Why is MMT the new black?

Modern Monetary Theory or MMT seems to be being discussed everywhere lately, and a number of high profile debates between the economic establishment such as Paul Krugman, Ken Rogoff, Jerome Powell and Larry Summers on one side and MMT advocates (most of which are not economic luminaries) have broken out.

The key difference in the two camps appears to be:

  1. MMTers suggest the current system is not working and that Governments can (and should) print money to create demand, and if done right, the printing need not be inflationary.
  2. The economic establishment (monetarists generally) suggest MMTers are wrong, that money printing will be inflationary and there are numerous examples of Governments spending too much and creating inflation.

Both sides usually start with “if you consider my model of how the world works” and then continue on to demolish the other sides’ argument using only their own way of looking at things.

My take is that both sides are the man whose only tool is a hammer, and every problem looks like a nail.

The economic establishment’s hammer is interest rates. The developed world clearly has a demand problem and the interest rate lever cannot be pulled much lower in most developed markets. Inflation is largely non-existent, debt levels continue to rise and the Japanese experience suggests that doing more of the same and hoping things will turn around simply doesn’t work.

The MMTers are obsessed with money printing that is diverted into government spending as a solution. Where they diverge from my version of reality is where (some MMTers) start to suggest that zero interest rates and increases in government spending offset by increases in tax will be able to control inflation.  I suspect MMT theory will be a bit like Marxist theories – it might work well in a utopia but once humans get involved the theory is no match for self-interest and gaming the system.

However, I have a lot of more sympathy for the MMT arguments at this point in the cycle – if you are going to print money it is far more efficient to give it to governments rather than to buy government debt and hope that low-interest rates will spark demand.

From my position, the monetarists have had 20+ years in Japan and now 10+ years in the rest of the world to show that they can create demand and inflation. They have failed. Monetarists have shown they can prevent inflation from getting too high (after inflation was out of control in the 1970s and 1980s), but what monetarists have not shown is that they can prevent inflation from getting too low – all they are capable of is blowing debt bubbles.

So, in my view the implement of choice to get us out of a lowflation problem is unlikely to be a monetarist solution and more likely to be a version of money printing, so the tool to use at the moment is likely to look more like MMT than continuing to lower interest rates and while hoping for a different result.

Central Bank Taxable Income

A different solution, combining elements of both that I like would be to give the central banks another lever to pull – explicit money printing, with a catch. The catch is that rather than using the money printing to buy government debt, central banks give the money directly to the population as taxable income.

The key benefits: (1) it helps reduce inequality (2) the money goes to the people most likely to spend it and create more demand and employment (3) the increase in tax revenue means governments can reduce debt/have more incentive to spend and get them away from the austerity nonsense (4) as the central bank has the mandate rather than politicians, there is more likely to be restraint shown at the top of the cycle.

A welcome side effect would be that you could increase the interest rate floor – it is clear that lowering interest rates too far creates problems with asset bubbles – but if you let central banks print taxable income for the people then maybe the interest rate floor could be 3 or 4% – high enough to discourage the build-up of too much debt.

So, the change to mandate for central banks might be relatively minor – they keep their steady inflation mandate with the option to use either interest rates (usually for inflation that is too high) or printing taxable income (for inflation that is too low).


MMT has flaws,  but so does our current economic system. MMT has some attractive elements that could be incorporated into our current system and it is relatively clear to me that repeating the same monetarist policies that got us where we are today (and Japan to where it is today) is unlikely to work and that inequality needs to be reduced.

If the voting of Trump, Brexit, extremist parties in Europe and the Yellow Jacket protests in France have not convinced the economic establishment that something needs to change, then I fear for what kind of event will be significant enough to spark change.


Damien Klassen is Head of Investments at the Macrobusiness Fund, which is powered by Nucleus Wealth.

The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. Damien Klassen is an authorised representative of Nucleus Wealth Management, a Corporate Authorised Representative of Integrity Private Wealth Pty Ltd, AFSL 436298.

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  1. drsmithyMEMBER

    I doubt your idea will get much traction.

    The main complaint against “MMT” at the end of the day, once you strip it down, is “people getting something for nothing”.

      • reusachtigeMEMBER

        Go get a job by undercutting the competition on price. It’s called a free capitalist society!!

      • nexus789MEMBER

        How do you figure you get healthcare for nothing. It is funded via general taxation that we all contribute to. The fact that politicians direct this revenue to spending crap we don’t really need like $200billion on useless weapons is a different discussion.

      • reusa – the government has already enabled business to do that with it’s imposed massive Third World immigration program that has destroyed wages and rocketed house prices. Now the people have no money and the country is buggered.

    • Better people getting something for nothing than banks getting something for nothing.

      Much much better.

    • Correct. MMT fails the common sense test. If you accept the adage that there’s no such thing as a ‘free lunch’ you toss MMT in the bin right away because MMT basically says: you can consume ad infinitum without producing first. Most sensible people would recognise that as BS.

      That said MMT is coming — the plebs are being softened up via this wave of media coverage. You want inflation? It’s coming.

      Once the genie is out of the bottle though it’s game over. No central banker will be able to put it back.

      • drsmithyMEMBER

        If you accept the adage that there’s no such thing as a ‘free lunch’ you toss MMT in the bin right away because MMT basically says: you can consume ad infinitum without producing first.

        No it doesn’t.

        That said MMT is coming — the plebs are being softened up via this wave of media coverage. You want inflation? It’s coming.

        MMT isn’t “coming”, it’s here. It’s been here for some time.

        The contemporary angst is about using it to fund public infrastructure and jobs rather than tax cuts and wars.

    • drsmithy,

      Agree, that is the political killer point along with the crazy idea of giving independent undemocratic central banks any more control than they already have.

      The point that so many people miss is the current structure of our banking / monetary system where the central bank explicit role is to support a privatisation of the public power over money.

      Talking about money and banks and economic levers without discussing that is like ignoring the giant elephant in the room.

      Expenditure must be controlled by democratic institutions.

      They are perfectly capable of increasing tax free thresholds and of allocating more funds to social services and income support that reflects their policy platforms and election promises.

      They are also perfectly capable of setting taxes to lighten some wallets to assist with allocations to infrastructure and services.

      The extent to which a deficit or surplus is required to manage inflation can certainly be the subject of advice from a thoroughly reformed Central Bank. A government could ignore that advice but it will be at a political cost if the central bank is credible ( unlike the current asset bubble blowing RBA)

      An appropriate role for the Central Bank would extend to financing a fiscal deficit. Either explicitly or by purchasing 0% bonds from the Treasury to satisfy it has acquired a promise to repay …as meaningless as that maybe.

      And providing 100% risk free deposit accounts to savers so they are not forced to make unsecured loans (aka fake deposits) to private banks who currently run fraudulent Pseudo Fiat operations.

      Who needs a revolution or handing control over to our current Banker loving central banks, when a few simple reforms are all that is required.


    • Poor people getting money – not good.. rich people getting money for nothing through activities such as rent seeking – not so bad.

  2. ” Inflation is largely non-existent”

    I am so sick of hearing this blatant lie. (not pointed at you Damien) Inflation is supposedly non-existent to the dweebs in central banks that keep changing the basket of goods or whatever bullsh1t they do. Ask any normal person if they think inflation is non-existant and watch their faces. You can only hedonicaly substitute scotch fillet -> rump -> chuck -> rolled roast -> mince -> sausages for so long!!!! If I buy a TV every three years thats gone down in price $1000 does that substitute for the meat I eat 4 times a week thats gone up 20% in price without substituting it for cat food? The CPI figures are an absolute crock of sh1t.

    • the manipulation is even more obvious than that, once you understand (as most ppl here do) what basket of goods and services comprises the CPI measure and what the macro view on their long-term price has been. And then overlay that with the frequency of purchase, as you describe.

      Consumer goods: white goods, electrical, clothing etc. Long term price reduction due to efficiencies in production (automation and robotics) and efficiencies in the supply chain.
      household utilities and services: not only electricity, water and gas, but petrol/tolls and telephony and all kinds of insurance: raw utilities have been spiking higher every year; as have tolls and transport fees etc; telephony have been inching higher but arguably at ‘better value’ (as marginal cost of providing data etc declines) but in raw terms still increasing, and then insurance is spiking higher every year.
      food: continually marching higher, as any productivity improvements made by local producers and global supply chains is overwhelmed by increased competition from rapidly emerging middle class markets like China, other parts of Asia but also a general global phenomenon.
      local services: schools, entertainment, Reusa’s rub-n-tugs, etc. if their factors of productions are jumping every year, ie rents, power etc, then their prices are rising every year.
      shelter: housing has gone full tropic thunder as we know, but rents over the long term have been outstripping wages and broader inflation in most cities.

      So I look at that list and consider the frequency of purchase combined with the degree of essentialness of the purchase, against the longer term price movements and macro influences

      inflation has been very real for a decade. western governments everywhere have been lying through their teeth in how they measure it. No wonder there are populist movements everywhere.

      • TheRedEconomistMEMBER


        Regarding the oldest profession in the world.

        My “mates” up the pub tell me “you can two ‘new Australian’ ladies for an home visit, for the price of one Aussie bird.”

        Yep wages are getting diluted across the board!!

        Immigration is certainly a factor here and why the Libs are gunning for a Free trade Agreement with Indonesia.

      • reusachtigeMEMBER

        ^^ And they perform better too and appreciate their comparatively high wages compare to doing tricks back home.

    • Inflation in real estate in Australia has been raging hysterically for about 15 years up until a year or so ago.

    • HadronCollisionMEMBER

      Tractor mechanic up from 99/hr to 110/hr
      700ml Bacardi $32 to $39
      Name brand whole meal bread 3 to 3.20
      On it goes

      • According to WW, “if you consider my model of how the world works”, throwing all that feed over the fence into the paddocks has resulted in numerous fat piggies.
        Just all to easy to knock off. Cant run, cant fight and taste good.
        As any human will tell you, re, self-interest and gaming the system, now money is returning to its rightful owners, the predators.
        As it was in the beginning.

    • Absolutely. This substitution of shoddy for quality as being deflation is laughable. As is asset inflation, also ignored by smoke and mirrors. Renting a dog-box is not comparable to owning a home in any way.

  3. This is quite oversimplified – overt money creation is just one tool that MMT reveals is available to monetarily sovereign Governments. Because at the end of the day, MMT is just an attempt to build a rigorous description of how monetary systems in modern economies actually work, and when you start thinking that way instead of the current paradigm (i.e. just the we always did things from back when we had the gold standard and fixed exchange rates) then a lot more options become available.

    It should be noted, as an aside, that the common meme of “MMT people just want to print unlimited money” is a gross misrepresentation. What MMT actually points out is that the limitations on the Government being able to achieve its policy objectives are entirely the real resources and labour available to it to purchase in the currency it issues, not the monetary units themselves. It is, of course, obvious, and taken into account in any MMT inspired policy prescriptions that exchange rates can be devalued if mismanaged and terms of trade, inflation, etc. must be taken into account.

    What makes MMT so interesting to me is that it in my opinion it actually sets the framework to be able to produce a more internally consistent analysis of what went wrong in places like the Weimar Republic, Zimbabwe and Venezuela than most other theories (each case including one or more of fixed exchange rates, large debt denominated in a foreign currency, and a big supply shock).

    Giving money directly to people is definitely a policy option that could be done in an MMT paradigm, but MMT scholars prefer the idea of a job guarantee instead, where the Government creates minimum-wage jobs for anybody who wants one, which acts as a buffer stock (ideally they would employ less than 1% of the population, but it would have to be scalable to expand up if there was a big crisis).

    • +1 MMT is simply a description of what actually is, the actual reality of the mechanics of modern day economies. By pointing out what actually is, it points out what is and is not possible. Simple as that. Nothing more, nothing less. Because most of the adherents tend to share certain basic social/political beliefs, it is often grossly misrepresented with the most amazing strawmen regularly being constructed in order to “demolish” it.

      It is not a new paradigm with certain courses of action prescribed, it is merely a lens through which to view the world. If the prescription of your lenses is correct, then you will clearly see the world for what it actually is – if not, your view will be distorted. Just seeing the world how it actually is doesn’t oblige you to take any particular courses of action, just lets you see with clarity what the consequences of certain actions will be.

      As pointed out in the article, the current monetarist view of the world by governments is not producing positive results and we appear stuck in an endless loop, with governments and central banks trying to (and in some cases succeeding to a certain extent) re-ignite the credit cycle which has been used as the primary economic driver. But that appears to have effectively run it’s course.

    • Ah, the Government creates minimum-wage jobs for anybody who wants one instead of the dole is a good idea. After all, there is no shortage of small jobs that will benefit the society. Presumably these jobs are capped at 40 hours per week? I wonder if someone did some sort of cost analysis.

      It might bring all the hidden unemployment and underemployment numbers out though.

    • taken into account in any MMT inspired policy prescriptions that exchange rates can be devalued if mismanaged and terms of trade, inflation, etc. must be taken into account.

      This is trotted out in defence of MMT. If that WERE MMT you really need to call it OMT – Old Monetary Theory or CSMT Common Sense Monetary Theory.
      However, that is never the way that MMT zealots use MMT in promoting their agendas. I once saw MMT called a revelation. It probably is to those who subscribe to it but, as I remarked at the time, the last bloke I heard of having a great revelation was Saul on the way to Damascus and he was blind afterwards as well.
      In fact, the way MMT is propagandised it is the answer to all things. Governments can goon printing money, ad infinitum, as long as there is no inflation. They use sectoral analysis up to the point here it becomes highly inconvenient to their social/government dominant agenda. They then remove the External Account from their sectors that need to be considered. It is either totally ignored and the whole topic of “” taken into account in any MMT inspired policy prescriptions that exchange rates can be devalued if mismanaged and terms of trade, inflation, etc. must be taken into account.”” is simply removed from the discussion. When forced right into the corner MMTers then claim “Well isn’t currency devaluation a good thing?”” Truly, what sort of an economic argument is that? So what happened to the people of Venezuela or Zimbabwe is a good thing?????

      This then gets extended out into more and more ridiculous claims. Bill Barnacle held to “foreign debt doesn’t matter because it never has to be repaid”” This resulted in the proclamation that imports are good and exports are a negative to the economy – This piece of myopic stupid nonsense was extended further recently. Barnacle, after years of ignoring the fact of CAD’s finally admitted they do exist but the CAD indicated that there was not enough consumption. If people are unemployed there is not enough consumption so Govt deficits should run amok and interest rates should be made ever more RAT negative. There should be no limitations on consumption in a country where consumption exceeds all reasonable limits. Strewth!

      Again, when backed into a corner, the MMT zealots absolutely deny the flow of funds through an economy. The moronic simplistic view is held that money is spent by the government, does its virtuous work in pursuing the soclai objective and then somehow, magically, it stops. It doesn’t chew up resources into more consumption rather than production. If doesn’t flow through into the external account if one really is going to ”irrationally” persist in there being one. It doesn’t result in ore debt. It doesn’t corral more resources into consumption rather than production. At hat point we have come full circle rom the original statement that MMT takes into account currency devaluation et al.
      In regard to the flow into the External Account, MMT are totally in denial concerning the connection between the CAD and foreign ownership of every damned thing that is worth anything in this country. The policies it spews out directly result in the sell-out of every resource, key industry, utility and farm must continue until it can’t. Then they have major spits about selling off government enterprises. Apparently it is OK to sell off every resource and business held in private hands but not government businesses. The irrationality and stupidity is stupendous.

      Again, there is nothing new in MMT except the idea that governments can ignore debt, particularly foreign debt. As long as they can bring extra resources to bear such as, for the last 30 odd years, including the whole of China as just being simply part of our economy (and Taiwan Korea and Japan before that).
      Worst of all problems with MMT is that it believes the world is infinite and should be used up by the current populace at as fast a rate as possible. Now all MMTers that I have struck regard themselves as great environmentalists intent on saving the planet fr4om typically evil ba..tards like me. Yet, is a society already stuffed to the gills with over-consumption, they advocate even greater government deficits to create more consumption. Note – how the rights to shares of that consumption is distributed is a whole different question. Central to MMT belief is the whole Zero/RATnegative interest rate policy designed to ensure that nobody ever saves, conserving resources, which would allow others to spend or invest, using resources. The rate of use of resources, in this setting, is unlimited
      MMTers are then the great virtue signallers. Any of us who argue that there are limits of any kind are, somehow, heartless and don’t care about the poor and the unemployed. Any former student/zealot, who any questions the inanity in regard to MMT, are given the Barnacle “”I’m disappointed in you”” routine as if the protagonist has somehow fallen under the spell of Beelzebub.
      MMT is not new no matter what definition you put on it. It is just a further extreme version of monetarism.

      MMT was supposed to morph into MMRT. It never quite made it as the proponents of MMT realised that MMRT would impinge on their political agenda. It quickly disappeared from the lexicon.

      • MMT, OMT, CSMT, CAD, RAT, ZRAT, MMRT…. you are speaking in riddles, flawse!!

        flawse for President, I mean, Dictator!!

  4. The reason why they are talking about MMT is because the bank driven debt creation scheme has run it’s course. The 1% have all the money and the 99% have all the debt and the 1% don’t want to give up their money and see their inflated assets devalue. We need to start creating a sustainable society where economic growth is no longer the goal but instead a society where wealth is shared more evenly and the environment is put first. I don’t know if MMT is going to create that. More of a can kick than anything else.

    • So can someone please explain; does economics theory come without ideology? Clearly the entire business is not a science, as you can’t do a proper experiment. So is economics a game of competing hypotheses fitted to post hoc data? Or is it a modelling game for theoreticians pretending to be applied, like punters who read the form guide after a race? Because it seems to me that all we have are self-serving dogmas invented to suit a biased and ideological view of the world. Then we argue about which one is valid without any agreed empirical basis for comparison.

      • “Because it seems to me that all we have are self-serving dogmas invented to suit a biased and ideological view of the world. Then we argue about which one is valid without any agreed empirical basis for comparison.”


        If an economic hypothesis can be tested / invalidated / dismissed, there will be a long queue of unemployed economists. No, they won’t have that. But they still need to be seen to be doing something, so they publicly argue, or pretend to argue, as if there is a scientific method of validating or invalidating one. Most laymen won’t be able to tell the difference anyway.

        Besides, if a good theory exists that can let you figure out what money is, how it works and what it will do in a given initial condition of your setting, you would gain a tremendous edge in investing and trading by obtaining such a theory. You can expect that such a theory, if existed, would be a tightly guarded secret.

      • Clive
        the experiment is well under way, but the outcome will not be Elastic’s social utopia
        as always, money returns to those who best manage it.

      • Interesting point.
        It’s even more on point when one closely observes the actions of the Technologically advanced sectors of the Central Banking Business. All kinds of questions arise if your free to question the objective as opposed to simply questioning the methodology?
        What on earth is the point of DSGE?
        – Is it suppose to be :
        accurate over the short term?
        accurate over the medium term?
        or accurate over the long term?
        or how about None of the above?
        You don’t need to give much thought to the problem to realize that DSGE can’t possibly be accurate over the long term because it can’t possibly include Black swan events nor can it predict wars, nor can it understand the rise and fall of superpowers (would even the most accurate DSGE model predict China’s rise or the USSR’s fall)
        So DSGE is useless long term tool.
        Is it useful over the short Term?
        A friend likened DSGE to using Global warming sea rise calculation tools to predict the height of water level in Lake Macquarie at some date in the future. For those non-sailors that have not directly experienced the strange gyrations of the lake’s water level it has little to do with tides and seems to be mostly a function of the mean barometric pressure, One could develop a very accurate short term estimate of lake level by calculating the flow of water into and out of the lake, this calculation requires absolutely no knowledge of the volume of Ice stored above sea level in the West Antarctic ice shelf, it’s just a simple Delta Water In, vs Delta Water out calculation. In a similar sense over the short term an island economy is a simple Delta money system. Understanding Total Money is a completely unnecessary step if the required job is as simple as estimating the Change in Money flow.
        So DSGE (while not completely useless over the short term, Is however completely unnecessary)
        OK so that leaves the Medium term (say 3 years to 10 years) as a possible DSGE tool sweet spot…So how good is it over this “Business Cycle” time frame?
        Truth is the jury is still out, it was useless at predicting the GFC but the model masters assure us that they’ve adjusted the models in such a manner that today’s DSGE model would accurately predict yesterdays Crises….hmmm that’s very comforting to know.

        OK OK but what has this got to do with MMT, it’s rather simple, in Today’s pseudo technology world all central bankers ask their modelling departments to calculate the effects of changes in money flow created by changes in Fiscal policy or Interest rates Or Or Or… The Model guys run back to their cubicles and run their DSGE (or extended DSGE) or DSGE Plus Plus models and calculate to at least one decimal place the cumulative effects of these changes over the next 10 years
        Trouble is the underlying Model/ Methodology is unnecessary over the short term, inaccurate and far to complex over the medium term and a complete F’ing joke over the long term..Yet it is these very models that we use to anal-ise our understanding of ideas like MMT and the expanded role that Governments could play in Money Creation. Better still we out-source these technically difficult tasks because the Private sector does a so much better job…..

      • JunkyardMEMBER

        As far as I’ve been able to tell Clive, economists are just the modem day version of soothsayers, prophets and tea leaf readers. With the high priests appearing daily to tell us everything is fine and under control, they know what is going to happen, meanwhile the world hurtles towards oblivion as we consume the planet at an ever increasing rate.

        The kingdoms soothsayers have the job of telling the kings what they want to hear without ever being wrong enough to lose their heads, while at the same time telling the people things that keep them fearful enough so the kings and soothsayers don’t all end up in the sacrificial pit themselves.

      • fisho
        +1 your anal-ysis is spot on. Not only GIGO but the garbage is being fed into a stupid machine.

      • @Jim
        With modern DSGE it’s not a matter of GIGO because the Data shapes the Model (or the Model is the Data) depending on your view point. All of these Stochastic based Modelling methods (Particle Filters, Extended Kalman Filters, Neural Network control….etc) are all Garbage driven and Garbage sifting methodologies so to understand the outcome you need to step back and understand the Data Training procedures and the implicit good/bad dichotomy with which data is sorted.
        With Bayesian analysis of an advanced robotics project Good can be something as simple as a Robot that balances Bad one that falls on its face, but what are these underlying Good/Bad decisions that drive the Bayesian Inference engine that’s implicit to every DSGE model.
        Sorry if this sounds like even more gobbledygook than where we started but its where we are at today wrt DSGE.

      • Thanks all. It seems I’m not alone in being suspicious that economic models (DSGE) and their ilk have become a dogma in the same way that technical analysis of stock movements becomes self fulfilling. As far as I can see theoretical models of economies are worse than models of ecosystems as they cannot be tested empirically and have low predictive power. Fisho is spot on in their use predicting short term versus long term and complex trends. It is the same in any complex systems analysis – even using gravity. You can predict the interaction of two bodies, but throw in a third and it becomes highly complex. Try 1000 and you enter the land of guess work. Short term, fine, but middle to long term is a stab in the dark.

        It seems the relevance of economic predation as a “tool” for policy making has been driven by political expedience, a faith in markets and the need for soothsayers to inform the new king. Here is the problem. Rather than forming policy on the basis of public values, social needs and democratic will, policy is following a model-driven fiddle of parameters that causes us to lurch from one self fulfilling and stochastically driven interaction to another. It is as if a church of economics with different faiths rules over us and politicians have given their power to make policy based upon principle over to technicians without a proven technology.

  5. The RBA is going to print a lot of fresh money in the next few years. They may not want to call it MMT, but that is what they will be doing. It will be spent to save the banks while the citizenry can go to hell.

    Pity they don’t have the courage to experiment with, say, a Modern Debt Jubilee. Better to fail conventionally.

  6. Meanwhile carbon dioxide levels continue to rise. The last thing the world needs is any scheme to use more resources especially as it seems to be suited only to first world countries.

    I know, they are only seeking to supply a need……so were Schacht and Von Havenstein…………spare me from these people full of good intentions. Wishful thinking and infinite credit don’t need intellectual cover, they are what they are.

    • Printing money has no meaningful effect on resource usage, only price. People will consume as much as they are able to produce, and money does not effect production rate, but only prices. Doubling the amount of money in circulation increases neither the natural resources available, the labour to exploit those resources or the capital equipment required for same. It merely doubles the price of all those things all being equal,
      If you wish to reduce consumption then directed taxing and money creation is the way to got, but comes with the consequence of reduced living standards for all.
      Expansion of the population is the cause of ever increasing consumption, not increasing money supply.

  7. Mmdttddddttdddddmmmm.
    You can keep doing global credit card balance transfer 6 months interest free
    Unfortunately the debt has to be paid back

  8. “First they ignore you, then they laugh at you, then they fight you, then you win” — Gandhi’s aphorism neatly describes the trajectory to date of Modern Monetary Theory, the latest incarnation of “chartalism,” which holds that money comes into existence through government spending, and is taken out of circulation when the government taxes it back — which means that without government deficit spending, there is no money, and which also means that the government doesn’t have to fund its operations through taxes, but rather, it can issue as much currency as it needs to operate, within limits.

    Good, succinct overview here


  9. SweeperMEMBER

    It’s not just monetarist it’s every school of mainstream theory. Old Keynesian, New Keynesian, genuine post Keynesian, new classical obviously.
    If anything MMT has more in common with old Chicago monetarism than it does with any of the others because it assumes stable money demand.

    Look MMT is completely wrong in theory. It’s one thing to say fiscal policy has a more powerful effect on demand than monetary policy; it’s another thing to say monetary policy has no or indeterminate effect on demand – so you may as well set interest rates at zero forever. It’s one thing to say money financed deficits below full employment when interest rates are zero – ie. there is no cost in holding cash v bonds – isn’t inflationary. It another thing to make the MMT public finance argument that all government spending can be financed with money at any level of employment / interest rates.
    And they don’t even get the monetary operations right. Part of Kelton/ Krugmans disagreement lay in the fact that Kelton just assumes the government spends money first. They don’t. They pre fund their spending. This can easily be checked.

    • Can it be checked sweeper ?

      You mean the previous discussion we had ?
      Did you have a stroke and forget?

      As part of the Australian Government’s banking arrangements with the RBA, the RBA provides an overdraft facility to the government. The terms of this facility provide that it may only be accessed to cover unexpected temporary shortfalls of cash (for example, to cover a sudden previously unplanned outlay). This means that it is used very infrequently.

      Ie the real mechanics are that the RBA can print money at the governments behest

      The bond sales are usually undertaken in advance but that is a charade to maintain the illusion of constrained spending

      • Correct, Coming. And they can spend as much as the economy can absorb. And, they can pass laws to freeze prices.

        Government just tells us the ‘coffers’ are empty

      • SweeperMEMBER

        You mean 99.9993% of the time.
        In the last 1308 wks it has been in overdraft (and just barely) once.
        And I guarantee Treasury would have been scrambling to sell securities and clear the overdraft first thing Monday morning.

        For you and Kelton to be right there would need to be a permanent overdraft and week to week “reserve drains” to maintain the interest rate target.
        That is not what is happening. Clearly the government stockpiles deposits then spends.
        Note in the US legally Treasury cannot be in overdraft.

      • oh you guarantee it?

        Why? What was going to happen if they didn’t?

        That’s right – the charade would be exposed

      • SweeperMEMBER

        Treasury secretary would lose their job.
        Keating would face awkward questions from Costello, Reith and co in question time, along the lines:
        “Can you explain why public spending is being financed with money like a Central American banana republic?”
        “Why should Australians vote Labor when you can’t achieve a surplus or even sell bonds properly to fund your deficit?”
        “Is it the case that under Labor’s mismanagement the Commonwealth of Australia’s sovereign credit is so poor that it has now lost access to the bond market and has to rely on inflationary finance?”
        etc. etc. then Keating would sack the secretary.
        Before you say it’s a political choice. Yes it is a political choice.

      • So you are now admitting that MMT has the mechanics entirely correct, and the bond sales are purely a political charade?

        The RBA can just credit the money directly to the treasury
        Or the RBA can buy the bonds itself and then credit the money directly to the treasury
        without providing any free lunch to the banks

  10. Well said Mr Klassen but let’s be more direct. The problem is political. The FIRE sector in particular benefits from the current system. I fear that they will twist MMT to their advantage.

    • Correct
      but like ole mate above who cant fix his tractor
      they soon will be ripped off as well
      the market will pay for valuable skills
      as it was in the beginning

      • HadronCollisionMEMBER

        jesus you can be tiresome.

        Am I supposed to be able to fix/do everything? Nope.

        Similarly, I have valuable skills the market pays for (ie that not everyone can do).

        I am not complaining, I am merely pointing out the obvious

        I also can’t

        – fly fighter jets
        – perform cardio thorasic surgery
        – set a compound fracture
        – intubate
        – perform complex eye surgery
        – perform complex macroeconomic analysis
        – trade options
        – do half the stuff you can do but take the p!ss out of people for not being able to do
        on and on goes the list

        I could probably fix the tractor, and I could service an Ajax piston pump, but it’s a time issue.

        To wit: instead of paying someone to build a carport, I took the time do it.

        Priorities: and learning the intracacies of diesel mechanicship is not one

        Similarly, I doubt you have the time to learn my skills, for which I am paid quite well.

        The fact I need to explain this to you is puzzling

        PLease can we have an ignore function. That’s a function I’d pay a membership for

    • They already benefit

      From their money creation privilege (that has crowded out the government spending due to inflation concerns) and the free welfare they receive from the absurd mechanism of government bond sales and interest on reserves

      Why is MMT silent on this ?

  11. DreadnotMEMBER

    And which group of people will the ‘fiscal spending’ money be gifted to? Equally to the 1% and the 99%, the homeless, the unemployed, those below a minimum wage, for mortgage debt relief, and on and on. Open to endless claims – a political decision – in a democracy with numerous civil society organizations and vested interest groups.


    Worth a read for its timely input and as an introduction to a blog that should quell many of the current myths and misunderstandings of MMT.

    • Strewth!!!! Another supposed conclusive treatise from Bill Barnacle on how good MMT is and not a SINGLE mention of Current Account Deficit, Currency devaluation effects, foreign debt or foreign ownership of resources. What a load of total BULLSH1t! (With thanks to Reusa for the mode of expression)

  12. My problem with MMT is not that it’s not possible to dramatically expand our monetary supply without inflation No No No that’ point has been adequately proven and proven by the actions of our Private banks that have not simply engaged in but rather Embraced this Very Profitable activity.
    Imagine Governments were free to invent the money needed to complete their projects and than simply cross the debt they created off against the Assets they created, well there’d be no need for all this Private bank money creation, absolutely no Need, which suggests they’re also be absolutely no profits generated by this activity.
    Hmmm now what was it again that banks and their useful idiots have against MMT?

    • Precisely
      Plus the fact that government bond sales are basically just welfare for the banks (and HNWIs)

      But I’ve always wondered why these MMT celebrities studiously ignore private money creation and bank privilege

      • Correct! We agree sometimes.
        The answer is because that would fly in h face of the way MMT is promulgated – money for nothing and chicks for free.

    • The creation of debt by the private banks is, in essence, virtually no different in result to Government deficits. Government deficits result in no debt ONLY if the deficit is funded by private saving. If it is not funded by private saving then every dollar of government deficit will show up as foreign debt.

      MMT zealots, for all their proclamation that MMT is just a method of analysis, ig nore this very simple fact and advocate zero/negative RAT interest rates. Thus they advocate maximum money printing by the Central bank/Private sector while, at the same time, printing with no limit by the government/central bank sector. Deficit in those two sectors shows up as debt somewhere – by any sectoral analysis definition.

      • I suspect your simple Current Account model has an implicit fault in that it fails to recognize the creation of additional value within a closed system. It gets even more complicated it that additional value is also a function of the very money flow by which you measure your Current Account and that’s without considering the differential value of investing in your economy vs my economy (as in the value of hot-money flow from current account surplus countries)
        It all gets rather a bit complicated when you try to include these second order effects yet it is these very effects that drive the differential value. ….ahhh I think I’m chasing my tail

    • Fisho, the idea that banks create money out of thin air (correct) but that it ISN’T inflationary is pure BS (of the highest standard). The inflation is in financial assets (because that what banks traffic in) and the inflation is in residential real estate because that’s where the banks are lending money. Look at a bank’s balance sheet and it’ll tell you precisely where to look for inflation.

      If bankers were using the credit they create to clear the shelves in Woolies and Coles every week you would see inflation in consumer goods but the demand created by ‘funny money’ goes elsewhere. Inflation is styled by pig-ignorant economists as ‘the General Price Level’. No such thing exists — it is a Keynesian fallacy (albeit one taught quite freely in most Economics courses).

      Inflation enters the economy ‘discretely’ — it is not a ‘general’ phenomenon.

      MMT is a different prospect entirely because it hands funds directly to citizens and THEY will certainly spend it on consumer goods. Then you’ll see proper inflation …

      • Good Point Re Asset Inflation being the logical result of privatizing money creation and logically it’s also the reason why official government Inflation models removed House Prices from the Inflation model, In so doing they simply defined away Inflation in any Private Money creation system. which had the rather convenient side effect of driving official interest rates to zero or even negative levels….

  13. reusachtigeMEMBER

    BULLSH1T there’s no inflation. Just BULLSH1t! Maybe you don’t buy fresh fruit and veggies, or switch the lights on at home, or have insurance. Maybe your life is just cheaper and cheaper trinkets from commie countries. Giving poor scum money is a recipe for disaster. Only banks know how to best allocate free money and that’s usually into better house prices.

  14. “”explicit money printing, with a catch…….(3) the increase in tax revenue means governments can reduce debt/have more incentive to spend and get them away from the austerity nonsense””

    Hells bloody bells!!!!! Again, there is NO foreign debt? There is no flow through the economy into the external account and more debt? There is no necessity to sell assets to foreigners in this scenario????

  15. Pretty frightening that the director of your investment fund has no idea what MMT is about

    I’d be nervous about my money

  16. “”a lowflation problem””

    Oh please!!!!! Tell me why low/negative inflation is a problem. Why is it that, somehow, a person’s savings or wages can buy more is somehow a bad thing? Technology has resulted in massive increases in efficiency- why shouldn’t these be distributed to ordinary people. Creating inflation corrals the benefits to those close to the centre – precisely what the writer is apparently trying to avoid.
    The only reason for inflation is to, supposedly, inflate away debt through negative RAT interest rates. Please show me how, in the face of negative RAT interest rates for the last 50 or 60 years, reduced debt has been achieved!!!!!

    • Oh please!!!!!
      Technology has resulted in massive increases in efficiency- why shouldn’t these be distributed to ordinary people.
      WW Would you throw your chaff over your neighbour’s fence
      Of course not,.

    • Ronin8317MEMBER

      Low inflation is a ‘problem’ because the massive debt pile cannot be repaid : it must be inflated away, or the global economy will blow up. The Central Banks have created a monster which they have no idea how to tame.

      • MAybe not
        It suits many to have the global economy blow up
        (the global economy referred to is the western economy, mostly Europe)
        the alternate strategy is to move into assets which increase in value faster than inflation, eg some skills

        Global markets have fallen after Europe’s deepening economic slowdown prompted the European Central Bank to slash its growth and inflation forecasts and announce a new round of cheap loans for banks.
        European Central Bank president Mario Draghi said Europe was in a period of continued weakness and pervasive uncertainty.

    • Have none of these dunces who’ve been whining about stagnating wages figured out yet that deflation actually leads to a rise in real wages? Inflation is a tax that affects everyone but the poor in particular and this is the reason the low paid have been going backwards i.e. inflation is much higher than the official numbers state.

      The economic illiteracy that abounds makes me weep. Economics is about common sense. No fancy theories and complex equations required.

      • “Economics is about common sense. No fancy theories and complex equations required.”

        How refreshing. Fancy theories and complex equations are good at making things unintelligible, so they provide good covers when you are not totally sure of what you are talking about.

      • “How refreshing. Fancy theories and complex equations are good at making things unintelligible, so they provide good covers when you are not totally sure of what you are talking about.”

        They are also great for obfuscating your true intentions.

  17. SweeperMEMBER

    This tax to keep a lid on inflation bs; read Keynes ‘How to pay for the war’
    He explicitly says taxation would not work against inflation and that only forced and voluntary saving would free up resources for the war and keep a lid on inflation.
    Again MMT has nothing to do with Keynesianism.

    • “..only forced and voluntary saving..”

      Yes – One need only look at the mercantalist countries to see that forced and voluntary saving by households is how they manage to direct so many resources to the rapid development of industrial production.

      Home loans in Japan were as rare as hens teeth and small for much of the post war period as a consequence of deliberate government regulation.

      No surprise that Japanese resources diverted to housing were limited and the size and quality of housing reflected that.

      In other news Japanese industrial and infrastructure rebuilding was going gang busters during that period.

  18. MMT …. “if done right,”

    Socialism …. “if done right”

    You see, the reason socialism has failed time and again and led to impoverishment and misery for the millions subjected to it is because it wasn’t being ‘done right’. Geddit?

    Next time though and with the ‘right’ people (fingers crossed!) ….. lmfao

    • Yep, that about sums it up
      Socialism would be a perfect system if it were not for the understandable and predictable albeit antisocial-ist ways that people interact within socialist systems.

    • This sort of comparative analysis risks being derided as being overtly simplistic, but MMT does increasingly look like a platform for ideological monetary experiments.

  19. Forget the charts and financial jargon. Money is merely a means of exchange for goods/services. Stop treating it like it is a commodity in and of itself.

      • No sarc Fisho. All this jargon is from a bunch of overpaid morons pretending to know how the world economy ticks. When things get complicated the solution is always in going back to basics. Monetary policy is nothing but a means by which the wealthy control the masses. Why have we allowed these pricks to be paid 100x more than a farmer without whom we cant go on? I could go on and on.

      • If all money disappeared tomorrow and was replaced by everyones favourite scifi currency “credits” what would change? Money is simply a means of accounting for bartering.I exchange an hour of my time for X credits which can then be exchanged for 1 case beer. All it does is make convenient the 1 hour labour for 1 case beer barter.
        In this situation what happens if you double everyones credits allocation? or halve it?

      • We already have this inflation adjusted Trading economy today however the unit of currency is not the Aussie Dollar rather it’s the Aussie House.
        So the underlying question is why have my Wages (in AUD) as a portion of House values decreased by so much? I suspect the answer lies in the difference between our willingness to create additional AUD vs our general unwillingness to create sufficient Houses. One is towards the greater good of improved Liquidity(not to mention increased AUD wealth) whereas the other leads only to slums and urban sprawl and all kinds of other nasty nasties . I suspect it’s our underlying human biases that drive the system towards these inequitable outcomes.

  20. ” as the central bank has the mandate rather than politicians, there is more likely to be restraint shown at the top of the cycle”

    Yeah it would be most unlike CBs to keep the tap wide open at the top of a housing cycle. And then of course there is the bottom of the cycle…

  21. blindjusticeMEMBER

    Western Economies have been distorted towards bubbles by low interest rates with some productive industries somewhat crowded and hollowed out. I picture the central bankers trying to jump start a car without an engine.The battery is there (maybe even in some economies the engine is there but parts have been taken off) and they are standing around wondering why it wont start.

    Its not going to happen but its not impossible that taking our medicine and hiking rates (and all the ensuing destruction that would bring) would be better in the long run!

    • I like the analogy, I can just imagine the conversation.
      We sold the Carburetor on Gumtree because that’s old technology and it’s inefficient
      We couldn’t find (or never owned) a high pressure fuel pump but Gravity feed will probably work
      So why on earth won’t these newfangled Direct Injectors deliver any fuel to our engine ….they’re sort of the same as a carburetor (aren’t they??) and while we’re at it what’s an engine management system and what does Injector PWM mean again, oh and is stoichiometry thingy, is it really that important…it’s Fing hard to manage all these things at ounce in real time.

  22. Anthropos metron

    JEsus dude.

    The solution is to allow wages to grow via a better share of profits. Its that simple. THe greatest periods of human prosperity, growth, civili soviety – EVERYTHING – is when the workers share has been higher. Its currently the lowest it has ever been.

    Stop reaching for such childish silver bullets and face facts.

    Its all about redistribution – its all about the class war.

    I understand you are a bolted on conservative masquerading as the occasional water melon – its true – but there has been a global corporate war on wages, on unions, on workers – you detail this on a consistent basis.

    The solution is obvious – it is NOT printing fkcing money – its not. Its increasing the share of profits and the benefits from corporations to workers – done and dusted.


    Previous attempts at MMT theory – there are literally dozens of them and all end up like this.

    • You need to sit with Flawse in the dunces corner of those who throw their feed over the fence
      Its all about redistribution – its all about the class war., it sure is
      And just to ensure those who start to think or move above their station -are held back
      Most have so massively failed, buried under a pile of debt, at their own undertaking
      They are out of contention as a threat, for generations.

    • Wage Increases…ah yes the perfect answer to the imperfect Inflation problem.
      Trouble is that wage increases only really work in a vacuum. Marx was real big on wage increases within the local British economy until he observed the continental jobs shift that resulted from said British wage increases That was about the time frame where he changed to embracing International Trade unionism over National Trade unionism. Ah but what effects did the Internationalization of Unions have on local wages, that’s definitely the missing chapter in Das Capital.

    • ErmingtonPlumbingMEMBER

      Didn’t Marx also go on about the Massive productivity gains of 19th century industrialization leading to people only having to work a few days per week.!?
      Where did he fk up there?
      Obviously thought Democracy was going to be more “representative” of the majority than it actually is.

      How has Democracy managed to “fail to deliver” so broadly?

      BS Economic theory and propaganda maybe?

      • “How has Democracy managed to “fail to deliver” so broadly?”
        Democracy Westminster style has delivered exactly as it’s designers intended, probably far surpassed expectations in fact. It has allowed the upper class to maintain control while also pacifying the populace with the illusion of controlling things.

      • Do the words Marxism and Democracy really belong in the same sentence?
        Seriously what is Democratic about applied Marx? Marx was certainly not so naive as to imagine that all votes carried equal weight, nor should they (or could they) within any real world implementation of a Marxist system.
        I’d suggest you go back to chapter 1 and start again or better still find someone that lived in East Germany and buy them a few beers and listen as they describe real world socialism.

  23. nexus789MEMBER

    MMT and monetarism both fail as they are finance centric and the end result will be mal-investment. It is absurd and delusional to think after destroying hundreds of billions in value in terms of the loss of factories, machines, skills, etc. you can then flick the interest rate switch or print money and all this magically reappears. The reality is that economists have little idea how an economy actually works in terms of generating wealth, creating industrial capacity, jobs and trade balancing. Their policies are making the situation worse.

    • Or even how society works. The caring, the thoughtfulness, the social responsibility, the honesty, the value of the natural environment – all valued to nil under the financial centric models.

  24. MathenomicMEMBER

    MMT itself is actually a framework that explains how the system we have currently functions (an observation rather than a suggestion); the policies you’re talking about are nothing more than simple solutions based on this understanding. Rather than your taxed UBI from teh central bank I’d prefer to see a Jobs Guarantee, Infrastructure Australia directed expenditure, and other public and productivity increasing services and investments made with similar body direction (think Productivity Commission).

    RE Luminaries, probably start with Steven Hail and go from there for a full understanding.