**Is This What Winning Looks Like?**
**Modern Monetary Theory, the buzziest economic idea in decades, got a pandemic tryout of sorts. Now inflation is testing its limits.**
**By Jeanna Smialek, The New York Times, Feb. 6, 2022**
**Modern Monetary Theory posits that if a government controls its own currency and needs money — to make sure its citizens have food and places to live when, say, a global pandemic pushes many out of work — it can just print it, as long as its economy has the ability to churn out the needed goods and services. In the M.M.T. view of the world, “How will you pay for it?” is a vapid policy question. Real-world resources and political priorities determine how much lawmakers can and should spend...**
**M.M.T. theorists argue that society should feel capable of spending to achieve its goals to the extent that there are resources available to fulfill them. Deficit spending need not be constrained to recessions, even theoretically. Want to build a road? No problem, so long as you have asphalt and construction workers. Want to feed children free lunches? Also not a problem, so long as you have the food and the cafeteria workers....**
**Without thinking about paying for it, the government quickly passed a $2.3 trillion relief package in late March 2020. In December, it followed that up with another $900 billion. In early 2021, Congress added $1.9 trillion more....** [end quote]
Also, the rivers will ran with wine and the clouds rained chocolate drops.
Seriously, the result of increasing demand (money placed in consumers’ hot little hands) without increasing supply (decreasing supply due to the pandemic) increased prices.
Federal Net Outlays as Percent of Gross Domestic Product spiked to 30%.
Federal Debt: Total Public Debt spiked to $28 Trillion in a $22 Trillion GDP economy.
With the Federal Reserve intending to stop their emergency bond buying, the bond market will gradually become free again. (It’s been a long time coming.) Treasury bond yields are already beginning to rise and the fun has just begun.
As Treasury bond yields rise, the cost of servicing all this debt will rise. In the 1970s, when inflation was high, servicing Treasury debt took 1/4 of Federal revenues, displacing many other priorities. And the debt was much lower than it is now.
Modern Monetary Theory pushes policies that put money into consumer hands. It does nothing to increase supply. It’s inflationary. Period.
MMT is a concept invented by “spoiled children” who grew up in a prosperous, low inflation, low interest rate time created by others. But that changed fast. The Macro economy responds quickly to forces that can easily get out of control.