{"id":24080,"date":"2021-02-13T05:01:15","date_gmt":"2021-02-13T05:01:15","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?p=24080"},"modified":"2021-02-13T05:10:13","modified_gmt":"2021-02-13T05:10:13","slug":"modern-monetary-theory-mmt","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2021\/02\/13\/modern-monetary-theory-mmt\/","title":{"rendered":"Modern Monetary Theory (MMT)"},"content":{"rendered":"

A reader asked me to explain MMT. I am not an economist and will try to avoid any jargon.<\/p>\n

The basic tenet of MMT is that government has the power to reduce unemployment by increasing stimulus spending. Government spending in excess of tax revenues (a deficit) is funded by an increase in public debt. Deficits are likely to cause inflation but MMT holds that inflation can be reduced by raising tax revenues.<\/p>\n

Problem with Lags<\/h2>\n

There is normally a lag between an increase in debt and the resulting increase in inflation. If you wait for inflation to rise before raising taxes, underlying inflationary pressures have already built and will be hard to contain.<\/p>\n

There is also likely to be a lag between raising taxes and a resulting fall in inflation. This means that authorities will keep raising taxes for longer, causing an eventual contraction in employment.<\/p>\n

The second problem is that it is far easier to increase government spending than it is to raise taxes. Voters seldom object to an increase in public spending but are likely to punish any government that increases taxes. This is likely to make the lag between identifying inflation and raising taxes even bigger.<\/p>\n

Third, regular increases in government spending followed by tax increases (to subdue inflation) are likely to ratchet up government spending relative to GDP. Rising levels of public spending followed by rising taxes is simply creeping socialism and is likely to slow long-term economic growth.<\/p>\n

Finally, sharp increases in public debt no longer deliver bang for buck.<\/p>\n

\"Real<\/p>\n

Has inflation been tamed?<\/h2>\n

The consumer price index (CPI) is nowadays a lot less volatile than producer prices (PPI) which it tracked quite closely in the 1960s and 70s. Some of this can be attributed to better management at the Fed but the primary reason is the offshoring of manufacturing jobs to Asia.<\/p>\n

\"CPI,<\/p>\n

The service sector is largely immune from producer prices and fluctuations in offshore manufacturing costs are partially absorbed through a floating exchange rate.<\/p>\n

We have witnessed a decline in global trade over the past two years and this is likely to develop into a long-term trend towards on-shoring key supply chains in both Europe and North America. On-shoring is likely to drive up prices.<\/p>\n

Conclusion<\/h2>\n

Inflation is not dead. On-shoring of supply chains is likely to drive up prices. Rapid expansion of public debt is expected to weaken the Dollar, slow growth and fuel inflation. Long-term costs of bringing inflation under control are likely to outweigh the shorter-term benefits of MMT-level stimulus.<\/p>\n

Notes<\/h4>\n

Hat tip to Neils Jensen at Absolute Return Partners<\/a> and Luke Gromen at FFTT<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

A reader asked me to explain MMT. I am not an economist and will try to avoid any jargon. The basic tenet of MMT is that government has the power to reduce unemployment by increasing stimulus spending. Government spending in excess of tax revenues (a deficit) is funded by an increase in public debt. Deficits … <\/p>\n

Continue reading “Modern Monetary Theory (MMT)”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[46,49,3761,28],"tags":[4716,1828,4607,4608,4714,4715,3531],"class_list":["post-24080","post","type-post","status-publish","format-standard","hentry","category-deficit-spending-employment","category-economic-theory","category-gdp-and-activity","category-taxes-inequality","tag-deficits","tag-inflation","tag-mmt","tag-modern-monetary-theory","tag-public-spending","tag-tax-revenues","tag-unemployment"],"yoast_head":"\nModern Monetary Theory (MMT) - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Modern Monetary Theory (MMT) - the patient investor\" \/>\n<meta property=\"og:description\" content=\"A reader asked me to explain MMT. I am not an economist and will try to avoid any jargon. The basic tenet of MMT is that government has the power to reduce unemployment by increasing stimulus spending. Government spending in excess of tax revenues (a deficit) is funded by an increase in public debt. 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He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.","sameAs":["https:\/\/facebook.com\/people\/The-Patient-Investor\/61572934660810\/","https:\/\/www.instagram.com\/colin_thepatientinvestor","https:\/\/au.linkedin.com\/in\/colintwiggs"],"url":"https:\/\/thepatientinvestor.com\/index.php\/author\/investor\/"}]}},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p9tQ4n-6go","jetpack_likes_enabled":false,"jetpack-related-posts":[{"id":22916,"url":"https:\/\/thepatientinvestor.com\/index.php\/2020\/11\/28\/gold-mmt-and-negative-treasury-yields\/","url_meta":{"origin":24080,"position":0},"title":"Gold: MMT and negative Treasury yields","author":"Colin Twiggs","date":"November 28, 2020","format":false,"excerpt":"This landed in my inbox today from Dollar guru Luke Gromen: Wanted to highlight a recent tweet from Dr. Stephanie Kelton (Modern Monetary Theory professor and an adviser to Pres. Biden\u2019s campaign), who noted that during a Bloomberg panel, she was asked how much money Congress should authorize, and conservatively\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":6936,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/03\/12\/what-is-modern-monetary-theory-or-mmt-naked-capitalism\/","url_meta":{"origin":24080,"position":1},"title":"What is Modern Monetary Theory, or \u201cMMT\u201d? | naked capitalism","author":"Colin Twiggs","date":"March 12, 2013","format":false,"excerpt":"Dale Pierce makes this comment when discussing make-work programs in his introduction to Modern Monetary Theory: Whether the job-guarantee program makes fighter planes or wind turbines makes no economic difference \u2013 the workers employed by it will spend their wages on the same things other workers buy. What he fails\u2026","rel":"","context":"In "Economy"","block_context":{"text":"Economy","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":23591,"url":"https:\/\/thepatientinvestor.com\/index.php\/2021\/01\/10\/gold-no-country-for-old-men\/","url_meta":{"origin":24080,"position":2},"title":"Gold: No Country for Old Men","author":"Colin Twiggs","date":"January 10, 2021","format":false,"excerpt":"In the iconic Coen Brothers motion picture, the narrator, jaded Sheriff Bell (Tommy Lee Jones) laments the passing of former times, when good and evil were clearly defined. He struggles to make sense of the world and -- rather than emerging victorious over violent forces as in the standard Western\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"No Country for Old Men","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2021\/nocountryforoldmen.jpg?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]},{"id":61640,"url":"https:\/\/thepatientinvestor.com\/index.php\/2025\/05\/12\/the-end-of-american-exceptionalism\/","url_meta":{"origin":24080,"position":3},"title":"The End of American Exceptionalism","author":"Colin Twiggs","date":"May 12, 2025","format":false,"excerpt":"Summary The myth of American exceptionalism is fading Decades-long international capital flows into US financial markets are reversing The US outperformed its peers because it ran bigger deficits Large deficits cause long-term inflation Ballooning federal debt undermines confidence in US Treasury markets Cutting the deficit will likely reduce economic growth\u2026","rel":"","context":"In "Debt Levels"","block_context":{"text":"Debt Levels","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/debt-levels\/"},"img":{"alt_text":"DJ US Index ($DJUS) & DJ World ex-US ($W2DOW)","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2025\/2025-05-12-djus-w2-5y.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2025\/2025-05-12-djus-w2-5y.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2025\/2025-05-12-djus-w2-5y.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":4555,"url":"https:\/\/thepatientinvestor.com\/index.php\/2012\/06\/06\/when-austerity-fails\/","url_meta":{"origin":24080,"position":4},"title":"When Austerity Fails","author":"Colin Twiggs","date":"June 6, 2012","format":false,"excerpt":"Austerity decimated Asian economies during their 1997\/98 financial crisis and similar measures have failed to rescue the PIIGS in Europe 2012. David Cameron's austerity measures have also not saved the UK from falling back into recession. So why is Wayne Swan in Australia so proud of his balanced budget? And\u2026","rel":"","context":"In "Debt Levels"","block_context":{"text":"Debt Levels","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/debt-levels\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":24474,"url":"https:\/\/thepatientinvestor.com\/index.php\/2021\/03\/11\/why-invest-in-gold-part-ii\/","url_meta":{"origin":24080,"position":5},"title":"Why invest in Gold? Part II","author":"Colin Twiggs","date":"March 11, 2021","format":false,"excerpt":"Yesterday we mentioned the Congressional Budget Office (CBO) projection that federal debt will grow to 202% of GDP by 2051. We should clarify that this is unlikely to happen. CBO projections are based on the growing gap between tax revenues and government spending, with deficits rising exponentially over time. The\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/24080","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=24080"}],"version-history":[{"count":3,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/24080\/revisions"}],"predecessor-version":[{"id":24084,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/24080\/revisions\/24084"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=24080"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=24080"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=24080"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}