Demystifying MMT: Putting it all Together
Understanding Sovereign Currency, Resources (Inflation), and Prosperity
In our previous discussions on Modern Money Theory (MMT), we dissected the four key characteristics and benefits of a sovereign currency. We discovered that the cornerstone of prosperity lies in the real resources a nation can harness, such as land, equipment, the skills of its populace, and natural resources. Employing these resources productively is a vital step towards prosperity.
However, it's not enough on its own. A nation must possess a sufficient quantity of resources to truly prosper.
Summing it all up, MMT asserts that a government cannot run out of money. Critics often accuse MMT proponents of advocating limitless spending and triggering hyperinflation. But as Warren Mosler aptly puts it, government checks don't bounce. Sovereign entities can always fulfil their obligations, such as interest payments.
Despite the critics' claim that MMT disregards the significance of deficits, the truth is different. As deficits expand and the economy improves, automatic stabilizers step in, reducing deficits. Allocating resources to address social issues like poverty, homelessness, and aged care is what truly matters.
MMT posits that governments spend by creating reserves through keystrokes. Critics argue this implies forcing central banks to print money for all government spending. However, current practices adopted by the treasury, central bank, and private banks enable government spending up to the budget approved by parliament. No procedural change is necessary.
MMT emphasizes that sovereign governments face constraints related to resources, not finance. MMT has always maintained that excessive spending, whether by the government or the private sector, can trigger inflation.
To truly grow democracy (as against plutocracy) within an MMT framework, policies would need to redirect spending toward productive investments that broadly benefit society while implementing measures to curb financial speculation and asset-based wealth concentration. Without such reforms, MMT in practice risks perpetuating an asset-dominated economy that entrenches wealth in the hands of a few, sustaining a plutocratic structure that marginalizes the majority?