Pablo Pardo (Washington) | Nobuhiro Kiyotaki, Princeton professor and BBVA Frontiers of Knowledge Award winner, says: “As public debt grows, rates tend to rise, until they are close to those of private debt, which are higher than the rate of GDP growth. The spreads on public and private debt are not immutable over time and, paradoxically, some people seem to think that this is the case, that the coupon on…
modern monetary theory
John Whittaker (The Conversation) | MMT proponents argue that governments can spend as necessary on all desirable causes – reducing unemployment, green energy, better healthcare and education – without worrying about paying for it with higher taxes or increased borrowing. Instead, they can pay using new money from their central bank. The only limit, according to this view, is if inflation starts to rise, in which case the solution is to increase taxes.
Yves Bonzon (Julius Baer) | We are therefore moving much faster than expected towards a macroeconomic policy cocktail that combines monetary and fiscal policy (Modern Monetary Theory, MMT). In concrete terms, private agents (households and companies) who are currently losing precious income, must be able to continue to pay their bills in order to avoid a credit crunch against which monetary policy, even unconventional, can do nothing in isolation. Offering state guarantees for loans that relieve their immediate cash flow stress is a good solution in the very short term.
Hans-Jörg Naumer (Allianz) | The debate on helicopter money, which is once again gaining traction, must be seen against a backdrop of rising public debt ratios and the debate on the policy options remaining for major Central Banks. It is about the monetisation of government debt, i.e. the financing of budget deficits, using monetary policy. It was none other than the retiring President of the ECB himself, Mario Draghi, who once called helicopter money “a very interesting concept” during the press conference following a meeting of the Governing Council in March 2016.
Pablo Pardo (Washington) | Ángel Ubide, who was advisor to Spanish PM Pedro Sánchez between 2015 and 2016, has an enormous experience in financial markets. He has worked in the IMF, Goldman Sachs and three of the largest and best known hedge funds on Wall Street, Tudor, DE Shaw and now Citadel, where he is director of fixed income studies. He has also been a senior fellow of the Peterson Institute for International Economics, the most important think-tank specialising in economics in the US.
There’s a new monetary theory doing the rounds here which claims to be revolutionary: the Modern Monetary Theory (MMT. Not to be confused with the Market Monetary Theory). I agree with some of its points. But when some of its supporters say the state deficit and debt are not important – that they don’t have damaging consequences – the theory becomes a huge deliberate fallacy.