Most Popular
1. Dow Max Drawdown Bear Stock Market 2022 - Accumulating Deviations from the Highs - 21st Feb 22
2.Putin Starts WW3 in Ukraine, Will Use Tactical Nuclear Weapons, China Prepares Taiwan Blitzkrieg - 28th Feb 22
3.World War 3 Phase 1 - Putin WINS Ukraine War! - 25th Feb 22
4.INVESTORS SEDUCED by CNBC and the STOCK CHARTS COMPLETELY MISS the BIG PICTURE! - 10th Feb 22
5.Will There Be A 2024 US Presidential Election? - 3rd Mar 22
6.Gold and SIlver, Precious Metals Sector Is at a Terrific Buy Spot - 6th Feb 22
7.Why Putin Wants the WHOLE of Ukraine - World War 3 Untended Consequences - 6th Feb 22
8.Dow Stock Market Expected Max Drawdown 2022 - 19th Feb 22
9.Stock Market Calm In the Eye of the Inflation Storm - 4th Mar 22
10.M = F - Everything is Waving! Stock Market Forward Guidance - 7th Mar 22
Last 7 days
Why Ray Dalio is WRONG About China - Principles for Dealing with the Changing World Order - 24th May 22
Globalists Convene to Plan Central Bank Digital Currencies - 24th May 22
After Recent Highs, What’s Next for the Gold Junior Miners? - 24th May 22
Why APPLE Could CRASH the Stock Market! - 21st May 22
Why Is Crude Oil Ignoring US Inventories? - 21st May 22
Here is Why I’m Still Bullish on Gold Mining Stocks - 21st May 22
THE INFLATION MEGA-TREND QE4EVER! - 20th May 22
US Real Estate Investors – Is There An End In Sight? - 20th May 22
How Technology Affected the Gaming Industry - 20th May 22
How To Set And Achieve Reasonable Goals For Your Company - 20th May 22
How Low Could the Amazon (AMZN) Stock Price Fall? - 19th May 22
Bitten by FANG? Clocked by Cryptos? -- 'Air Pockets' Everywhere - 19th May 22
Northern General Hospital Orthopedics Fractures and and Ankle Clinic Consultations Real Patient Experience - 19th May 22
Cathie Wood Goes All in on Teladoc, ARKK INSANE Noob Investing Strategy! - 17th May 22
This is Anything but Positive for US Housing Market - 17th May 22
What Should We Do If There Is No Fed Monetary Policy Pivot? - 17th May 22
All Possible Ways to Earn Free Litecoin - 17th May 22
How low Could the Amazon Stock Price Fall? - 16th May 22
Cathy Wood ARKK INSANITY There is NO Coming Back! - 16th May 22
NASDAQ 100 Stock Market LOWER LOWS & LOWER HIGH - 16th May 22
Sanctions, trade wars worsen US inflation - 16th May 22
AI Tech Stocks Earnings BloodBath Buying Opportunity - 14th May 22
Futures Contract – Trading Crude Oil With USO - 14th May 22
How to Get Kaspersky Internet Security for 80% Discount! Do not Pay Renewal Price! - 14th May 22
Sagittarius A* Super Massive Black Hole Monster at Centre of Our Galaxy REVEALED! - 14th May 22
UK Public Debt Smoking Inflation Gun - 13th May 22
What Happens When the Stock Market Dip Keeps Dipping? - 13th May 22
Biden Seeks Inflation Scapegoats; Gold Advocate Wins GOP Primary - 13th May 22
Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - 12th May 22
The War on Gold Ensures the Dollar’s Downfall - 12th May 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Monetary Policy Monster With A Key To Its Own Cage

Interest-Rates / Global Debt Crisis 2015 Dec 29, 2015 - 05:53 PM GMT

By: John_Rubino

Interest-Rates

Out on the fringes of monetary policy, a merger of sorts is taking place between the debt jubilee and Modern Monetary Theory (MMT). The result — likely to emerge sometime in 2016 — will make the past decade’s bank bailouts and QE programs look like kid stuff.

Let’s start by defining these terms:

The debt jubilee — an idea from biblical times in which debts are periodically forgiven — involves the government creating a lot of new currency and giving it to debtors, either through stepped-up public spending, tax cuts, or some sort of direct transfer. A more recent term for this is “helicopter money,” which reflects a central bank’s ability to simply drop newly-printed bills out of an aircraft if necessary.


Modern Monetary Theory asserts that in today’s world there’s no reason for governments to borrow money and levy taxes. Armed as they are with fiat currencies and unlimited printing presses, they can just fund themselves directly, without having to tax their citizens or issue bonds.

The synthesis of these two concepts calls for government to eliminate the current debt overhang through some form of jubilee, i.e., by creating a bunch of money and giving it away with the proviso that the recipients use the windfall to pay off debt. Borrowers get out from under, creditors get paid in full, and a new monetary age begins with a relatively-clean slate. Then the government abolishes taxes and starts self-funding via the printing press, creating as much money as it needs to do what has to be done.

Australian economist Steven Keen is one of the highest-profile proponents of this idea. Here he is on a recent Max Keiser:

This is obviously a big change, but because it promises to solve so many problems so painlessly it’s attractive in a world where leverage has run amok and the number of governable countries is shrinking fast.

The first tentative step towards a jubilee/MMT fusion is now being debated in Finland:

Finland considers giving every citizen 800 euros a month

Finland is taking a new approach to lift its economy as it faces record-high unemployment. The nation is moving toward offering its citizens a tax-free payout of 800 euros, equivalent to $868 USD per month, in place of current social welfare payments, child benefits, and state pensions.

The proposal that’s being designed by the Finnish Social Insurance Institution would benefit all citizens, regardless of whether or not they receive any other income. A final proposal will not be presented until November 2016, Quartz reports. If it’s approved, Finland would become the first to implement universal basic income. Giving every Finn 800 euros per month comes with a pretty hefty price tag. Based on the country’s population of 5.5 million, it will cost a total of 52.8 billion euros a year.

So far, the plan seems to be gaining support. A survey commissioned by KELA shows that 69 percent of the Finnish population is in favor.

Finland’s economy has struggled to find ways to dig itself out of recession since 2012. Prime Minister Juha Sipilä told the BBC, “For me, a basic income means simplifying the social security system.”

Finland is not the only country that is debating basic income programs. Switzerland will hold a referendum on a proposal to pay each citizen about 2,500 Swiss francs a month next year, while the Netherlands plans to begin universal income pilot projects in several cities next year.

For readers who view this as a good idea, please go back to the first part of this post, note the phrase “… creating as much money as it needs to do what has to be done …” and consider the implications.

Even if the new monetary system begins with limits on, say, spending as a portion of GDP, the fact that government is the entity that measures both spending and GDP makes nominal limits a sad joke. To get higher spending in such a regime a government only has to tweak the black box that spits out, for instance, the inflation measure used to turn nominal GDP into to real GDP. Or it can fiddle with the imputed rent that homeowners could get if they made their homes available, or any of a dozen other subjective measures of growth and spending.

And the limits themselves, unless written into a revised constitution, would be subject to congressional vote and so will rise whenever the next emergency is engineered. There is, in short, no possible way to keep a self-funding government from growing like crazy, providing every possible perk for major constituents and trying to impose its will on its neighbors. We’ll have put a monster in a cage, not realizing that it can open the door whenever it wants.

Said another way, if giving governments fiat currency printing presses caused a bit of trouble in a system with bond markets and debt ceilings, imagine what giving them the power to spend as much as they deem necessary without reference to any external limit would do.

Actually don’t bother imagining. Just wait a few years to find out.

By John Rubino

dollarcollapse.com

Copyright 2015 © John Rubino - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in