Florian, thanks for a balanced view on MMT. I have mostly found that the usual analysis is so slanted that it is clear from the outset the writer didn't like it and busily built a straw man to burn.
I have written on the topic as well and agree with your points. Here are some additional thoughts:
1. MMT generally describes how the economy and financial system work under two conditions:
(a) when the currency isn't backed by either a metal standard or pegged to another currency. In other words, there is no financing constraint; and (b) when the central bank isn't independent.
2. MMT also seems to assume that there are some elements of capital controls. If investors lose confidence in the fiscal authority, capital flight can ensue which does act as a constraint on the government. Hyman Minsky suggested that even under a fiat system, fiscal austerity is needed on occasion to maintain faith in the bonds/bills issued by the fiscal authority.
3. Raising interest rates leads to higher inflation if and only if the debt of the government is large. If it is small, that shouldn't be the case. Why? Because the interest earned on government borrowing won't be enough to matter.
4. Related to #1, in the absence of a global gold standard, the new standard is USD/Treasuries. What has created faith in that system is (a) independent central banks and (b) confidence in a stated inflation target. It is unclear what happens if these 2 conditions are violated.
Florian, thanks for a balanced view on MMT. I have mostly found that the usual analysis is so slanted that it is clear from the outset the writer didn't like it and busily built a straw man to burn.
I have written on the topic as well and agree with your points. Here are some additional thoughts:
1. MMT generally describes how the economy and financial system work under two conditions:
(a) when the currency isn't backed by either a metal standard or pegged to another currency. In other words, there is no financing constraint; and (b) when the central bank isn't independent.
2. MMT also seems to assume that there are some elements of capital controls. If investors lose confidence in the fiscal authority, capital flight can ensue which does act as a constraint on the government. Hyman Minsky suggested that even under a fiat system, fiscal austerity is needed on occasion to maintain faith in the bonds/bills issued by the fiscal authority.
3. Raising interest rates leads to higher inflation if and only if the debt of the government is large. If it is small, that shouldn't be the case. Why? Because the interest earned on government borrowing won't be enough to matter.
4. Related to #1, in the absence of a global gold standard, the new standard is USD/Treasuries. What has created faith in that system is (a) independent central banks and (b) confidence in a stated inflation target. It is unclear what happens if these 2 conditions are violated.
Anyway, thanks for your work.
Really interesting piece.
I guess the international context is also important, given the Japanese rate repression and continued QQE policy.
Brilliant perspective Florian. 🙏🏽
Nice. I am also waiting for the moment of "AI is overpromising and underdelivering".
Haha I always have the same tactical ideas. I personally would wait for a march to buy googl, probably hedge it with AI/Semis too.
I prefer fertilizer stock as proxy of natural gas. there are good quality companies, attractive valuation and good technical setup IMO.