Modern Monetary Theory for Dummies.
If Quantitative Easing was good, then MMT should be even better, right?
Quantitative Easing failed but no one wants to admit it. Why do I say that? Because the rich got richer, the banks got bigger, and the poor stayed the same or got worse. Plus, we are now, right back where we started at the beginning of QE with entirely too much debt, people behind on car payments, defaulting on credit cards, and home prices so high no one can afford them. Deja Vu.
Now, the “New Breed” of politicians, who grew up during the QE years, believe that it will be Okay to simply print as much money as the government needs to pay for any and all welfare, regardless of any value backing the new money.
They call it MMT, Modern Monetary Theory. Major proponents of MMT say that any country that prints its own currency can’t go broke. A country like the United States, has a lot more room to deficit-spend than normally thought, especially given current low interest rates.
Their thinking comes from Ben Bernanke and Janet Yellen, who learned it from other highly educated economists that sampled the theory by producing (printing) relatively small quantities of money to help cover America’s debt in the past. When it didn’t crash the market, or destroy anyone who would be missed, they increased the amounts. Eventually, Nixon decided to remove our currency entirely from the Gold Standard and the United States Dollar became just one more fiat currency — not backed by anything except a promise — an IOU.
By the time The Great Recession came along, we were so accustomed to our inflated dollar, no one batted an eyelash when Bernanke massively increased the printing to $85 billion a month and called it Quantitative Easing. According to Ben, Quantitative Easing would allow the banks and the market and the economy, to float rather than crash.
What happens when $85 billion, with absolutely no value, hits the marketplace? There was no product, no service, no tangible value created in exchange for the money, it just magically appeared. To whom does all that money flow? Where did it go? Did any poor person get any? Did any homeowner get any? Did any small business get any? Did you get any?
We’re not talking about one month, this went on for several years, most of Obama’s time in office. The government issued treasury bills and created I.O.U.s for their value. The bills were sold and the cash (the newly printed cash) went to anyone rich enough to participate. Billionaires, banks, foreign countries, dictators, everyone but the Americans who were screwed when the Great Recession hit.
Then the newly printed cash was lent out in the form of zero-interest loans — free money — that large corporations used to buy back shares of their own companies’ stock. By reducing the number of outstanding shares, their value-per-share went up, causing the stock market to go up, which made many rich people even richer.
The value of the companies didn’t change, only the value of the shares did. Obama and his loyal followers use this faux rising value of the stock market as proof that it was working — The recession was over, all was well in America.
Only it wasn’t. The house of cards built with worthless dollars, interest-free money, and the magically rising values of companies, did nothing to help the 95 percent of Americans who didn’t get to play. Granted, anyone who had a 401k or and an IRA, saw the value of their holdings rise, but only back to approximately where they were before the banks were too big to fail, before the crash. And since the dollar’s value went down, it now takes more of them to buy anything than ever before. But are you getting more? No, I didn’t think so. Me neither.
If this seems hard to follow, you’re not alone. Many people found it easier to simply accept it and believe it was good for us, good for the economy, good for the banks. If you can’t understand it, you have no choice but to trust your government, right?
The rich, who do understand it, got richer, the banks got bigger, the corporations became more valuable, and the poor got poorer. Add to that the number of people behind in their payments, defaulting on their loans, living paycheck to paycheck, or simply living on the street, and it’s easy to believe that the solution is to print even more money and give it to those poor unfortunate folks who lost their homes and their jobs and weren’t allowed to play the QE Game the last time.
Twelve years ago, when QE started, Alexandria Cortez and her gaggle of fresh government blood, were just kids. Had they been unlucky enough to come from lower-class parents, they would not have such foolish ideas. Most of them did not come from poor families, though. They did not get to experience the disaster caused by printing money with no corresponding value. They cannot appreciate that giving value-less money to people who don’t provide a product or service, will only perpetuate the rich getting richer and the poor getting poorer.
Money always flows to the rich. The solution is not to print more money, it’s to produce more value. The solution can never be to make the rich poor. The solution is to make the poor rich. Or at least better off.
The condition of America’s economy today is considerably better than it was 12 years ago and it’s easy to forget how bad it was. But it’s not better because of free money. It’s better because the Trump administration understands exchanging goods for cash and using that cash to create more jobs. By eliminating regulations that choke small businesses, allowing them to keep more of their earnings through lower taxes, and encouraging home-grown made-in-America, the middle class is coming back.
So long as the government continues along this path, eventually the poor and lower class will also be better off. Giving them a hand-out now is the worst thing we can do. Giving them a hand-up is the best thing. Creating another Cuba, or Russia, or Venezuela, will not help them. It will, however, help the banks, the big corporations, the richest of the rich, and, of course, the socialist government.
But it won’t be Trump’s government. It won’t happen on his watch.
Thanks for Reading!
Jerry
