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Has the U.S. abandoned balanced budgets in favor of Modern Monetary Theory?

Posted by Jerry Madden | Apr 15, 2020 | 0 Comments

Mainstream economics holds that government spending is funded by taxes and debt issuance.  MMT rejects this premise and argues that the primary risk once the economy reaches full employment is inflation, which can be addressed by raising and gathering taxes and issuing bonds to reduce the money supply and the velocity of money in the system.  So long as inflation is controlled, MMT advocates that the government can print as much money as it wishes until full employment is reached and inflation begins to rise.  At that point, so long as government raises interests rate and takes actions to reduce the amount of money in the economy, all will be well and there is no need to balance the budget.  The key assumption is that the politicians will have the political will to take those actions once inflation appears.  However, in a deflationary cycle, which can destroy an economy, MMT should break the cycle by providing enough money to switch to an inflationary environment which then can be tempered through increased interest rates and taking money out of circulation.

See Bloomberg article: #MMT #covid19

About the Author

Jerry Madden

Jerry Madden is a highly experienced and accomplished federal trial and appeals lawyer practicing in Washington, D.C.


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