Modern Monetary Theory (MMT) became a hot discussed topic recently, not only when congresswoman Alexandria Ocasio-Cortez and other Democrats proposed it as a way to pay for the Green New Deal and other projects.
Basically, some MMT supporters believe we don’t have to restrain government spending because we can always just print money to pay for it. It’s an uncapped government spending program.
Even, most believe, this is not a great idea, I think this program already started since a long time. Government is notoriously bad at allocating capital and the current government in the US is spending and creating money as if there would be no tomorrow. Unfortunately, there is and other generations will have to pay the price. We do not have to adopt MMT as an “official” policy. It is already there.
Why? Look at these facts:
1. Current annual U.S. federal deficit is $896 billion, according to the Congressional Budget Office (CBO).
2. The national debt stands at more than $22 trillion.
3. In 2019, interest payments for the national debt will exceed $500 billion. By 2024, it is estimated they will surpass defense/military spending.
By 2028 they will surpass $1 trillion, probably much sooner.
4. Soon, the US will be spending 1/3 of all government tax revenues on interest payments.
5. Additional, there is also $15 trillion in corporate debt and $13.7 trillion in household debt. And there’s $210 trillion in unfunded federal liabilities going out 30 years or so. Those are benefits promised but not accounted for with current taxes.
Result: A large portion of government borrowing is already paying to keep up with interest payments. Low interest rates are basically required. What, if interest rates rise again to “normal” levels? Naturally, the situation can get ugly quickly.
At the moment and probably with any future government, slashing government spending big times and slowly start paying off the debt is no option. Governments are elected for 4 years. So, wish newly elected government really wants to go this road: short-term sacrifice for long-term gain.
So, the future Governments will take the easy way out and print money to pay for all the things we can’t afford. That is what MMT is really about. It sacrifices long-term viability for short-term gain, necessary to be re-elected.
Printing money to pay for everything seems a crazy idea. And it is. But something has to happen. Where does the government get the money to fund a soaring deficit spending and interest cost at a steepening rate? Taxes? Printing Money? Cut government spending dramatically? What is the magic formula?
Big deficit countries, like the US, will have to slash spending and this as soon as possible. Unfortunately, we are a long way from slashing spending anytime soon. Until we get serious about it, we have to accept that MMT is the reality.