Monday, 19 October 2020

Does the IMF now understand MMT? Seems it does.



According to an article in the Financial Times by Chris Giles entitled "Global economy: the week that austerity was officially buried", the IMF now says government debt does not matter, except in as far as it causes excess inflation, which is what MMT has been saying for years.

Moreover, it seems that Carmen Reinhart, the prize idiot and chief economist at the World Bank now accepts this view (having campaigned long and hard in the wake of the 2007/8 bank crisis to have the size of government debts severely constrained).

Unfortunately though, Chris Giles falls for the popular delusion that low interest rates are “crucial” if a government is to implement stimulus. He says “The crucial factor supporting this outlook for most advanced economies is borrowing costs; the IMF expects the cost of servicing government debt will stay well below the growth rate it expects these countries to achieve. This would allow cheaper borrowing to largely offset the weaker growth and lower tax revenues that the fund predicts will result from the crisis.”

The very obvious and simple flaw in the latter argument is that governments and central banks do not need to borrow in order to implement stimulus: they can simply print money!!  Indeed that’s exactly what they’ve been doing, and big time, over the last five years or so via QE. Do we take it that Chris Giles doesn’t know about QE?.....:-)

The latter point can actually be put another way, which is that given relatively high interest rates and a need for stimulus, one obvious option is to cut interest rates, and that’s done by having the central bank create money and buy up government debt, though simply creating money and spending it on the usual public spending items or cutting taxes would have a similar effect.

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