Kohler hearts MMT

Via Alan Kohler today:

The RBA’s bond holdings represent only about 11 per cent of the government debt, well short of what the Fed or the ECB and Bank of Japan are doing, but it’s also true that the RBA has effectively financed all of the JobKeeper program with new money.

Is that bad? No, it’s good. In fact, why should future taxpayers fund any of the 2020 pandemic rescue stimulus?

That idea is based on the fallacy that the government is like a household or a business, and that what it borrows must be paid back. What’s the difference? Simply that a government issues its own money.

…Modern Monetary Theory, or MMT – for that’s what we’re talking about – does not suggest that the government has a magic pudding.

In a new book on the subject, called “The Deficit Myth”, economist Stephanie Kelton says: “Just because there are no financial constraints on the federal budget doesn’t mean there are no real limits to what the government can (and should) do. Every economy has its own internal speed limit, regulated by the availability of our real productive resources … If the government tries to spend too much into an economy that’s already running at full speed, inflation will accelerate.

“There are limits. However, the limits are not in the government’s ability to spend money or in the deficit, but in inflationary pressures and resources in the real economy. MMT distinguishes the real limits from delusional and unnecessary self-imposed constraints.”

Quite right. There are other limits too: fairness, meritocracy and the normatives of capitalism. But it’s fundamentally true.

Somebody better tell The Kouk who is still living in the nineteenth century.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. He squirmed on ABC TV this morning when he said ‘the Government just needs to PRINT the money’. He clearly had visions of the mother of MMT, Pauline Hanson circa 1998 saying that exact same thing. Who would’ve thought the godfather of Australian media finance would be a proponent of Hansonomics?

    • Many people anecdotally have told me when the conversation turns to politics that Hanson was right after all and maybe to break away from the major parties they should vote for them. While I don’t entirely agree with the sentiment because I remember some of the other things One Nation has said for better or worse the electorate associates this part with anti-immigration and protectionism (being Australia first). The electorate is slowly realizing that the open border free market globalized way may not necessarily be good for the country especially with a country like China that is prone to pegging its currency, capital controls, protectionism when it suits them, buying strategic infrastructure across the globe, etc

  2. Nothing like that Physics shlt I studied, where things like mass, energy, momentum etc are conserved. Youse guys just create it out of thin air. Does it work in practice? And in theory?

      • The problem with MMT theory is rampant inflation. So thanks for agreeing with everyone it is just chartelism or as its properly known to most people Zimbabwe/Weimar Germany galloping inflation.

        If you call wheel barrows full of money for a loaf of bread “working” then I guess you are right.

          • Go on then tiger – see my post below – you explain how we pay for our foreign goods then without foreign currency – should be bloody fascinating.

            Let me guess – you’re also a “Sovereign Citizen” and a stuanch believer in post-modernist theory of a constructed reality defined by our own life experiences and there are no truths !!!!


        • Jumping jack flash

          No, its debt so it doesn’t have the same rules.
          Debt balances to zero, if you ignore the interest, and they always do.

    • migtronixMEMBER

      Did you study maths with all that physics? Here’s an infinite series that converges on 0 – f(n) = 1- 1/f(n) for n > 1

      Did your physics explain how infinity can be zero? Its maths not physics..

  3. Pretty much every MMT theorist agrees with the below. To summarize Krugman, and everyone else – MMT theory is perfectly fine THEORETICALLY in the domestic economy however it completely fails when you take into consideration global markets.

    If you don’t want to trade and exist in isolation then absolutely MMT theory away ! Otherwise, as everyone keeps saying – it will create rampant inflation and collapse the economy.

    Of course like all MMT theorists you will simply ignore this gigantic whole in your upside down bucket – and delete the post to make it go away.

    From wiki which gets posts banned so cant link

    MMT does agree with mainstream economics, that debt denominated in a foreign currency certainly is a fiscal risk to governments, since the indebted government cannot create foreign currency. In this case the only way the government can sustainably repay its foreign debt is to ensure that its currency is continually in high demand by foreigners over the period that it wishes to repay the debt – an exchange rate collapse would potentially multiply the debt many times over asymptotically, making it impossible to repay. In that case, the government can default, or attempt to shift to an export-led strategy or raise interest rates to attract foreign investment in the currency. Either one has a negative effect on the economy

    One day – you will address this basic, fundamental flaw which even MMT theorists agree is the reality of the idea.

    • Surely money printing devalues all the money already in circulation. Every country or civilisation throughout history that has resorted to it, crashed.

      But it’s different this time of course, lol

      • Yup – its a pretty simple concept – it amazes me the way it is glossed over.

        Say Fiji prints its own money and for arguments sake that as of today $1 FIJI == $1 AUD – and we have the occassional Fijian entering to Australia to buy a house.

        They decide to really ramp things up and do some MMT and start ploughing Trillions into their economy. Now every Fijian is armed with several hundred million dollars and want to buy up all the houses in Melbourne – which of course they can.

        Unless by printing so much Fijian currency its no longer worth as much !! WOW !

        If its not worth as much on the international market – AND ITS NOT – then when Fiji buys anything on the international market that too will have massive inflation.

        And thats how bread ends up costing $500k a loaf kids.

        Its called – Economics for beginners.


        • Yes
          If you dilute the currency it is worth less.
          Anyone with the gift of wisdom can see the answer there.
          Perhaps China will say that they will buy gold below
          100,000 yuan and sell gold when it goes above 100,000 yuan.

      • drsmithyMEMBER

        Surely money printing devalues all the money already in circulation. Every country or civilisation throughout history that has resorted to it, crashed.

        And who are the ones that didn’t and, obviously, have persisted for millennia ?

    • This isn’t a flaw in MMT, it’s a fundamental tenet. It says countries should issue debt in their own currencies to maintain their monetary sovereignty. If you have foreign denominated debt you’re not a monetary sovereign. It’s all in the book if you care to read it…

      • Mate – how do you pay for your imports ? How do you pay for any foreign purchases ? How do you travel over seas ? How do you pay for Oil ?

        What I posted is not my thoughts – they are the OFFICIAL THOUGHTS OF MMT THEORISTS – you know – from your BOOK.

        I can’t post the link back to wiki because the post will get blocked – go check it out yourself and just you know, use your brain.

        How can you be a monetary SOVEREIGN in a global trade world where you MUST have foreign denominated debt.

        Clear that up for me and we are good to go. Instead of just ignoring it and pretending it doesn’t exist and saying inane – truly INANE things like “its in the book”, no debt.

        There is truly ZERO difference between MMT theorists – “sovereign citizens” and my new favourite “Grievence Studies Experts” – Robin DiAngelo of Evergreen being the leading expert on such demonstrably provable Bv11 Sh1t as Harry Frankfurt would say.

      • drsmithyMEMBER

        It’s all in the book if you care to read it…

        Pretty much every criticism of MMT that comes up here is covered in a few pages of FAQs, no need to read a book.

    • Jumping jack flash

      You are probably correct, but don’t ever forget that all it took was one brain fart to decide that interest rate manipulation could “probably be ok” in the circumstance it was applied in the late 90’s.

      The result is what we have now.

      MMT will be no different.

  4. ” Kelton is responsible for popularising modern monetary theory — the idea that if a government is in charge of its own currency, no inherent budget rule constrains it from spending more than it taxes.”

    Sounds good! So why do we bother collecting tax at all then? Surely taxes should go?

    Ah! She has the answer “. When a government spends without taxing, it doesn’t have to be committing a sin….“Why not kind of play Santa Claus? Right?”


    • Jumping jack flash

      This is interesting. It is similar to a scenario I considered a while ago that eventually the banks would simply collect what the government would have collected in taxes, and then give the government permission to spend their debt in return.

  5. In Australia the commercial banks have been allowed to print money and this has caused inflation. But most of the money they have printed was for housing/land which is in limited supply for various reasons and hence the inflation in real estate. Personally, I would prefer the new money to be for such things as a UBI and infrastructure.

    • So you’re saying we haven’t sold hundreds of billions of tons of Iron Ore over seas and money has been paid for that ?

      And that banks have made loans – which were just never paid back, the banks just lent out money to people who took that out of their bank accounts and shared it with their mates at the pub for pokies, pies, beers and bongs ?

      You sure ? You sure people haven’t been paying the banks back ?

      Not saying fractional reserve isn’t inflating the money supply – it is, massively, but things are also mittigating it and other things are also inflating it.

      Also a Mars Bar was 15 cents not long ago – instead of $3.50 – gone up way more than house prices mate.

      • Sales of iron one do no create Australian dollars.
        I don’t know what paying the banks back has anything to do with the argument.Woolworths are advertising Mars Bars for :$1 today.
        Are Mars bats

        • Its value adding davie.
          Do you think a lump of dirt is worth the same as a Mclaren F1 – or is it just “inflation”.

          • China needs dirt – a lot of it. It might not be a car but they seem to require it anyway and are willing to pay X in yuan or USD or whatever foreign currency for it.
            Your point is what exactly?

      • Jumping jack flash

        Its a bit of a loaded question and response.
        Food is eminently gougeable because people need food to live. Same as energy – electricity and fuel, gas, etc. Check out energy prices as well.

        A Mars Bar’s price is probably set that high due to the need for Mars to maintain profit margins on their Mars Bar product line in the face of falling sales volumes due to the “quest for debt” absorbing the money that people would have used for purchasing the odd Mars Bar. Either it is redirected it to the banks for debt service, or saved up for the deposit to obtain the enormous amount of necessary debt.

        Now, instead of selling 24 mars bars at 15c, they need only sell 1 for 3.50 and their profit is maintained.

        And if they sell 2 or 3 bars then the managers get a productivity bonus and become eligible for enormous amounts of additional debt that are required to buy another IP.

        The workers operating the machines that make the bars are “type 2” immigrants and have no desire for debt, which is just as well because they have their wages stolen and are ineligible for debt anyway.

        And everyone is happy.

        • Yes you nailed it – there are far less people buying Mars Bars today than 30 years ago – hence why they need to sell them at far higher prices.

          Not sure if this is macrobusiness.com.au or Glenroy Special Development School.

      • Imagine saying FRB isn’t the elephant in the room expanding the money supply (ie inflation).
        Do you work for the RBA?

      • drsmithyMEMBER

        Also a Mars Bar was 15 cents not long ago – instead of $3.50 – gone up way more than house prices mate.

        “Not long ago” if you’re pushing into your seventh or eighth decade, maybe. “Never” if you’re under probably 40 (and definitely 30).

        And $3.50 ? Only if you’re desperate at three in the morning with just the 24hr servo/7-11 or a vending machine as options. $2 any time at ColesWorth, half that or sometimes less if you get them on special.