March 5, 2019

Too much ado about deficit spending

Comment on Kenneth Rogoff on ‘Modern Monetary Nonsense’*

Blog-Reference and Blog-Reference Mar 6 and Blog-Reference Mar 8

For some time now, MMTers are shouting from the rooftops that deficit-spending/money-creation is the solution to almost all economic/social/environmental problems or, in the words of Kenneth Rogoff, to use “the Fed’s balance sheet as a cash cow to fund expansive new social programs, especially in view of current low inflation and interest rates.”

This is indeed stupid for several reasons:

• The government, needless to emphasize, is well aware of the advantages of deficit-spending/money-creation but plans to exploit them for other purposes. What naive MMTers do not know is that the free fiscal space is not free at all but has already been allocated “to fight a financial crisis, respond to a large-scale natural disaster or pandemic, or mobilize for a physical conflict or cyberwar.”

• “The US is lucky that it can issue debt in dollars, …” There is no use to awaken foreign suckers to the fact that they are taken for a ride. “If investors become more reluctant to hold a country’s debt, they probably will not be too thrilled about holding its currency, either.”

• Don’t rock the Fake-America-Great-Again boat: “For the moment, the world is quite content to absorb more dollar debt at remarkably low interest rates. How to exploit this increased US borrowing capacity is ultimately a political decision.” Not waiting for MMT-twits, this decision has already been taken for the benefit of the one-percenters.

• In addition: “The right approach … is for the government to extend the maturity structure of its debt, borrowing long-term instead of short-term.” Because the longer the maturity, the higher the interest rate for the bondholders, i.e. the one-percenters.

• In addition: “And if things get really difficult, it is far easier to inflate down the value of captive long-term debt … than it is to inflate away short-term debt, …” No need for MMTers to shout around that it is NOT the US government that will go broke and that public debt will never be repaid.#1

• Finally: “Misguided ideas may yet drag the issue of US central-bank independence to center stage, …” Even naive MMTers must understand that the last thing anyone wants is a discussion about who runs and should run the central bank.

So, MMTers get it, although your ideas “have a grain of truth” it is “just nuts” to make so much fuss about it.#2 A public debt of $22 trillion should tell you that FED/TREASURY know already for a long time how to max out the no-limit public credit card without domestic/ foreign bondholders and the general public getting too nervous.#3 After all, because Public Deficit = Private Profit, the so-called free market economy hangs on the life-support of the State, i.e. on a smoothly growing public debt.

MMTers stand for aggressive deficit spending, and Kenneth Rogoff stands for moderate deficit spending. In the final analysis, all are in the same camp. And it is NOT the camp of WeThePeople.

Egmont Kakarot-Handtke

* Project Syndicate
#1 Some nasty MMT surprises behind the time horizon
#2 MMT: The art of shooting oneself in the head
#3 MMT, money creation, stealth taxation, and redistribution

Related 'MMT-Refutation for Dummies' and 'Paul’s and Stephanie’s economic delirium talk' and 'A battle for hearts and minds ― economics redefined' and 'How counterfeiters save America with an extra profit and make WeThePeople pay for it' and 'MMT ― backstop or advanced life support for the Oligarchy?' and 'MMT: An overdose of public-debt tranquilizers for WeThePeople' and 'Fraud comes always in the cloak of philanthropy, salvation, or threat of doom'.