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> Modern Monetary Theory’s basic principle seems blindingly obvious: Under a fiat currency system, a government can print as much money as it likes. Yes, it ca
by tvanantwerp 9y ago
> Modern Monetary Theory’s basic principle seems blindingly obvious: Under a fiat currency system, a government can print as much money as it likes.
Yes, it can. But that doesn't make it a good idea. Just look at the Weimar Republic, or more recently, Zimbabwe and Venezuela.
Money--like the things you buy with it--has a value. And when there are more and more and more units available, the marginal value of each unit it less. So sure, the government can always print more money. But each dollar printed can buy just a bit less than the one before it. Do it enough, and your currency becomes practically worthless.
- mnw21cam 9y agoAgreed. The argument in the article though is that inflation is so low these days that a bit of quantative easing might not be such a bad thing after all.
- rapsey 9y agoInflation is low because money velocity is at record low levels. Just printing (i.e. borrowing) does not cause inflation. Giving it to the poor or spending it on large infrastructure projects causes an increase of money velocity which combined with printing causes inflation. Without velocity printing just means money is getting parked in a bank account. That has no effect as the money is just sitting there. There is a huge amount of money in the sidelines ready to be used (MZM - money with a zero maturity) as a result of years of quantitative easing. What this article is proposing is popping the cork from the quantitative easing bottle. The problem is that once you do it you cant just stop it. When it blows it blows and the built up potential is already insane.
- explorigin 9y agoConsider that USD has, for decades, been the world trade currency (the reality is a little more complicated today with the IMF). Basically inflation of USD is diluted across the world because other countries (until recently) needed USD to trade with many other countries. We can get into conspiracy theory here a bit by noticing that Qaddafi wanted to create a common trade currency for Africa. Saddam Hussein quit trading in USD in favor of EUR. Russian and China agreed to exclude USD from their direct trade in 2014. Notice a pattern? Countries are recognizing that the USD is inflated and trying to move away from it. Those that are small, get invaded. Those that are large get vilified. All that to say that the US does have a blank check as long as it can dilute the inflation wide enough. Such a situation is uniquely different from the individual countries that only inflate internally.
- true_religion 9y agoI think it's the reverse, countries that are villified don't want to use the USD.
- stcredzero 9y agoBasically inflation of USD is diluted across the world because other countries (until recently) needed USD to trade with many other countries. Normally, the costs of Hardin's Tragedy of the Commons are distributed among the group. In the case of US Senators and Congressmen, if what you say is true, the costs are outsourced to the rest of the world.
- bbatha 9y ago> We can get into conspiracy theory here a bit by noticing that Qaddafi wanted to create a common trade currency for Africa. Saddam Hussein quit trading in USD in favor of EUR. Russian and China agreed to exclude USD from their direct trade in 2014. Aside from China, which has a currency large enough to become a trade concurrency, these countries were all strategic enemies well before these moves. The decoupling of the USD seems more of geopolitical strategy than economic risk for these countries.