The Stupidity of Modern Monetary Theory

Modern Monetary Theory says that deficits don’t matter, unless inflation increases a lot, because the U.S. can always just print new money to pay off its debts.  The idea being that if inflation does increase then the Federal Reserve would respond by increasing interest rates which would in turn drive up interest payments on the debt.
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Another way to say it is that we are okay with huge deficits, adding each year to our already large debt, as long as inflation remains low.  Yes, it is true that that right now, interest rates are so low that our huge almost $22 trillion debt is almost free money, costing us “only” about $300 billion per year in interest payments.

The problem is, of course, that this currently happy low inflation era will eventually end and the Federal Reserve will be forced to raise interest rates, perhaps dramatically.  The longer this takes to occur, the more our debt will have accumulated in the meantime.  Right now debt is 78% of GDP (for the public part on which we pay interest), and is predicted by the Congressional Budget Office to keep growing steadily worse without major changes in policy.

I find it shocking that many financially experienced people take MMT seriously.  They should know better.  The very simple logic that inflation, and therefore interest rates and interest payments on the debt, will significantly increase, sooner or later, should be easy to understand.  The longer this takes to happen, the more severe will be the eventual problem and therefore the more traumatic will be the necessary fiscal adjustments to make at that time.

Summary.   It is depressing to clearly foresee the awful fiscal hole that our nation is gradually sinking into and be unable to do anything to stop it.

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