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According to modern monetary theory, money is just a means for the government to incentivize behavior. The government prints as much of it as it wants, and: 1

• darthvoldemort 5y ago
  Because they issue a lot of debt in USD. They can't print their way out of debt the way the US can and does.
  • ArtTimeInvestor 5y ago
    Who issues it? The government? If so, who lends those Dollars to the government?
    • refurb 5y ago
      My understanding is the government would sell debt and get USD in return. When the debt matured, the bond owner would get USD in return. USD bonds are more attractive since they remove the exchange rate risk, but as happened, the government could t repay the debt in USD.
  • JumpCrisscross 5y ago
    > they issue a lot of debt in USD Nobody wants bolivar-denominated debt. Because Caracas keep printing. The U.S. dollar has no divine right to being infinitely valuable.
    • drfxyjhdyfrhgc 5y ago
      >The U.S. dollar has no divine right to being infinitely valuable. The U.S. dollar is often the least silly of many options.
      • desine 5y ago
        While comparatively stable, the US Dollar is able to fall to the same faults that many other currencies have in history. There's only one form of money that's retained value for over 6000 years of human civilizatoin.
      • simonblack 5y ago
        Only as long as people believe in it. With a national debt of over 30 trillion, it's amazing that some people can still believe that the US will pay all that debt back. The USD will crash sooner rather than later.
• shkkmo 5y ago
  It's a combination of debt, sanctions and a corrupt authoritarian government that has severely mis-managed its economy and currency.
• djbebs 5y ago
  That's not how modern monetary theory works, but ok
• deleted 5y ago
  [deleted]
• nostrademons 5y ago
  Uncomfortable possibility: maybe the rich people are not just sitting on their ass, and are performing an important economic function even if it's not obvious what it is. Disincentivize this function and the few producers still left in the market have less competition, and hence more ability to raise prices. Eliminate the private sector altogether (as the Soviet Union did) and you don't have inflation, you have shortages.
• oligopoly_2 5y ago
  That's just plain wrong. Cryptocurrency has nothing to do with the government, for example. So no, money is not just "a way for government to incentivise behaviour". Who told you this?
  • ArtTimeInvestor 5y ago
    Welcome to Hacker News! A good read to make sure you get heard here is to read this essay by HNs founder: http://www.paulgraham.com/disagree.html http://www.paulgraham.com/disagree.html
• cturner 5y ago
  Inflation des not necessarily target rich people. In some cases the wealthy will have significant land holdings. These act as a store of wealth. Inflation is damaging to ants who keep money aside in case of medical emergency or unemployment or retirement. It also eliminates short term debt interactions, such as where a business buys goods with 30 days to pay. This adds friction across the economy.
  • ArtTimeInvestor 5y ago
    I did not mean that inflation is a means of taxing. Just as a byproduct of printing money. If it is a problem that rich people sit on their land holdings and do not use the land to serve the public good, why not simply tax land holdings?
    • jakub_g 5y ago
      That's the thing. When govs talk about increasing taxes to "tax the rich" they end up changing income tax at high brackets. Which effectively taxes people who are not yet rich, but trying to be. The real rich people own land and assets, but wealth taxes are not popular - because real rich people effectively lobby against it.
    • usrusr 5y ago
      Because that's when they'll get upset and use all their connections and money (which they also have) to fight that tax. Worst thing that can happen to them is that they need to feign defeat in some income tax hike battle as a pawn sacrifice to pull more non-owners on the "taxes are theft" side that protects them. Add to that the practical problems of land ownership tax (how do you assess something that hasn't been on the market in decades or even centuries?) which make it easy play the "why not tax something that is easier to tax" game. Historically, the solution has been violent upheaval every couple of generations. A nonviolent alternative might be an occasional "inverse bankruptcy" lottery or poll cutting off randomly selected and/or particularly unpopular tall poppies. With the right dosage (not too often to not stifle ambition, perhaps aiming for hitting one in ten outliers in their lifetime?). The goal would be to prevent concentration approaching the infinite, not to make people equal (and the victims could still receive a very generous stipend, or wouldn't have to be hard on them at all, at least in day to day material terms)
• deleted 5y ago
  [deleted]
• Geee 5y ago
  A free market knows who needs and deserves money better than the government. Government handouts go always to the wrong people, making the problem worse. This happens because government has less information than local actors on a free market. Rich people own assets, not money. Rich people have debt collateralized by their assets, so they get double benefit from inflation. Their debt gets wiped off, and their asset prices increase. And because they are the ones who get low interest rate debt first, they also benefit from the Cantillion effect, which means that they're not hurt by inflated prices, so much as those who try to buy assets later with their wages. Inflation hurts workers and entrepreneurs most because their savings are wiped off, and their income or revenue lags behind inflated prices. There is no way to save and use the savings to plan and invest in a better future. The ability to save and invest later is the base of a prosperous economy. Inflation also destroys reliable price signals, which makes it very difficult for an economy to work.
  • imtringued 5y ago
    >The ability to save and invest later is the base of a prosperous economy. I don't know who told you this but it's completely wrong. People invest first and then tell others to save. Just think about it. You build a factory and tell everyone you will produce more cars in 5 years. You pay interest because you know you can sell them more cars in the future and therefore you can pay more interest than the kebab shop down the street. This means growth of demand is the primary driver of economic growth because growth in demand also results in growth of demand for investments and investments drive demand for savings. If people just save money without any future demand it's the same thing as choosing to be poor. You have money because you didn't buy a house. You have money because you didn't buy a car. You have money because you didn't buy clothes. You have money because you are poor in real terms.
• Aunche 5y ago
  Economics only holds if the assumption of economics hold enough to be a reasonable approximation of reality. They most certainly don't if you're printing 1000x more fiat every year. The weakest assumption of MMT and the reason it isn't considered a school or economics is that issuing government debt won't affect private sector debt. >The government prints as much of it as it wants This don't think it's quite fair. MMT thinks that the amount of money it would take to reach full employment is the maximum limit of which you can issue debt. I don't really see how that's much different from just issuing infinite debt though, especially for a case like Venezuela.
• rsj_hn 5y ago
  Modern Monetary Theory needs the "Modern" part to actually work. It is a description of an economy with a well-developed (hence "modern") financial system that is plagued by overproduction and demand shortfalls rather than underproduction. In such an economy, there is little difference between the government "printing" a bond and the government "printing" a reserve -- especially as modern economies pay interest on reserves. These are both perfectly liquid instruments, with the government bond being a cash-equivalent. What makes it a cash equivalent is that a modern financial sector is able to convert the liabilities that people want to hold into the liabilities present in the economy, thus in such a modern economy if the government issued a mix of 10% reserves and 90% bonds, but people wanted to hold 50% deposits and 50% debt, then the banking system would step in and convert one into the other (for a small fee). This is as opposed to most mainstream economies which assume that the liabilities that people hold are the ones the government issues and there is no financial sector to intermediate between the two. So in the modern economy, it's silly to obsess about the number of reserves but ignore the number of bonds, bonds and reserves are all the same and as there is no difference you might as well only issue reserves that pay whatever the policy interest rate happens to be and stop bothering with bonds altogether. Then there are other parts of MMT that are a bit zany -- for example the belief that savings demands are inelastic and thus the policy rate can always be at zero, but that has nothing to do with reserves/bond distinction. That is not the situation in Venezuela, which does not even have a functioning market economy let alone a modern financial system. Venezuela is closer to the situation in Zimbabwe where the banking system has collapsed, the economy has collapsed, and people have lost faith in the currency. So let's say that the private workers need to eat 100 units of food, and the government workers need to eat 100 units of food, but only 100 units of food is produced. In a well organized economy you admit there is a food shortage and issue rations so everyone gets a coupon for 1/2 a unit of food. In that ration system, it doesn't matter how much money you have -- money is a bit worthless for buying food -- but the hope is that the situation is temporary and prices go back to normal, so people don't rush to try to unload their paper money for food they just leave their paper money alone and the government doesn't fire up any printing presses. In effect those ration cards are a new currency that is temporarily introduced to prevent the old currency from going haywire. That's what the US did in WW2. But what if there is no public admission of shortages and the government isn't competent enough to create an effective rationing system? Then it prints up enough money to buy 100 units of food and gets into a bidding war with the private sector. So now the price of food goes way up, and the people in the private sector have lots of money but not much food, and the people in the government sector have the printing press and more food. Then day 2 happens, and the government has to print up even more money to buy 100 units of food, because they are bidding against the same people who were overpayed with printed money in period 1. So the price of food goes up even more. Then day 3 happens, and the government must print even more money to buy up the food. Thus you have this spiralling inflation where the ability of the people to outbid the government in period n is the sum of all the overpayments that happened in the previous periods. Thus, mathematically this is an exponential function. Ultimtely farmers refuse to sell their food for any amount of government money at all and the currency becomes completely worthless. That was the situation when Zimbabwe kicked out the white farmers, and it is the situation of Venezuela in which the non-productive sector eventually exceeded the productive sector. It is also what happened in Weimar when there was a perfect storm of economic collapse from the Depression, a promise to pay massive war debts (with printed money), and massive social unrest due to worker strikes (whose higher wages were also provided by printing money). Note that Modern Monetary Theory, as it is purely about the financial side of things, has no magic when there are too many people and not enough to eat. MMT deals with modern economies that face problems of overproduction rather than underproduction, and demand shortfalls are the cause of recessions rather than supply shortfalls. It is also about finally shredding the distinction between bonds and reserves in an economy in which both are perfectly liquid cash equivalents. [1] https://www.investopedia.com/terms/r/repurchaseagreement.asp https://www.investopedia.com/terms/r/repurchaseagreement.asp
• imtringued 5y ago
  I'm not sure how true this is but I have read that Venezuela (or Zimbabwe, can't remember) not only had hyperinflation, they also have price controls to pretend that hyperinflation doesn't exist. In fact, the government blames the businesses for causing the hyperinflation through price gouging. What happens is that first, the shelves are emptied very quickly because the price is too low, second the shelves aren't refilled because there is no profit to be made, finally businesses shut down because fixed expenses can't be paid. It's clear that the government should have instated a very very high VAT or sales tax to counteract the inflation. Maybe a VAT as high as 50%.
• tim333 5y ago
  I'm not sure your understanding of MMT is quite right but aside from that the basic process of creating hyper inflation in Zim, Venez etc is roughly: Government destroys production by confiscating farms etc from the rich/ the white and giving them to poor locals. The farm which used to produce hundreds of tons of food for everyone now has has few subsistence farmers feeding themselves. The people who used to get the food say we're hungry. a: The govt prints money and gives it to them to buy food. But more money chasing not enough food causes food prices to go up. People say they are hungry. GOTO a: The whole process is fairly dumb which is why you only get it in a few places with dictators like Mugabe or Maduro who threaten to shoot anyone who tries to stop them.