Toward the end of the movie “Patton”, there’s a scene of a bustle
of activity in a German HQ destroying papers in anticipation of being overrun
by the American Army. A German officer laments the coming loss of the war with “Das ist das Ende” (This is the end). What the coronavirus and the dramatic monetary
and fiscal war waged to overcome its economic devastation will bring is the end
of a financial era; the idea that the government has to repay its debt.
The national debt in the United States has been rising at an
alarming rate. Prior to the Coronavirus, the debt stood at about $23T. With the
passage of recent laws authorizing spending by the Treasury Department and unprecedented
loan facilities by the Federal Reserve, the national debt and the balance sheet
of the Fed will exceed $30T. It will
soon, if it hasn’t already, be a number that essentially cannot be retired. And that’s where MMT (Modern Monetary Theory)
will come to “save” us.
There are two main components to MMT; 1) a country that prints
its own money can never go into default and 2) unemployment becomes an
anachronism as the federal government employs all who cannot find employment in
the private sector. Milton Friedman was fond of saying “Nothing is so permanent as a temporary government
program.” The recent law providing
checks to every American and enhanced unemployment benefits for those forced
home by government fiat will be the precedent for the passage of a universal basic
income law. This law will probably then
morph into the federal jobs program mentioned above. At this point, MMT will become a formalized
policy.
And “Save” us it will in the short-run. In the long-run, it will ignite inflation that may approach the hyper-inflation of post-World War I Germany. It was those horrendous economic times that helped the rise of a certain corporal to become Chancellor of Germany.
