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A 'radical economic theory' is gaining converts, except it's not radical at all

By: Chris Powell, Secretary/Treasurer, GATA

 -- Published: Monday, 14 March 2016 | Print  | Disqus 

Dear Friend of GATA and Gold:

Bloomberg News tonight published a report, excerpted below, headlined "Ignored for Years, a Radical Economic Theory is Gaining Converts." It's called Modern Monetary Theory, but there's nothing radical about it; to the contrary, it's a tautology. That is, governments not only create money but can create as much as they want, restrained only by the prospect of currency debasement and the market and political reaction to it. Governments can't "run out of money" any more than the college basketball tournament basketball games about to begin in the United States can run out of points.

That is why, 70 years ago, the president of the Federal Reserve Bank of New York, Beardsley Ruml, noted in a magazine article that in a fiat money system like the one to which the United States was transitioning, a system getting away from any convertibility to gold, taxes were no longer needed to raise revenue for the national government:

Today taxes are imposed by a national government not to raise revenue but to create demand for the government's currency, to redistribute wealth, and to reward or penalize certain economic behavior. In his magazine article Ruml noted the latter two purposes but not the first, using taxes to create demand for a government's currency.

In any case critics of fiat currency are wrong to charge that it has no intrinsic value, that fiat currency operates only on confidence. In fact, fiat currencies are the ransom people pay their governments through taxes to be allowed to stay out of jail. That is, currencies are the primary mechanisms by which governments control their populations.

This explains why governments are always waging war on gold, the once and possibly future world reserve currency, as gold is potentially an independent currency above all government. This also explains why governments are so desperately manipulating the gold market to conceal the debasement of their currencies.

Bloomberg says tonight that Modern Monetary Theory is only 20 years old. Insofar as MMT recognizes that government can issue non-commodity money, ancient China more or less implemented MMT a thousand years ago, there were episodes of it during the Roman empire, and the classical economist Adam Smith acknowledged it in 1776 in his famous treatise "The Wealth of Nations."

Of course nearly all government currencies tend to be inflated away over time, but that doesn't mean that Modern Monetary Theory is wrong. Rather it means that sustaining a purely fiat currency system requires more political virtue than any society has ever been able to sustain.

But of course current monetary systems are full of their own inflation and corruption, and government's issuing money directly, in accordance with Modern Monetary Theory, might be a lot more efficient and fairer than the current system in the United States particularly, which subsidizes large financial institutions in the money-creation process, the issuance and monetization of government debt, and thereby diverts national wealth to a parasitic elite.

What's wrong is government's operating surreptitiously with money creation and markets. Since, as GATA has documented extensively, governments are already rigging markets comprehensively in support of their currencies --

-- it may be hard to see how a change of policy to Modern Monetary Theory could make things much worse.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Ignored For Years, a Radical Economic Theory Is Gaining Converts

By Michelle Jamrisko
Bloomberg News
Sunday, March 13, 2016

In an American election season that’s turned into a bonfire of the orthodoxies, one taboo survives pretty much intact: Deficits are dangerous.

A school of dissident economists wants to toss that one onto the flames, too.

It’s a propitious time to make the case, and not just in the U.S. Whether it's negative interest rates, or helicopter money that delivers freshly minted cash direct to consumers, central banks are peering into their toolboxes to see what's left. Despite all their innovations, economic recovery remains below par across the industrial world.

Calls for governments to take over the relief effort are growing louder. Plenty of economists have joined in, and so have top money managers. Bridgewater’s Ray Dalio, head of the world's biggest hedge fund, and Janus Capital's Bill Gross say policy makers are cornered and will have to resort to bigger deficits.

"There's an acknowledgment, even in the investor community, that monetary policy is kind of running out of ammo," said Thomas Costerg, economist at Standard Chartered Bank in New York. "The focus is now shifting to fiscal policy."

That's where it should have been all along, according to Modern Money Theory. The 20-something-year-old doctrine, on the fringes of economic thought, is getting a hearing with an unconventional take on government spending in nations with their own currency.

Such countries, the MMTers argue, face no risk of fiscal crisis. They may owe debts in, say, dollars or yen -- but they're also the monopoly creators of dollars or yen, so can always meet their obligations. For the same reason, they don’t need to finance spending by collecting taxes, or even selling bonds. ...

... For the remainder of the report:

* * *

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