Donald Trump has gone full MMT. Well, maybe not full MMT, but a long way toward getting to full MMT. I have been doing Modern Money Theory for 14 years, telling people about it and teaching it, but I am not Donald Trump. In one comment he has done more to advance the discussion and expose the truth than what any of us have done in over a decade. But that doesn't diminish our efforts. I'm glad to have him on board.
What did Trump say? He said the U.S. can never become insolvent or go bankrupt or default because we print our own currency. Stated another way, the U.S., in fact, really has no debt.
This means the government is not dependent on tax revenue or borrowing to take on the spending and investment it needs to make. The government spends in dollars and those dollars flow to people and firms who then swap them for Treasuries so they can earn a little interest. When it comes time to "pay those people back" the government simply takes the Treasuries back and issues dollars to the holders once again. There is never an inability to do this.
The only time we have anything close to a problem such as default is when we come up against the debt ceiling and the political shenanigans associated with that. The debt ceiling is a stupid, artificial and self-imposed constraint that dates back to the gold standard. The U.S. is no longer on the gold standard and hasn't been for 83 years. Moreover, we have been off the Bretton Woods system of fixed exchange rates for 45 years. You would think by now people would know this, but they seemingly don't. Hopefully, the fact that Donald Trump stated the obvious will sink in for some.
Still, I know what there will be those who will never accept this. They will still go on believing that our money comes from out of the ground, which is ridiculous. They'll say that printing money causes inflation. Well, I got news for you, it doesn't. Take a look at the chart below. If this doesn't clear up this myth, I don't know what will. You might as well believe in alien abductions and the Loch Ness monster. (Oh yes, those are real, too. I forgot.)
From the chart, above, you can see that the government has "printed" nearly $20 trillion and inflation went down. Not up, down. You simply can't keep saying, well, it's going to happen someday. It won't.
In a modern, competitive economy there is zero chance of inflation happening as a result of government spending. Moreover, the fact that the spending induces the private sector to produce more - -roads, schools, health care, energy, transportation, basic science and research, etc. --means that prices tend to go down, not up, because we get more supply of those things.
The only inflationary threat we would face is if we ran out of the physical resources and labor to produce the things that the spending was employed to purchase. I'm not saying that can't happen, but at the moment that is not even something close to a reality. Furthermore, with the global economy so interlinked, there are plenty of resources and labor that can be tapped in other parts of the world pretty easily.
Trump is taking a lot of heat for his comments. I know how he must feel. I have taken heat over the years for stating the same. But the people giving the heat have been wrong. Dead wrong. They have been wrong on inflation, on interest rates, on the economy, on the markets, on employment, on the U.S. credit downgrade and its consequences. Basically, they have been wrong on everything. On the other hand, MMT has been right about everything.
Trump exposed the lie that the government must "save money." You don't need to save what you can create without limit. Trump speaks from a purely MMT viewpoint. Maybe he's reading my columns or my blog or, maybe it's just common sense, which, when you think about it, is what it should be for most people, but it's not. Whatever it is, I am glad he's on our side. Go Donald!