The Phaserl


The Great Fallacy at the Heart of Modern Monetary Theory

from Jesse’s Café Américain:

As with all theories that miss the mark, Modern Monetary Theory presents some insights into the matter of course, but seems to hinge on one or two key assumptions that are more matters of assertion than historical or even practical experience. In this is not so much an economic theory, as a belief without a firm foundation.

This paragraph taken from Yves Smith’s recent article about MMT

“The sovereign government cannot become insolvent in its own currency; it can always make all payments as they come due in its own currency because it is the ISSUER of the currency, not simply the USER (as a household or private business is).

This issuing capacity means that the government does not face the same kinds of constraints as a private sector user of money, which in turn exposes the fallacy of the household analogy, so beloved in popular economics discourse.”

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1 comment to The Great Fallacy at the Heart of Modern Monetary Theory

  • Fred Hayek

    Jesse is right and he’s exposed terrible blind spots in MMT and the thinking of Yves Smith. Zimbabwe could keep paying its bonds so everything was great there according to MMT theory. Unfortunately everyone who knows about what happened there knows it became an economic hell hole because, contrary to MMT, there ARE limits on how much currency a government can print and get away with it.

    Whether it’s their intention or not adherents to MMT come off like desperate lustful lovers of the state for somehow banishing from their thoughts the existence of those limits.

    Yves Smith has a very interesting site and I bought her book. I find significant value in her work. But she can be so in the bag for the blue team that she loses all perspective. In the comments she reacts angrily to posters bringing up the issue of gov’t debt acting as though the issue is just a canard used to cut social security and medicaid. This, of course, is hypothetical as neither program has experienced cuts. But what the flying f*** does she think will happen in a few years if the debt situation gets much worse? And what the flying f*** good will it be to a social security recipient if MMT is followed and he or she still gets his or her promised check but it’s only worth 1/4 as much as it would have been a few years before because the currency has collapsed.

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