Thursday, March 21, 2019

Note - Jim Rickards to Debate Modern Monetary Theory

In this recent article, Jim Rickards announces that he will engage in a debate over the Modern Monetary Theory proposal that is making some headway in some political circles. Below are a couple of excerpts from his article and then a few added comments.


Jim starts out by noting that in the next election cycle there will be proposals made to introduce an array of new government programs and that the projected cost for the programs will potentially be in the tens of trillions of dollars.  After that he makes these comments:

"It used to be easy to knock these ideas down with a simple rebuttal that the U.S. couldn’t afford it. If we raised taxes, it would kill the economy. If we printed the money, it would cause inflation. Those types of objections are still heard from mainstream economists and policymakers, including Fed Chair Jay Powell.

But now the big spenders have a simple answer to the complaint that we can’t afford it. Their answer is, “Yes, we can!” That’s because of a new school of thought called Modern Monetary Theory, or MMT."

. . . .

"There are serious problems with MMT (not the ones Jay Powell and mainstream voices point to). But very few analysts can really see the flaws. I’ll be in an MMT debate with a leading proponent in a few weeks, where I will point out what I believe to be the biggest flaws with MMT. To my knowledge, no one else has raised them."

My added comments: I'll keep an eye on this upcoming debate and post it here if it contains information relevant to the potential for monetary system change. Jim makes a point in his article somewhat similar to one we made here recently. He notes that proponents of modern monetary theory say we can forget worrying about government spending and debt because:

"This theory says that the U.S. can spend as much as it wants and run the deficit as high as we want because the Fed can monetize any Treasury debt by printing money and holding the debt on its balance sheet until maturity, at which time it can be rolled over with new debt."

We talked a bit about this in this recent article. When something new and viewed as radically different from the present norm enters the marketplace of ideas, the natural reaction is to just dismiss as unrealistic and unlikely to actually be put into practice. In this recent article, we explained why we think that attitude is off base. It appears that a true majority of the US population is now unhappy with the present system to some degree and more open to change than ever. They don't agree on what that change should be, but so much momentum for change creates an unstable environment going forward and should not be dismissed out of hand as meaningless.

For this reason, this blog will introduce a couple of articles in April with the objective of attracting the interest of younger readers who may be wondering about all these ideas and issues being hotly debated. The point here (like Jim says in his article as well) is not to dive into a political agenda or try to tell readers what to think. That is never the objective here. 

Instead, the goal here is to try and provide an underlying data base of non political information so that readers can think about these issues and form their opinions armed with as much basic fundamental information as possible. With that goal in mind, we will publish two articles in April designed to try and meet that need. We especially hope younger readers will find these articles and take time to read and consider them.

This article by Jim Rickards is a good starting point to get readers thinking about these issues. The articles upcoming here in April will look at the fundamentals of money and provide a summary overview of the history of money and monetary systems. I asked Dr. Judy Shelton to preview one of these articles and she offered me this comment to use here:

"I hope this kind of information reaches many young people and causes them to reflect on the importance of trustworthy money."  -- Dr. Judy Shelton

If you are a younger reader wanting to learn more about basic monetary fundamentals, these articles will be for you. If you know of a younger person that you feel might benefit from this kind of information, please send them over in April to take a look. As we all head into a somewhat uncertain future, our view here is that the more fundamental knowledge  we have (including an understanding of how we got where we are today), the better off we will be as decision makers.

Added notes: For those who like to keep up with Jim Rickards latest take on things, here is a link to his most recent interview on current events.

3-25-19: Jim just released two new articles on MMT that talk about the points he plans to make in his upcoming debate. You can read those articles here and here. In these articles, Jim makes a key point about how that people having trust in the money used is the most important aspect of money. That fits right in with some of the information I will present here on the blog in April related to some basics on money and also the history of our money and monetary systems. In an effort to be fair and balanced, readers may wish to view this 30 minute video presentation in favor of Modern Monetary Theory (MMT) as well. If you watch this video and also read Jim's articles, you will be pretty well informed on the pro and con views on MMT. Probably more than most people for sure.

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