$11 Trillion Debt Wave Shows MMT Doesn't Work

Mish

Proponents of MMT please note: Your proposal is failing in actual practice.

Please consider £11 Trillion Debt Wave as Governments Borrow More Than Ever Before.

Governments need to borrow £11 trillion on financial markets this year, breaking the £10.9 trillion record set in the recession-fighting spending spree at the height of the financial crisis.

Most of this is caused by governments refinancing existing debt mountains as the bonds issued to finance earlier debt-fueled spending mature.

But more than £2 trillion is new borrowing as nations continue to add to their national debts, according to data on rich-world economies from the Organisation for Economic Co-operation and Development (OECD). The US budget deficit hit more than 4% of GDP last year.

Austerity Nonsense

Amidst all this nonsensical talk of austerity, government debt keeps expanding, and expanding, and expanding.

The MMTers will simply come back with claims we need to double debt or triple it, or whatever multiple it takes, effectively embracing AOC's idiotic Green New Deal.

And where foolish thinking prevails, look no further than Chicago where we have yet Another Idiotic "Free Money" Proposal, This One From Chicago Mayor Rahm Emanuel.

In the real world I ask, Tax the Rich! Tax the Rich! How's it Working Out?

MMTers will respond that government debt doesn't matter at all. So, why tax anybody? After all, government always spends money wisely.

Mike "Mish" Shedlock

Comments (48)
No. 1-23
stillCJ
stillCJ

Editor

No problem, just borrow more money to service the existing debt. What could possibly go wrong?

JohnH
JohnH

I have no idea if MMT is a valid or not, but it would be good to have a more complete understanding of what they are promoting. Here is a Stefanie Kelton video worth watching:

Chris P
Chris P

I think if we look at objectively socialism doesn't work for the same reasons capitalism doesn't work. Greed will win out in any system man can make.

Escierto
Escierto

At one time I would have agreed with you, Mish, but not any more. I would have thought that 21 trillion in debt would have broken the US government and the USD. But no, it doesn't matter. So why would 42 trillion matter or 542 trillion matter? We are already in the stratosphere of gigantic numbers and clearly it doesn't matter. Hard money people like myself must accept this reality. MMT does work.

hmk
hmk

The video proves Phd"s are really idiots when it comes to common sense. In theory there is no difference between practice and theory, but in practice there is. Her idiotic theory is that govt can use debt productiviely ie self liquidating like a business would use to make a product to sell. We all know that is a joke when it come to govt. Second she assumes that its okay until inflation occurs. Guess what inflation will never occur because the magicians in the monetary politburo will never publish true inflation stats. If measured by the same parameters prior to the 1998 cha;nge iin the way it was measured, it would show inflation running at over 6%. The reason they changed the way inflation was measured was to keep COLA raises low on entitilements. It also allows the Ivory tower Phd's in the fed to keep intersest rates artificially lower. This keeps govt debt financing costs lower and also enriches the financiers. No wonder no one can affort houses, insurance , college etc etc. This is why people turn to socialism and communism becasue they know something is fubb but cant figure out why. Capitalism works until you have a govt that is coruppted by the capitalist money.

Roger_Ramjet
Roger_Ramjet

Of course the real insanity is that the additional debt is recorded as an increase in GDP. Equivalent to someone taking out a loan and declaring the proceeds as income on their tax return. Only a PHD could rationalize this treatment.

Bam_Man
Bam_Man

This insanity will eventually lead to NEGATIVE interest rates at all points along the yield curve - because it simply must, to keep the debt-money system from imploding into a deflationary black hole. But good luck having a functioning economy with negative interest rates. So we shall see. Interesting times, indeed.

SMF
SMF

The only reason the system hasn't collapsed already is due to abnormally low interest rates. Logically, I can't believe that this is even a discussable subject, as any way you spin it you cannot get more debt to pay more debt in the long run. Thousands of years of history indicate this, many empires in the past collapsed over insurmountable debt.

2banana
2banana

Somehow central bankers and vote-buying politicians think they have discovered the "easy" way to prosperity, a rising standard of living and societal wealth (and cementing their own power).

No hard work, no sacrifice and no savings needed.

But this craziness has been tried all throughout history. From Genghis Khan, to the Romans, to modern day (Zimbabwe, Germany, Argentina, Venezuela, etc.).

It all works for awhile, while it burns through the real wealth of what was built before - until it doesn't.

Then comes repression, misery, bankruptcy, changes of government and war.

Sechel
Sechel

I'm missing something. I 'm not seeing how increased government debt proves or disproves anything. Isn't it just a negotiation over what rate, additional paper money to pay out. as long as debtors are paid in dollars what difference should it make? is the dollar tanking, is inflation out of control. sorry i don't see how the example proves anything

Casual_Observer
Casual_Observer

These MMTers think we live in a one-world nation or that all the debt is owed to ourselves. Computers from the Caymans have certainly manipulated debt auctions by the Treasury. Imagine a world where dollars are no longer the reserve currency and then see what happens to our interest rates. That day is eventually coming because eventually debt undoes all dominant civilizations. It is simply a matter of time. The debt crises will hit in the 21st century for sure and likely sometime in the 2020s. The last time we had this severe a debt crisis was in the 1920s. This one won't be as painful but at some point public and private debt will come home to roost because there aren't enough tax dollars to service the debt. We only pay interest on it !

AWC
AWC

Let's see,,,, if the MMT'ers created lots of free money, and I used it to buy gold, adding to GDP, could that be considered a positive outcome for MMT theory? At least for a while?

JonSellers
JonSellers

So a quick primer on MMT.

Trad view of government spending: government takes your money (taxes), uses it to buy stupid stuff (F-35s, bridge to nowhere), but it doesn't have enough so it has to borrow some. Borrowing competes with public sector credit needs driving interest rates up. Everyone is worse off.

MMT view: government prints money to buy stupid stuff. Printed money ends up in bank accounts. Government taxes some of it back but not all. So it borrows back the rest. Borrowing does not conflict with private sector cause the government just printed new money to start with. It is just absorbing the printed money back so it doesn't cause inflation.

I tend to think the MMT definition of how the system works is accurate. And the definition of "buys stupid stuff" is in the eye of the beholder. Lockheed loves F35s and road contractors love bridges to nowhere.

WildBull
WildBull

I've been bitching about capital flight for a while. Few people seem to understand what wealth is. It isn't dollars, or even stocks or bonds. It is the actual brick, mortal, steel and copper plant and equipment that is able to produce the goods and services that people want and need more cheaply than anybody else. Every time a factory closes in the US and one opens somewhere else, we become poorer as a nation. True that stocks and bonds are an ownership stake in the assets or ROI of a particular business, but the wealth resides in the ability to produce. We are printing money to cover the capital flight or destruction of domestic capital, or whatever you want to call it. Money is ultimately worth only what there is to buy with it. Overseas dollars that don't come back to buy US goods and services buy Treasuries instead. The government essentially plasters over the shortfall by creating debt. This allows things look OK on the surface while our economy rots at the root. Ultimately it is not about money, but capital. We are burning our capital in trade for cheap crap from overseas. The federal government must run a deficit at least as large as the balance of trade deficit to keep the game alive. At some point this will break down. MMT will not save us.

Snow_Dog
Snow_Dog

“Ultimately it is not about money, but capital.”

It’s about productivity.

Todays workers buying today’s production using money they earned by being productive in the present. Not borrowing someone else’s money to buy stuff they cannot afford due to the paltry wages earned producing stuff that there is no present demand for.

Mish
Mish

Editor

MMT works - Debt Works - Deficits Don't Matter - What a hoot The demise of the middle class must be your definition of "works"

Mish
Mish

Editor

I know full well what MMT is: Idiocy The theory that governments cannot default on debt in their own currency is accurate though. On that one truism comes a lot of horse shit.

Usernameistaken
Usernameistaken

So as a nation we'd be better positioned with a national surplus that would eventually result in no national debt? With a fiat monetary system wouldn't that result in a collapse of the monetary base?

Brother
Brother

Not enough to cover there debt so they just make more. Just think how many new millionaires this will create.

FelixMish
FelixMish

Behind all this detail-noise seems to be a situation that must be dealt with in the next couple decades. Worldwide.

"Money" has become too important to leave to individual nation states.

Money is always trying to become universal. The larger and higher-bandwidth the world of money is, the better. The more efficient. The more accurate. The more effective.

But, currently, no one knows how to decouple "money" from nation states. Some essential problems:

How do you stop counterfeiting? Where's the power that ensures honesty behind a unit of "money"?

How do you ensure privacy? Or do you give up on privacy - go whole-hog with the global village?

How much "money" should there be?

How do you stop getting in a "winner takes all" trap?

How do you fit the money world with human psychology?

How do you "pay" for functions communal, geographic entities currently do?

The crypto guys are madly trying to solve such problems. But, clearly, they have a long, long way to go.

The current world, letting a small group of people trade currencies at high volumes with low overhead, may be the best long-term solution.

Who knows?

MortgageAngel
MortgageAngel

So, why tax anybody? - you ask. The purpose of federal income tax in a fiat currency system is to REGULATE THE ECONOMY. It’s how you hit the desired inflation rate. Hence, federal taxes do not actually ‘pay’ for anything.

Usernameistaken
Usernameistaken

What, exactly, is failing? Your post leave a lot unanswered. What is it you're worried about; or are you trying to sell something?

WildBull
WildBull

Failing: Weimar Republic, Venezuela, Zimbawbe, Greece, Argentina, Argentina, Argentina, Spain, Spain, Spain, Rome, USSR. How many times does it have to happen. What makes this time different?


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