The MMT people totally understand this and they say that for a country that borrows in its own currency, this is not a problem, and they're right.
So while historical examples of hyperinflation and unrest can give us a glimpse into what might happen with MMT policies, it's important to consider all relevant factors and unique considerations with the US government. Another concern of MMT is the potential transfer of wealth from everyday people to the one percent if the theory turned into actual policy with real-world ramifications.
When more money is created it generally goes directly to the largest investment banks, which have the closest relationship with the central bank and the Treasury Department," says Shaun Heng, vice president of operations at CoinMarketCap.
Meanwhile the purchasing power of investment banks grows exponentially. MMT policies could have ramifications on investments as well. It could potentially lead to an increase in inflation that could affect investments and lower the overall value. On top of that, it may lead to higher stock prices, which could make it more difficult to get into the market if you have limited means. According to Heng, MMT-related policies are contributing to the growth of cryptocurrency trading as well.
MMT-related policy "is one of the things driving growth in cryptocurrency. There have been a variety of programs that go hand in hand with MMT," notes Heng. The other is quantitative easing.
All of these programs have devalued many assets linked to dollars and have caused many to invest in cryptocurrency. On top of affecting retail investors, MMT policies would also potentially affect private investment as well, according to Johnson.
The biggest problem is that citizens ultimately have to eventually pay for these proposals via either higher taxes or by suffering inflation. Modern Monetary Theory is still on the fringes of economic thought but is becoming more mainstream.
The theory is still just that — a theory — but with a growing number of proponents and opponents on each side. Either way, there are potential real-world ramifications for the economy and investors alike to be aware of if the theory is put to the test.
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Account icon An icon in the shape of a person's head and shoulders. It often indicates a user profile. Log out. Investment Assets. Investment Accounts. Investing Strategies. This goes against the conventional idea that taxes are primarily meant to provide the government with money to spend to build infrastructure, fund social welfare programs, etc.
The government sells bonds to drain excess reserves and hit its overnight interest rate target. Unemployment is the result of government spending too little while collecting taxes, according to MMT. It says those looking for work and unable to find a job in the private sector should be given minimum-wage transition jobs funded by the government and managed by the local community. This labor would act as a buffer stock to help the government control inflation in the economy.
MMT was developed by Mosler and bears similarities to older schools of thought like functional finance and chartalism. Mosler first began thinking about some of the concepts that form the theory in the s, when he worked as a Wall Street trader.
He eventually used his ideas to place some smart bets at the hedge fund he founded. His firm and his clients became the largest holders of Italian lira-denominated bonds outside of Italy.
Mosler, who has a B. MMT has been called naive and irresponsible by critics. This would not happen, even with the same deficit, if the government can still sell bonds.
Michael R. Mosler Economics. Thomas Palley. The New York Times. Accessed Jan. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.
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