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  • Writer's pictureJeffrey Walter

Modern Monetary Theory

I try to stay away from subjects that quickly fall into politics, but something is going on in the world today that has gotten very little (mainstream) media coverage. I want to talk about something I heard several years ago that I had never heard before. “Modern Monetary Theory” or MMT for short. Investopedia defines it here. Let me translate this to a short definition - a government that prints its own money can print as much as they want without it affecting anything. I’m not sure why they put the word “modern” in front it because this isn’t modern and isn’t something new. My guess is they put it there to tell you this is different than what has been tried in the past and failed every time.

You can go back as far as the Roman empire to find where this was tried and failed but I am more familiar with what happened after WW1 with Germany.

In WW1 Germany attacked a bunch of countries and lost. The winners decided they were going to punish Germany in hopes that it would deter anyone from doing what they did again. Germany was renamed the Weimar republic. The industrial base was just about wiped out in WW1, so they had no way to create wealth to pay off their war debt. So, they decided they were just going to print the money they owed. This caused a hyperinflation that spiraled the country into the depths of despair. They had no way out - no hope. Then a young charismatic person showed up that promised a way out. For a people that had no hope they decided what do we have to lose, and they went for it. His name was Adolph Hitler. He actually got the country back on its feet. You have to hand him that one. Unfortunately, he was not a stable person and we know how that turned out.

So fast forward to around 2000. The president of Venezuela tried it yet again and again the country spiraled into hyperinflation.

So, after that this new thing called “modern monetary theory” started popping up. They claimed it was different than what was tried before.

So this little country called Sri Lanka thought, "Hey let’s try this new policy called MMT. They say it's different and this will work." So off they go. They spent money on all kinds of things that made the country a shining tourist destination for much of Europe. People flew to the little country to enjoy the beaches and the general tourist stuff. But just like every time before the money ran out and they were over their debt ratio so no one would lend them any more money. They had little industrial base so their economy spiraled into hyperinflation - just like all those other times it was tried. The international monetary fund was going to give them a bailout but backed out at the last minute. They couldn’t get fuel oil to power their electric plants and the power went out. No fuel means no food getting in. They didn’t have the ability to grow their own food. The people have rioted and run out the old government. They took over the presidential palace. They country is in shambles right now. Claire Marie and I have relatives that just managed to get out and over to the mainland of India this past weekend. I have no idea what is going to happen to them.

In 2020 Covid hit the world. The world's governments shutdown manufacturing. The people couldn’t get food to eat if they were not working so the world printed trillions and trillions of dollars. Because of the new electronics governing the money supply in the US the US did it but what they called quantitative easing. They created electronic money. From what I can tell, to the tune of about 30 trillion dollars and they gave it to countries all over the world by the trillions.

What is inflation? It’s too many dollars chasing too few goods. The creation of money not backed by anything was bad enough, but the shutdown caused a major supply chain problem that still exists today. The people stopped working. Companies all over the world had massive layoffs. Where I worked laid off 10 out of 12 manufacturing engineers. To top it off may people that were laid off just said I’m retiring and left the jobs pool. This caused a major “too few goods” situation that has been fueling a hyperinflation that in a year pushed the US up over 15%. They tried to spin it to not sound so bad. They called it “transitory” then they admitted it was here to stay. Just think of where we were a year and half ago. Are you better off now?

The world is going headlong into MMT and it is not sustainable. I hear people say that can’t happen here in the US because we are too big to fail - we are the country that bails out other countries. The problem is we printed that money and now we are paying the price in inflation we have not seen since the 1970s when Nixon took us off the gold standard and promised the world we would not print money. The US has printed more money in the at 3 years than was in circulation 3 years ago. That’s a 100% increase in the money supply in 3 years. History has shown us where that leads and it’s not a good place. This is not a partisan issue. Both sides are spending money we don’t have but the current administration now has stepped up their printing of money. It’s wiping out people's retirement accounts. It’s a federal tax on your money that you are not seeing. When inflation is at 15% that’s essentially a 15% tax hike. The government is taking your money in the form of inflation by printing money. That’s on top of the taxes we already pay. Something needs to change.

After WWII at the Nuremberg trials one of the Germany generals was asked this question. “There is something I don’t understand, how did you get so many German Jews to voluntarily get on a train that was going to take them to a concentration camp where they would be killed?” His answer was something I will never forget. He said, “It was easy, we lied to them.” Just remember this, it is illegal for you to lie to the government. When the government lies to you it’s called politics. For help on this subject go back to my article on misinformation and disinformation.

What do you think of MMT? Have you been paying attention? Do you remember the inflation of the 1970s? How closely have you studied history?

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