Modern Money Theory and You
Posted: Wed 30 May 2018, 13:01:01
Modern Money Theory is the idea that fiat currencies are not subject to local constraints. Governments are not domestic households that need to balance their budgets. They can deficit spend as much as they need. They will never run out of money.
The trick is whether the money supply is actually beholden entirely to government spending for its existence. I've spoken before about how borrowing from the bank creates money. Under the fractional reserve banking system the money supply both grows and shrinks in response to human activity. How does monetary policy effect that? It does so through interest rates. It imposes higher rates upon the economy by oversupplying the money supply, and using the offsetting tool of selling bonds, which causes a constraint upon the availability of money to seek those bonds. They will pay less for them, driving up rates. The increase in rates will shrink the level of borrowing. But what's to stop a government issuing money without going to the markets to sell bonds? According to Modern Money Theory, nothing. What it would do would be to induce more money supply growth. This could lead to huge inflation. It might be a possible tool when there are problems getting inflationary mechanisms going, adhering to a target rate in an economy that just won't grow that fast. But there remains a lot of danger in fields where there is a low or even a meager supply of workers. Those people could demand considerable pay for their services. You have to wonder what ratios, if any can be manipulated, would be the best approaches? Should a government stop the practice when only highly skilled positions are enjoying wage bargaining power, or ought they to allow unskilled positions to attain such power as well?
One thing to think about: If the government can create money from nothing, then why not set the opportunities of your entrepreneurs as your ultimate target? Why not make any person's opportunities possible? In other words. why not loan anyone who wants to enter a certain field what it takes to enter that field? If they want to become ride-share drivers, loan them what it takes to get a proper car and get set up. If they want to enter a certain aspect of construction, loan them what it takes to get that mini-excavator, trailer and assorted smaller tools. Why not look at opportunity the same way as we look upon student loans? Well, why not do that, and then take it to another level? Why not use the deliberate manipulation of interest rates to incentivize people to go into certain opportunities, by offering relief from the higher prices they would normally have to pay to get set up? I could say more right now, like how those who borrow should probably ought to agree to certain practices regarding employees, but that's not essential to this topic. I just wanted to bring this up and see what people think.
The trick is whether the money supply is actually beholden entirely to government spending for its existence. I've spoken before about how borrowing from the bank creates money. Under the fractional reserve banking system the money supply both grows and shrinks in response to human activity. How does monetary policy effect that? It does so through interest rates. It imposes higher rates upon the economy by oversupplying the money supply, and using the offsetting tool of selling bonds, which causes a constraint upon the availability of money to seek those bonds. They will pay less for them, driving up rates. The increase in rates will shrink the level of borrowing. But what's to stop a government issuing money without going to the markets to sell bonds? According to Modern Money Theory, nothing. What it would do would be to induce more money supply growth. This could lead to huge inflation. It might be a possible tool when there are problems getting inflationary mechanisms going, adhering to a target rate in an economy that just won't grow that fast. But there remains a lot of danger in fields where there is a low or even a meager supply of workers. Those people could demand considerable pay for their services. You have to wonder what ratios, if any can be manipulated, would be the best approaches? Should a government stop the practice when only highly skilled positions are enjoying wage bargaining power, or ought they to allow unskilled positions to attain such power as well?
One thing to think about: If the government can create money from nothing, then why not set the opportunities of your entrepreneurs as your ultimate target? Why not make any person's opportunities possible? In other words. why not loan anyone who wants to enter a certain field what it takes to enter that field? If they want to become ride-share drivers, loan them what it takes to get a proper car and get set up. If they want to enter a certain aspect of construction, loan them what it takes to get that mini-excavator, trailer and assorted smaller tools. Why not look at opportunity the same way as we look upon student loans? Well, why not do that, and then take it to another level? Why not use the deliberate manipulation of interest rates to incentivize people to go into certain opportunities, by offering relief from the higher prices they would normally have to pay to get set up? I could say more right now, like how those who borrow should probably ought to agree to certain practices regarding employees, but that's not essential to this topic. I just wanted to bring this up and see what people think.