The landscape of trends shifts rapidly, making it wise to sidestep the latest fads. Not only will you save money by resisting the lure of every new craze, but you’ll also safeguard your most precious asset: time.
Take non-fungible tokens (NFTs), for example. Just a year or two ago, these digital collectibles, often associated with trendy artists like Beeple, were said to revolutionize wealth and style. Today, however, they seem to have become the guilty pleasure of a select few, collected in secrecy.
In a similar vein, Modern Monetary Theory (MMT) captured widespread interest not long ago. This enthusiasm waned with the onset of excessive money printing, which led to an official consumer price inflation rate of 9.1% as recorded by the consumer price index (CPI).
While hindsight is often clearer, there are instances when foresight proves equally sharp. In the case of MMT, many could foresee the impending consequences, even if viewed through distorted lenses.
The dangers were obvious: distributing money without a corresponding increase in goods and services is unwise, reckless, and ultimately detrimental. Unfortunately, it appears only academics and central bankers were blind to the inflation looming on the horizon.
As inflation began to rise in the latter half of 2021, Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen assured the public that it was merely transitory. However, by December of that year, Powell had to admit that the term “transitory” was no longer appropriate.
Both Powell and Yellen bear significant responsibility for the current inflation crisis, but they weren’t working in isolation. Supporters of MMT actively encouraged these policies, insisting that inflation would not be a concern.
Now, with inflation hitting its highest point in 40 years, where have the proponents of MMT gone? Why aren’t they addressing inflation with the same enthusiasm they once displayed?
Fanciful Promises
When enticing proposals for a more prosperous life emerge, many eager individuals succumb to the allure of idealists, theorists, and charlatans. The promise of something for nothing can be too intoxicating to resist.
For years, voices like Alexandria Ocasio-Cortez and Bernie Sanders have advocated for MMT as a solution to the nation’s challenges, urging followers to embrace their vision.
MMT posits that a government like the USA, capable of creating its currency, cannot default on its dollar-denominated debts. Consequently, this theory suggests that the U.S. can print as much money as necessary to bolster the economy—regardless of deficits.
Should this money creation lead to inflation, proponents propose a solution: raising taxes and issuing bonds to withdraw excess money from circulation.
In this framework, taxes are not seen as a means of funding government initiatives. Instead, they serve to manage the money supply and maintain a delicate balance between economic growth and inflation. Such theoretical mechanisms allow large government programs to be initiated first, with taxation considerations postponed.
This entire theory seems fundamentally flawed. Yet, in early 2020, it was precisely this kind of flawed thinking that many found appealing.
When the process of quantitative tightening (QT) was abruptly halted in September 2019, the Fed’s balance sheet stood at $3.7 trillion. Shortly afterward, in response to the exaggerated fears surrounding COVID-19, the Fed expanded its balance sheet by an astonishing $5.2 trillion, reaching a high of $8.9 trillion. Much of this occurred between March and June 2020.
The immediate repercussions were muted. By February 2021, the CPI reflected an annual inflation rate of only 1.7%. This seemed to bolster the confidence of MMT enthusiasts.
By this point, the U.S. government and the American populace were deeply entrenched in a strategy of currency devaluation to support mandated lockdowns. Washington aimed to reduce its debt burden through implicit default via inflation, rather than directly defaulting on bond payments.
A range of intellectuals and theorists over the years, from John Law to Bernie Madoff, have promoted the idea of effortless wealth. They’ve devised numerous mechanisms like counter-cyclical spending and quantitative easing—all intended to enable governments and people to spend beyond their means, evading the repercussions of debt.
During the extensive money printing of 2020 and 2021, Stephanie Kelton rose to prominence as an advocate for MMT. Her book, The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, was published in June 2020 and quickly became a New York Times Bestseller, garnering acclaim from unlikely sources. For instance, rapper Ice Cube praised the book, suggesting that, in America, money indeed grows on trees.
But does a 9.1 percent CPI reading, not to mention unofficial estimates nearing 18 percent, qualify as minimal inflation?
The Fate of MMT
Today, the Fed’s balance sheet remains around $8.9 trillion, with consumer price inflation at its highest level in 40 years. To combat this inflation, the Fed is increasing interest rates, but this might lead to a severe recession reminiscent of the 1930s.
However, MMT advocates have retreated into silence. Why aren’t they leveraging MMT principles to combat inflation?
The MMT movement, like many cults, has proven ineffective for the average person. Instead of enhancing wealth for the American worker, it disproportionately benefits the elites and planners who first tap into the newly created money.
Moreover, when their guidance is most needed, these proponents conveniently vanish. Is Kelton not as staunch in her beliefs as once thought? If she were truly committed to MMT, wouldn’t she be advocating for increased taxes to tackle inflation right now?
This is supposedly the MMT method: raise taxes to withdraw excess money during inflationary periods. Yet Kelton has not been pressing for this action, likely because higher taxes are generally unpopular, and endorsing money printing is far more appealing.
So, what has Kelton been up to lately? Her recent tweets include casual moments with her pet dog and unique culinary adventures, but they lack any mention of fiscal policy or inflation management.
Has MMT seen its downfall?
For the moment, it appears to have faded. It may only be revived following a significant economic downturn that eradicates inflation, after which it could once again assert itself for future monetary initiatives.
[Editor’s note: Years of excessive money printing have set American investors up for potential disaster. Unfortunately, many individuals’ savings may be decimated as the economy teeters toward depression and a bear market takes hold. I refuse to remain powerless while Washington’s overreach threatens everything I have worked for. That is why I’ve spent the last six months researching practical strategies for everyday Americans to protect their wealth and financial privacy. The insights from my findings can be found in the Financial First Aid Kit. If you’re interested in learning more about this essential publication and how to get a copy, visit here today!]
Sincerely,
MN Gordon
for Economic Prism
Return from Modern Monetary Theory Bites the Dust to Economic Prism
