Source: Facebook

—I have been meaning to ask what you think about MMT for some time now. So, have you heard of MMT before and what do you think?—

Curt Doolittle

What I’ve stated in the previous few posts is pure Keynesianism, however, I used it in the New Keynesian model, directed at growth rather than just employment.

The criticism we should levy is of Fiat Money that in issuing these stocks (fiat money) the interest is privatized rather than retained as one of the primary income sources of the state.

This was an intention, in the original design, as fear that the state would destroy the economy as it has in the past if legislation made possible the runaway issuance of currency.

MMT makes claims I disagree with, and creates hazards I disagree with. In particular, that no government can go bankrupt – which while LEGALLY true – doesn’t mean it’s PRACTICALLY true, as we have seen many sovereign nations with fiat money produce runaway inflation and in the case of venezuela at present, starvation.

The problem with fiat money is lack of rule of law. In other words, the constitution needs to forbid the state from arbitrary (discretionary) use of money.

In some sense, one of the principle problems of 21st century economics has been to attempt to discover some ‘target’ (measurement) that would allow us to reduce the issuance of money to rule of law (a formula) and place it into the constitution, thereby removing discretion over its use.

In some sense, this is an example of the the conversion by the (((socialists))) from rule of law (non-discretionary rule) to majority rule (discretionary rule): it is even harder to trust a government with fiat money than it was when first issued.

The solution isn’t very difficult. There are no provisions in the constitution against even suggesting certain acts as there were for treason. And it is this certainty of punishment alone that will prevent this kind of behavior in the market for information, legislation and regulation.

Q&A: —“Would you mind detailing the hard currency problem? I still can’t get my head around why a fixed amount of currency is problematic.”— Bob Moran

Curt Doolittle

Lets say that the only currency you have to work with is gold and silver coin. Now, if, as a country, you are a net exporter, you will accumulate coins in exchange for your exports. But if you are a net importer (you’re wealthy) you will low on coins, the cost of coins will increase, and therefore the cost of imported goods will increase, and your economy will stall. Those are two extremes. In the middle, coins circulate and credit circulates, and consumption slows because prices increase, simply because the cost of coins themselves – that are necessary for trade – increases. This continues until some niche markets resort to barter. Now barter is a high risk, because it isn’t liquid like money (coin) is.

Instead of coin, all governments slowly moved to ‘shares’. Paper money is not money per se (a commodity, or a token exchangeable for a commodity), but a share in the economy of the issuer. And like commercial shares, its dilutable. So when the price of money increases (interest rates), the government issues more shares to maintain a stable price of money (shares), so that there is no artificial shortage of money (money substitute: shares) so that productivity isn’t going to pay for the scarcity of money, and continues to pay for consumption and trade, and the economy continues.

Governments (federal reserves, central banks, etc) function for the simple purpose of ensuring relative price stability of money, by maintaining a money supply at levels that hold it steady.

The problem is, governments, once they have this power, spend money they don’t and can’t have, which creates a constant rate of inflation as well. Inflation destroys prices and savings and assets.

The only way to preserve savings then, is to invest in things that appreciate over time (land, stocks, etc) but in general it is nearly impossible to stay ahead of the rate of inflation. so you must work constantly to prevent your money from evaporating.

This creates the treadmill that we live under.