Modern Monetary Theory Revisited

Steve Brown

“The few who understand the system, will either be so interested in its profits, or so dependent upon its favours, that there will be no opposition from that class; while, on the other hand, the great body of the people, mentally incapable of comprehending the tremendous advantages, will bear its burden without complaint, and perhaps without suspecting that the system itself is inimical to their interests.”   

[— quote attributed to John Sherman, author of the rarely-enforced Sherman Antitrust Act of 1890, in a letter supposedly sent by him to bankers Ikleheimer, Morton, and Vandergould, 1863. Sherman’s letter is in regard to the National Banks Act of 1863, but more likely the quote is a made-up one from ‘London Punch’, a humor magazine. However, even if meant in jest, the author was certainly aware of the quote’s accuracy.]

In 1890, Sherman – or London Punch – could not foresee the US financial collapse of the United States by 2009. And by 2010  — with the 2011 debt crisis looming — the populace clamored for answers and relief from the US financial collapse that put many millions out of their homes, and many more homeless on the streets. As such a new and uncomfortable (to Elites) monetary system discourse entered the public consciousness, based on monetary realism.* So, how would academia and Wall Street counter any threat to Keynesian dogma? By Modern Monetary Theory as generally attributed to Warren Mosler, whose blog introduced the concept of the “trillion dollar” coin.

Eleven years ago, the Fed engaged in open market operations (POMO), Twist, dealer bank repurchase agreements, and outright theft by TARP 1 & 2 to “stabilize” the system, socializing loss while privatizing profit. The ‘resources’ employed include that of US taxpayers, which has kept the illusion of US bank solvency alive ever since. With its monetary sleight of hand, the Fed has so impressed those who are “so interested in its profits, or so dependent upon its favours” that they’ve fully embraced MMT, especially since the advent of the contagion last year.

First, MMT academics believe that the status of the US dollar (USD) as global reserve currency is forever established, and that the USD will never be challenged or marginalized for hegemony. Another MMT given is the hyper-Keynesian view that gold is a useless relic which should populate landfills and not Central Banks. MMT adherents submit that gold plays no part in world trade and that gold is not used as collateral for sovereigns or Central banks. MMT theorists assert that the carry trade is only a commodity trade. To the MMT extremist gold is far less useful than milk or toothpaste, and they falsely say that gold is not a monetary instrument.

Second, the icon of MMT, Warren Mosler, argues that taxation is the basis upon which the US dollar maintains its value. A favored Keynes quote: “If, however, a government refrains from regulation (taxation) … the worthlessness of the money becomes apparent, and the fraud upon the public can no longer be concealed.” Mosler ignores the fact that the dollar is only worth the trust placed in it, regardless of the source of that trust, and that federal income tax accommodates less than half of the federal deficit, and pays no interest toward the public debt.

Third, MMT evangelists postulate that MMT is primarily about reducing unemployment. We’ll argue the war party contrarian view, that it’s preferable to see inflationary dollars blown up on a battlefield instead of in the public’s wallet, being the public wallet which inflates art, bitcoin,  gold, and even the auction price of a mediocre motorcycle. Of course inflationary dollars blown up in the pockets of the poor and unemployed will never do, but now the contagion provides Modern Monetary Theory boosters (like Powell/Yellen) with those helicopter dollars. Prima facie we can take MMT as an accepted central government given, so let’s examine the concepts.

Modern Monetary Theory (MMT)

Using the Steve Forbes flavor of MMT as a baseline:

1. The federal government can print its own money.

It can and should… but doesn’t. The private Federal Reserve banks print the dollars in your wallet, and the Feds’s dollar-creation monopoly skims 10% overall off the top, with regard to all related public debt created via its private banks. Yes, they are ‘Federal Reserve Notes’ and not ‘United States Notes’. A president was murdered for that very distinction and while that distinction may seem obscure, such distinction is exceedingly important and at the heart of all US monetary duplicity.

2. The Federal Government (US Treasury) pays back its debt by issuing more debt.

That’s true. MMT Keynesians insist that the Treasury can infinitely create new debt instruments to pay old, because it does so despite the “debt ceiling” which limits new debt issued. The so-called debt ceiling has not been fully abolished quite yet, and that’s why the central government struggles to fund itself when temporary funding expires. Monetary realists say the debt ceiling is necessary to impose fiscal restraint and monetary discipline, while MMT theory says that the ceiling is pointless, a ‘useless relic’ just like gold. Granted, a ceiling is not a ceiling when it’s not a ceiling, and it’s a political football instead.  MMT’s argument? Currency has zero interest and zero intrinsic value, except for that which taxes represent, and requires no ‘ceiling’ to impose restraint on an out-of-control warfare state.

• 3. The federal government can’t be forced into bankruptcy.

Sure, there is no circumstance where the federal government will declare itself insolvent. The US government can always demand Federal Reserve notes via infinite Treasury-issued debt instruments to cover the government’s liabilities. MMT submits that the hijinks the US Treasury engages in with bonds will cover for the hijinks the Fed engages in, and vice versa …and for eleven years that monetary sleight-of-hand has held true. Even so, Federal Reserve banks are privately owned corporations in possession of risky assets as well as good ones. Just prior to the contagion the Fed attempted to balance its obscenely bloated books by selling some of its better assets, purchased after the US financial collapse of 2008-2009. “Quantitative tightening” (selling debt instruments and assets instead of purchasing them) was the Fed’s attempt to balance their grossly out-of-balance books. It didn’t work. Then in March of 2020 the contagion saved the day, at least from the Fed-Treasury’s point of view.

The contagion allowed the Fed to end “tightening”, to revert to “accommodation” (lowering federal fund rates) and that has resulted in real negative federal fund rates. The Fed must retain real interest rates negative, to avoid disaster in perpetuity. True too, if a Fed bank did collapse under the weight of bad assets, that bank would be bailed-out (or in! – ed.) via the Fed’s own unique accounting rules.  So isn’t MMT just regurgitating the bleeding economic obvious?

4. We can afford any social program we want.

MMT enthusiast Harvey writes, “I don’t know a single, solitary MMT scholar who has ever argued this.” Perhaps not. But plenty of politicians do, and those politicians embrace MMT. Proof of the pudding is today, with high inflation to come thanks to helicopter dollars and regardless of how the central government games CPI and PCE numbers.**

Modern Money Theory Summarized

To paraphrase and embellish Assistant Professor of Economics at Florida Atlantic University, William Luther, MMT may be summarized thus:

1. If the economy is underproducing, the government can improve matters by spending.
2. A sovereign government is a unique entity unlike any other and can always issue money to cover its debt, it can never run out of money.
3. Government spending gets idle resources into production, so creating money to stimulate that production will not generate undesirable inflation.
4. Given all of the above the US government should run ever larger deficits.
5. Zero or negative interest rates can be maintained in perpetuity without damage to the currency, or induced inflation. (added point 5 – ed)
6. You can’t make this stuff up. (added point 6 too! – ed)

Does the above have a familiar ring? However, MMT is far more than souped-up Keynesian dogma. MMT includes elements of the Free Silver Movement which was a truly noble movement eventually kiboshed by governmental funding for its perpetual wars. MMT also includes outright theft (grifters) and even a noble element or two harking back to the long lost Independent Treasury.

So, never mind the seven figure academics who sanctimoniously argue the economic sanctity of their MMT points in arcane and obfuscated language; this system intends to keep Fed elites fat and happy so long as its grifters are in charge… and no one can yet say how long that will be.

*as represented by the late great Andrew Gause, Harvey Organ, Mike Maloney, Jim Rickard, Peter Schiff, Andrew Maguire, Chris Powell and GATA, and many many more.

**US Bureau of Labor Satistics typically excludes components like food and fuel to maintain a low number on behalf of the federal government; or will include those components should they show a deflationary trend.

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