MMT To Infinity Dominates Economic Policy

In the depths of the 1930’s Great Depression, British economist John Maynard Keynes came into vogue espousing the heavy hand of the Government to counter consumption contractions with massive deficit spending. While WWII had more to do with our eventual exit from the deflationary 1930’s catastrophe than Keynes’ deficit spending, the winds of worry shifted to inflation in the 1970s when the US moved the world off of the checks and balances of the Gold Standard. In the free-floating currency shock of the ’70s, Nobel winner Milton Friedman dominated the scene with his insightful analysis of Money Supply and Velocity to adjust aggregate demand and consumer prices. Keynes and Friedman had their own aggressive approaches to resolving the decade-long crises of their times, but they seemed myopic regarding demographics, unique shocks of beggar thy neighbor trade wars, and fiat currency systems embraced in those decades.

From the late ’70s until 2008 our policy was an amalgamation of Adam Smith, Keynes, and Friedman using deficit spending and interest rate management to keep capitalism in balance with inflation. The controversial but inevitable transition to Modern Monetary Theory (MMT) has been tacitly adopted since 2008 as a last-ditch effort to stave off another deflationary Depression during the Mortgage meltdown in the Great Recession. MMT essentially ties Monetary and Fiscal policy tightly together to print whatever digital currency is required out of thin air to lower interest rates and transfer consumption money to the masses until normalized growth, unemployment, and incomes goals are attained. The MMT story is still being written as we move from the Financial Bubble recovery decade since 2008 to the Covid comeback of the 2020s. The greatest worry is that ever more money supply growth and deficits will be required with each ensuing Greater Recession and will eventually lead to uncontrollable asset bubbles that create a secular crisis of confidence in Government currency.

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