August 2, 2019

MMT: Wondering where the catastrophe is

Answering Michael Norman’s Tweet


Michael Norman asks: “Can anyone in the debt/doomsday crowd explain why, after rising nearly 30-fold since 1980, the debt hasn’t created catastrophe? And why interest rates and inflation are lower? Do they care or is it just about incessantly spewing hysterics? Do they even pay attention?”#1

The macroeconomic Profit Law Q≡Qm+Qn with Qm≡Yd+(I−Sm)+(G−T)+(X−M) boils down to Public Deficit (G−T) = Private Profit Qm. So, by deficit-spending/money-creation the government continuously fills the coffers of the Oligarchy which, in turn, is looking out for some safe and juicy assets. Again, the government lends a helping hand and offers treasuries/bonds/etcetera thereby consolidating its overdrafts at the Central Bank. This is a case of simultaneous supply/demand creation: the government continuously accumulates overdrafts at the Central Bank and the Oligarchy continuously accumulates deposits. All other influences excluded, this should drive the interest rate for ultra-safe treasuries down over time because, in a fiat money regime, the Oligarchy needs safe financial assets more than the government needs the Oligarchy’s money.

Deficit-spending/money-creation causes a one-off price hike but NO inflation. Inflation depends on the relation of wage rate increases to productivity increases.#2

MMT is a free lunch program for the Oligarchy. Financial wealth and public debt grow in lockstep. The Profit Law explains how billionaires are able to accumulate that much money and why they can buy all the bonds the Treasury issues and cash in the ultra-safe interest that is reliably taxed from WeThePeople as long as the debt is rolled over. This can function for a very long time but eventually, the economy breaks down because infinite growth is impossible on a finite planet and this holds also for public debt.#3

In the meantime, the catastrophe Michael Norman is wondering about has already materialized in the distribution of income and wealth. After the debt rising 30-fold since 1980: “The 400 richest Americans, the top 0.00025%, have tripled their share of the nation’s wealth.”#4 Admittedly, in the eyes of Michael Norman and the rest of Wall Street this does not exactly fit the definition of catastrophe.

The MMT Ponzi scheme works (i) as long as public debt grows, (ii) as long as the redistributive interest payments on government debt do not wreck the budget, (iii) as long as the Oligarchy sticks to the scheme even at negative interest rates, (iv) as long as the general public can maintain the illusion that public debt is nobody’s debt, (v) as long as the Central Bank supports the scheme.

Egmont Kakarot-Handtke

#1 Twitter
#2 MMT was right all along: Gov-Deficits do NOT cause inflation
#3 The decisive reason to worry about government debt
#4 Washington Post