Old school economics teaches that governments must limit their spending to the amount of their tax revenues, supplemented by borrowing during economic crises or wars. This quaint idea recently has been replaced by a Modern Monetary Theory (MMT) which teaches that monetarily sovereign countries like the US & Japan (which borrow, tax & spend in their own fiat currencies) can print as much money as they desire. These countries are not required to limit their spending to the amount of their tax revenues because their governments can simply borrow an unlimited amount to fund their deficits by selling their bonds to their own central banks which will simply print sufficient fiat currency out of thin air to pay for these purchases. If all this currency creation simply ends up pushing stock prices higher, then MMT proponents celebrate because they have funded all this extra government spending while enriching stockholders at the same time (both the poor & rich win). The problem is when the currency creation is put directly into the hands of consumers (as in the case of covid stimmy payments) & then this excess spills out onto main street, pushing prices for necessities higher. Resultant inflation (too many dollars chasing the same amount of supply) presents as a hidden form of taxation on consumers who come to realize that their same pay buys less food, gas, cars, and rent.
Hopefully, the US soon will realize that real money doesn’t grow on trees! MMT is an unhinged theory that acts to undermine the confidence people have in the integrity of the US dollar – a prerequisite to sustaining the dollar as a medium of exchange not just in our domestic economy but as a reserve currency for our trading partners.
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