Writing at Bloomberg, Jim Bianco explains to readers that devaluing a currency to fund government has never worked. The Modern Monetary Theory, a current hot topic among the Socialist-leaning politicians and activists in Washington D.C. today, is very much the devaluation of money to fund government. Bianco writes:
MMT is basically a sibling of quantitative easing. While QE allowed the Fed to print money to buy securities such as U.S. Treasuries, mortgage bonds and bad loans, MMT proposes printing money to fund the government. The Fed has hailed QE as a success, bringing the economy back from the brink. Former Fed Chairman Ben S. Bernanke was even anointed as Time magazine’s “Person of the Year” for 2009. Vice Chairman Richard Clarida said last month the central bank would solicit opinions on how to round off the edges of its new tools such as QE. Simply put, these tools are here to stay.
Do not assume this means the Fed would support the ideals of MMT. “The idea that deficits don’t matter for countries that
can borrow in their own currency I think is just wrong,” Chairman Jerome Powell said during his recent testimony before Congress. We share Powell’s concerns, as do Kenneth Rogoff and Larry Summers. Devaluing one’s currency as a means of funding government spending has never worked when carried out to an extreme. Venezuela, Zimbabwe and the German Weimar Republic can attest to the hyperinflation that eventually follows.
Read more here.
Jeremy Jones, CFA
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