Stephanie Kelton on the post Corvid debt.

 

Stephenie Kelton (leading MMTer) claims the build up of government debt as a result of Corvid related handouts will be no problem. See this Financial Times article entitled “Can governments afford the debts….”. That over-simplifies the issue.

As MMTers have been at pains to point out (and the point certainly needs making) government debt is a private sector asset. Indeed as Warren Mosler (founder of MMT) said, there is lilttle difference between debt and base money: the only difference is that debt is base money that has been locked up for a period and on which interest is paid. I.e. government debt is essentially a term account at a bank called “government”.

Now a build up of private sector financial assets will lead to a rise in private sector spending all else equal. Ergo after the Corvid crisis, it is perfectly possible we will see excess demand and inflation, with the result that governments and central banks will have to rein in that demand via increased taxes or interest rate rises.

On the other hand it’s possible that consumer and business confidence is severely hit by the crisis, in which case that “hit” could nullify the above mentioned excess demand. It’s hard to predict.

BTW....If you find yourself confronted by a pay-wall at the above link, try Googling the article. That worked for me!!