A new monetary era

All politicians want the system to produce as much affluence as possible. Enough to fill the coffers of their rich benefactors and also enough to placate the masses.

“Is everybody happy?”

Keynesianism was a justification for deficit spending. Critics said the governments would take advantage of the justification to run deficits during recessions but would not adhere to the “other side” of Keynes’s recommendations, i.e., the achievement of long-term fiscal balance by running surpluses during expansions. The critics were correct about that, but concern about deficit spending and increasing debt-to-GDP levels has all but vanished. Stephanie Kelton’s latest book is titled “The Deficit Myth.”

Modern Monetary Theory is a justification for central bank money printing. As it catches on, we’re entering a whole new era.

It used to be the conventional wisdom that money retained value when it was backed by something real-world tangible; originally gold or silver, later just national wealth in general. In the new era it does not have to be backed by or even related to anything tangible. At the least sign of recession, crisis, or economic disruption of any kind governments now encourage their central banks to print.

So far there have seemed to be no adverse consequences from deficit spending or money-tree printing. No problematic inflation, no major change in the pricing of commodities or precious metals. The pricing of financial assets may have gone too high (and, inversely, returns too low), but that remains to be seen.

It could take a long time to determine if the new policies have adverse consequences . . . or what they might be.