MMT stands for Modern Monetary Theory - an economic philosophy on the lips of nearly every politician and economist today. In short, MMT states that a sovereign government that controls its own currency is not constrained by its ability to issue debt. It can simply cease issuing bonds and print money instead. And, provided that it does not have foreign currency denominated debts or liabilities, a sovereign government can never run out of money.
In Modern Monetary Theory, the issuance of government bonds is completely unnecessary. In fact, government debt is an artificial limitation on the obligation of the state to provide economic prosperity to its people.
Instead, proponents of MMT believe that the very act of government spending brings currency into existence. This is both a good and necessary thing in their eyes because government spending becomes savings in the hands of the population. Furthermore, as long as the government is receiving valuable goods and services in return for its freshly printed money, then no significant inflation will take place. If inflation does start to take root, the government merely has to raise taxes, which has the effect of destroying currency and suppressing inflation.
The reason Modern Monetary Theory is so popular at the moment is because we've been slogging through a soft depression over the past decade. I call it a soft depression because all the traditional economic indicators appear to be green: the stock market is up, GDP is up and the unemployment rate is down. But it is a depression nonetheless. Average people are feeling increasing economic distress while the global oligarchs and monopolists are becoming fabulously wealthy.
Is it any wonder that the middle class is desperate for some sort of alternative to the obvious failures of traditional economics?
The only problem is that MMT isn't really a very new idea. In fact, it is a very, very old idea - at least 300 years old by my count. And it is a bad idea too. Modern Monetary Theory is really just inflationism wrapped up in a fancy new package - all the better to trick the historically ignorant.
Want proof? Let's look back in time at episodes of MMT past.
The first major proponent of Modern Monetary Theory was John Law, an 18th century Scottish economist who later immigrated to France. Of course, this description of the man is unrealistically kind. In reality, he killed a man in a London duel and then fled to Continental Europe to avoid justice. And John Law wasn't so much an economist as a financial speculator, gambler and conman.
In fact, Law was such a good conman that he eventually duped the Duke of Orleans into letting him try to solve France's economic troubles! You see, in the early 18th century France was nearly bankrupt from fighting all the wars of the former king, Louis XIV. The French state was nearly out of gold and silver coins and was desperately looking for a quick fix.
Enter John Law and his profoundly dangerous economic strategy.
Law believed that replacing gold and silver coinage with freshly printed paper money would spur business and increase the supply of credit. He also planned to simultaneously extinguish the French national debt by swapping it out for shares in economic ventures.
The vague "economic ventures" mentioned above turned out to be the Mississippi Company, a firm that the French government granted a trade and mining monopoly to in the undeveloped territory of French Louisiana.
At first everything was great. Freshly issued paper money (proto-MMT) hit the markets and commerce flourished. And shares in the Mississippi Company skyrocketed in value, making investors rich.
Then reality hit.
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Much like today's Modern Monetary Theorists, John Law thought that if a little paper money was good, then a lot must be great. The paper currency was over-issued and soon people began frantically trying to exchange their rapidly depreciating paper money for gold, silver and other real goods. Mississippi Company shares didn't fare any better. After rising from 500 to 10,000 livres in value, shares of the Mississippi Company collapsed in 1720.
The Mississippi Bubble, as it came to be known, bankrupted France far more thoroughly than Louis XIV's wars ever did. Our MMT anti-hero John Law fled to Brussels before the end of 1720. If he had stayed in France, the impoverished French people would have killed him for his ill-advised money printing scheme. Law spent the rest of his life gambling his way around Europe, eventually dying flat broke in Venice in 1729.
Now a lot of MMT adherents might argue that John Law's initial foray into MMT didn't count because he omitted one very important step. When inflation starts to rise, the government needs to raise taxes to remove money from the economy.
However, this objection ignores human nature. Any inflationist monetary policy naturally creates its own constituency over time. These special interest groups benefit from the money printing and don't want to see it stop. And they invariably gain political power as well; wherever wealth flows, pandering politicians looking for campaign donations aren't far behind.
This is MMT's fatal flaw. It is easy to start printing money, but almost impossible to stop printing it due to political pressure. The United States is already riddled with powerful special interests such as the military-industrial complex, higher education lobby, leviathan banking system and technology oligopoly. The idea that we could casually indulge in Modern Monetary Theory only to restrain ourselves at some future date is pure fantasy.
Still want more proof? How about another historical example?
In the early 1930s, Japan was struggling with the economic effects of the Great Depression. In comes its MMT-like savior, Korekiyo Takahashi. As the head of the Bank of Japan, Takahashi directed the central bank to purchase Japanese government debt in effectively unlimited quantities, thus allowing the government to deficit spend with abandon. This is more or less what Modern Monetary Theory prescribes (albeit without the intermediary step of issuing government debt).
In any case, the outcome was eerily similar to John Law's experience two centuries before. At first the economy boomed and everything seemed wonderful. Then, like a good central banker, Takahashi sought to turn off the printing presses now that the economy was humming along.
But a group of ultra-nationalist military officers would not have it. They organized a coup that assassinated the central banker as he lay asleep in his bed on February 26, 1936. This is important because the Japanese military was benefiting from Takahashi's money printing. When Takahashi tried to turn off the money spigot, he was killed. Needless to say, the Japanese money spigot remained open, thus paving the way for World War II in the Pacific.
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Now even though I think MMT is a terrible idea, it doesn't mean that I don't think it won't happen anyway. On the contrary, most developed nations are running excessively high budget deficits right now, while the global economy is still nominally expanding. Once the next recession hits, the cries to fire up the monetary printing press will become too loud to ignore. And it might simply be necessary, if for no other reason than to finance the gargantuan deficits ($2 trillion plus in the U.S.) that will undoubtedly materialize during any economic slowdown.
In effect, Modern Monetary Theory will become a convenient theoretical justification for politicians and central bankers to do what they intended to do all along: spend more money!
Now, maybe you don't care about MMT or don't believe that it will impact you directly. But let me paraphrase the famous Soviet Marxist Leon Trotsky, "You might not be interested in Modern Monetary Theory, but MMT is very interested in you."
If MMT ever comes to pass, it will destroy confidence in the U.S. dollar - slowly at first and then with stunning speed. And the securities markets will not be far behind, either. The stocks, bonds and mutual funds in your retirement account will not help you avoid financial ruin.
The only true defense against Modern Monetary theory is the ownership of hard assets. I favor portable, high value density items like fine art, bullion, antiques and gemstones. These treasures cannot be summarily printed at the whim of a venal central banker or politician. Happily, the Antique Sage website is all about investing in antiques and other hard assets.
We would do well to realize the historical danger of trying to solve our economic problems via the printing press. But I suspect this is one mistake humanity is doomed to repeat again and again.
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