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There is not mechanism by what issuing public debt will reduce inflationary risks, in fact the opposite could be true. There is a suspicion in MMT that issuing

There is not mechanism by what issuing public debt will reduce inflationary risks, in fact the opposite could be true. There is a suspicion in MMT that issuing bonds and high interest rates could be actually inflationary because the interest payment of that bonds. They don't think that there is a clear proof of it, though. Note that this is the opposite of what mainstream economics believe. Now, from the MMT perspective, issuing bonds is not necessary in order to fund spending. From the MMT perspective, bond issue is a "choice". It's not exactly a choice because there is a legal mandate, but from the practical point of view bonds are not necessary to facilitate spending. So, you could just expend without creating new bonds, and keep the public debt number as accounting device (that it's what basically is). Even if a government "choose" to issue bonds, the interest is decided by the government through the Central Bank. The Central Bank have the capacity to keep the interest at any point they decide (as you can see in the Euro-Area at the moment). And, of course, if the bonds are owned by the Central Banks (as is the case of a lot of the USA, Euro or Yen debt at the moment), the interest will go to the government who can decide if to run a deficit or a surplus depending of the fiscal space available at the moment. >>"and that shift in time will require additional taxes to pay for it. " Because governments are the issues of the currency, they don't need to tax in order to spend. Increasing taxes could be necessary if you want to spend and the fiscal space is not there in the economy, but that's highly dependent of the circumstances of the economy at that point in time, not a given. So, no, it's not reducing inflation today in order to have inflation in the future and, not, it will not require additional taxes to pay for it.

unyttigfjelltol 5y ago
> There is a suspicion in MMT that issuing bonds and high interest rates could be actually inflationary because the interest payment of that bonds. A long-term increasing interest rate (especially at a low absolute level) ought to push inflation from income-producing assets to other things, because rising interest rates would undermine the reason for buying the claim on future income. I think that's backed by theory and empirical evidence from the 70s, and simply amplifies how tenuous the macro financial situation has become. Even more alarming, the Fed thinks the lever to reduce inflation is interest rate increases ... which as noted at some point in the rate-raising process should shift asset inflation into consumer inflation, which would beget more raises.

unyttigfjelltol 5y ago

> There is a suspicion in MMT that issuing bonds and high interest rates could be actually inflationary because the interest payment of that bonds. A long-term increasing interest rate (especially at a low absolute level) ought to push inflation from income-producing assets to other things, because rising interest rates would undermine the reason for buying the claim on future income. I think that's backed by theory and empirical evidence from the 70s, and simply amplifies how tenuous the macro financial situation has become. Even more alarming, the Fed thinks the lever to reduce inflation is interest rate increases ... which as noted at some point in the rate-raising process should shift asset inflation into consumer inflation, which would beget more raises.