The Chinese virus is bringing Modern Monetary Theory to life
Article written by Peter Skurkiss in "The American Thinker":
In a nutshell, Modern Monetary Theory
(MMT) is a policy whereby the federal government can print money with
abandon. Under MMT, there's little concern of the debt level or how, if
ever, the debt will be paid off.
The
Chinese virus is accelerating America's embrace of MMT whether it is
called that or not. Prior to China's viral gift to us, the debt level of
the federal government was $22.5 trillion dollars which is 106 percent of our gross national product to which another trillion was projected to be added each year.
Things
are moving faster now however. Congress has just passed and President
Trump signed a historic $2 trillion stimulus bill to counter the Wuhan
epidemic. Included in the stimulus package are direct payments to
millions of Americans, an unprecedented expansion in
unemployment benefits and $350 billion is soft loans to small
businesses. The political consensus is that this will be far from
adequate to save the economy. Accordingly, additional trillion-dollar
stimulus packages are now actively being drafted. This
is helicopter money. Here's what it looks like.
This is an unconventional monetary policy tool aimed at bringing a flagging economy back on track. It involves printing large sums of money and distributing it to the public. American economist Milton Friedman coined this term. It basically denotes a helicopter dropping money from the sky. Friedman used the term to signify "unexpectedly dumping money onto a struggling economy with the intention to shock it out of a deep slump."Under such a policy, a central bank "directly increase the money supply and, via the government, distribute the new cash to the population with the aim of boosting demand and inflation."
Even
should the economy revive from this forced government shutdown to the
level that optimists like President Trump predict, it will never be able
to generate enough tax revenue to pay off this newly incurred debt let
alone the previous accumulated debt. Economists Ken Rogoff and Carmen Reinhart have
shown that at low debt ratios, a dollar borrowed and a dollar spent can
product $1.20 in GDP. However, when the debt-to-GDP ratio is
greater than 90 percent, this multiplier goes into reverse -- the more
you borrow, the more the GDP decreases. This is the reality behind the
saying government can't borrow its way out of a debt crisis. No matter
how you cut it, America's debt load does not bode well for the future.
As
for the economy's revival, it is hard to be optimistic. Aside from the
debt overhang, many small businesses will simply not make it back.
Others will be crippled. On the individual level, untold number of
careers have been stunted by the shutdown and some even destroyed. And
consider how the budgets of the states have been hurt by the shutdown.
In Ohio for example, over one-third of the state's revenue comes from a combination of the sales tax, income tax and business taxes.
All
these revenue sources will be significantly impacted by the
shutdown. With looming budget shortfalls, major states will not be able
raise taxes high enough to make up what they've lost. So, they'll turn
to Washington for a bailout.
It
will be the same for pension funds, many of which were severely
underfunded before Wuhan came to town. With the stock market down nearly
20 percent and interest rates at record lows, pensions funds will find
it next to impossible to generate enough revenue to meet
their obligations to retirees. As with the states, they will turn to
Washington for relief, and Washington will be hard pressed to say no.
There
are other second order affects to this epidemic as well. There will be
increased pressure throughout the Third World to migrate into the U.S.
and Europe. The question will then be can Western leaders finally find
the will to secure their borders or will they continue to cave into
political correctness and the greed of the globalists? And if the will
is not found, how will the influx of these unskilled illegal aliens
affect Western economies and their culture? Also, many foreign countries
will face a severe depression as demand falls. This cannot but impact
the U.S. as well.
To
avoid a severe economic slowdown and possible social disorder at home,
Washington will practice MMT whether it is through quantitative easing
or helicopter money or a combination of both. Anyone calling for a
balanced budget will be politically stoned to death. It cannot be said
with any certainty where this all leads. But it is hard to imagine we'll
be in as good a shape as we were in just, say, the beginning of this
year for the foreseeable future. Also, in this uncertain
environment, Americans will have to fight like never before just
to maintain what remains of their constitutional republic. The more you
look at it, the more this Chinese virus looks like the catalyst to our
Fourth Turning.
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