EC MMT: Medieval Monetary Theory

Modern Monetary Theory or MMT, as it’s better known, is a recurring theme that’s not likely to go away. However, there’s nothing modern about it, it’s not about money (it’s about currency), and it’s no longer a theory.

We’ve certainly not heard much about it in mainstream economics or investment publications. But I do think it’s gaining traction. 

In my view, MMT is a very big deal because of its massive implications to our economic future. And so, I think it’s worthwhile having at least a basic understanding of the concept. 

In fact, if you’re reading this, odds are good you’ve at least heard of MMT and you may have some idea of what it’s about. If that’s the case, you probably understand better than most the importance of investing in hard assets that can’t be inflated at the whim of central planners.

And right now, the two most undervalued hard assets remain gold and silver.

Roots of MMT

Some say, and I agree, we don’t live in a true free-market society. In many ways, that’s been especially so since the U.S. central bank, the Federal Reserve, was established in 1913. I could certainly go into a whole long discussion about the Fed and its roles and mandates, but that’s a topic worthy of its own essay. 

MMT was first introduced by American economist Warren Mosler in the early 1990s. It has gained a lot of traction in recent years, championed in particular by Stephanie Kelton, economics professor at SUNY Stony Brook. Kelton authored the book The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy. Kelton was also an advisor to Bernie Sanders’s 2016 presidential campaign, and a former Chief Economist on the U.S. Senate Budget Committee (Democratic Staff).

For the purposes of understanding MMT, suffice it to say that because the Fed sets interest rates, we don’t have a free market in one of the most basic and pervasive aspects of our lives: money. Actually, a better word is currency, because money is supposed to have intrinsic value. And today’s fiat dollars only have value because central banks issue them and government decrees say we have to accept them. 

So, if interest rates are set by a central authority, the central bank, then the market for currency is not free, as they are deciding at what rates currency is to be loaned out. 

Interest rates are essentially the “price” to borrow money or currency. In a free market, that price should be set between the lender and the borrower. In fact, rates set by central banks are used as the barometer for banks and businesses to establish contracts and make economic projections. So, you can see how this makes its way through the economy and skews nearly every aspect of our lives. That’s why I feel that we don’t live in a free market, and haven’t for a long time. Anyways, back to MMT.

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