue restrictions. This means that revenue is not a constraint on federal government spending. Modern Monetary Theory says that these kinds of governments don’t need taxes or loans to pay for their spending because they have the power to print as much money as they want and are the only ones who can do so. Fears of a growing national debt shouldn’t affect their decisions because their budgets aren’t like those of regular households....

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,...

Government Money Creation

1. MMT and Government Expenditure Limits: Modern monetary theory proposes that the government’s expenditure is entirely limited by the accessibility of tangible resources, such as labour, construction materials, and so forth. Inflation may rise if decision-makers fail to take precaution when government spending rapidly exceeds the available resources....

Origins of MMT

1. Origins of Modern Monetary Theory (MMT): Mosler came up with modern monetary theory, which is related to school of thought from the past, such as functional finance and chartalism. Mosler first thought about some of the ideas that make up the theory when he was a trader on Wall Street in the 1970s. He used his ideas to make some smart bets at the hedge fund he started in the end. Investors were scared that Italy would not pay its debts in the early 1990s, but Mosler knew that this wasn’t likely to happen. It was his company and its clients who held the most Italian lira-denominated bonds outside of Italy. Italy did not go bankrupt; instead, they made $100 million....

Criticism of MMT

1. Naivety and Irresponsibility: Some critics say that MMT is often seen as naive and reckless, especially when it comes to the policies it suggests. Some economists, like Thomas Palley, think it’s a “policy polemic for depressed times” and wonder how useful it would be....

How does MMT Deal with Inflation from Money Creation?

People who believe in modern monetary theory say that inflation rates shouldn’t be high unless the economy is fully employed. But if the government spends too much, inflation will happen because of the extra demand. In either case, MMT says that cutting government spending and increasing taxes can slow down inflation....

Frequently Asked Questions (FAQs)

1. What does Modern Monetary Theory (MMT) stand for?...