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Is Now the Time for Modern Monetary Theory or Permanent Monetary Finance?

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  2. Economics, Finance, Business & Management
  3. Credit and Capital Markets – Kredit und Kapital
  4. Vol. 54, Issue 1
  5. pp. 17–36

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Schlotmann, O. Is Now the Time for Modern Monetary Theory or Permanent Monetary Finance?. Credit and Capital Markets – Kredit und Kapital, 54(1), 17-36. https://doi.org/10.3790/ccm.54.1.17
Schlotmann, Olaf "Is Now the Time for Modern Monetary Theory or Permanent Monetary Finance?" Credit and Capital Markets – Kredit und Kapital 54.1, 2021, 17-36. https://doi.org/10.3790/ccm.54.1.17
Schlotmann, Olaf (2021): Is Now the Time for Modern Monetary Theory or Permanent Monetary Finance?, in: Credit and Capital Markets – Kredit und Kapital, vol. 54, iss. 1, 17-36, [online] https://doi.org/10.3790/ccm.54.1.17
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Is Now the Time for Modern Monetary Theory or Permanent Monetary Finance?

Schlotmann, Olaf

Credit and Capital Markets – Kredit und Kapital, Vol. 54 (2021), Iss. 1 : pp. 17–36

1 Citations (CrossRef)

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Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.54.1.17
Language
English
Pages
20
Keywords

Author Details

Prof. Dr. Olaf Schlotmann, Brunswick European Law School; Ostfalia Hochschule für angewandte Wissenschaften, Salzdahlumer Str. 46/48, 38302 Wolfenbüttel.

Cited By

  1. Modern Monetary Theory, Fiscal Dominance and the European Central Bank

    Prinz, Aloys

    Beck, Hanno

    Credit and Capital Markets – Kredit und Kapital, Vol. 55 (2022), Iss. 4 P.431

    https://doi.org/10.3790/ccm.55.4.431 [Citations: 0]

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  39. Bailey, A. (2020): Bank of England is not doing monetary financing. Financial Times, April 16, 2020.  Google Scholar
  40. Deutsche Bundesbank (2018): The market for Federal securities: holder structure and the main drivers of yield movement. Monthly Report, pp. 15–38, July 2018.  Google Scholar
  41. Fullwiler, S./Grey, R./Tankus, N. (2019): An MMT Response on what causes inflation. Financial Times Alphaville, March 1, 2019, https://ftalphaville.ft.com/2019/03/01/1551434402000/An-MMT-response-on-what-causes-inflation/ (last retrieved September 28, 2020).  Google Scholar
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  43. Giles, C. (2020b): BoE risks losing credibility, warns former deputy governor. Financial Times, June 25 2020.  Google Scholar
  44. Jones, C. (2020): The Fed abandons the idea low unemployment stokes inflation. Financial Times, September 03, 2020.  Google Scholar
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  49. Bartsch, E./Boivin, J./Fischer, S./Hildebrand, P. (2019): Dealing with the next downturn: From unconventional monetary policy to unprecedented policy coordination. SURF Policy Note, Issue 105, Blackrock Investment Institute, October 2019.  Google Scholar
  50. Kelton, S./Smith, N. (2018): Just When Should We Start Worrying About Deficits?. Bloomberg, September 24, 2018 (last retrieved September 28, 2020).  Google Scholar
  51. Nersisyan, Y./Wray, L. R. (2020): The Myth of “Helicopter Money”. Project Syndicate, April 20, https://www.project-syndicate.org/commentary/modern-monetary-theory-is-not-helicopter-money-by-yeva-nersisyan-and-l-randall-wray-2020-04, (last retrieved September 28, 2020).  Google Scholar
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  68. Mitchell, W./Wray, L. R./Watts, M. (2019). Macroeconomics. London: Red Globe Press.  Google Scholar
  69. Yashiv, E. (2020): Breaking the taboo: The political economy of COVID-motivated helicopter drops. Vox CEPR Policy Portal, https://voxeu.org/article/political-economy-covid-motivated-helicopter-drops, last retrieved September 28, 2020).  Google Scholar
  70. Wolf, M. (2020): Monetary financing demands careful and sober management. Financial Times, April 9, 2020.  Google Scholar
  71. Gros, D. (2016): Negative Rates and Seigniorage: Turning the central bank business model upside down? The special case of the ECB. CEPS Policy Brief, No 344, July 2016, https://www.ceps.eu/ceps-publications/negative-rates-and-seigniorage-turning-central-bank-business-model-upside-down-special/ (last retrieved September 28, 2020).  Google Scholar
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Abstract

In response to the COVID-19 pandemic, G7 central banks have launched asset purchase programs in anticipation of an increase in government bond offerings to finance ballooning fiscal deficits. As the volume of government bonds owned by private investors is not expected to rise during the current crisis, these programs will amount to a monetization of large additional debt. The idea that the government sells bonds to the central bank or issues money by literally spending it into existence also plays a key role in Modern Monetary Theory (MMT), the concept of helicopter money and the idea of permanent monetary finance. This article subjects key aspects of MMT to critical examination and shows, using MMT’s own balance sheet analysis, that the theory is almost always contradicted by the actual workings of the modern credit economy. In fact, MMT seems to be a collection of prescriptive ideas that dictate how things should function as opposed to how they actually do.

Table of Contents

Section Title Page Action Price
Olaf Schlotmann: Is Now the Time for Modern Monetary Theory or Permanent Monetary Finance? 1
Abstract 1
I. Introduction 1
II. Do G7 Governments Issue Money by Literally Spending it into Existence? 3
III. The Real Cost of Printing Money 4
IV. The MMT Mantra: Public Spending is the Accelerator; Public Borrowing and Taxation are the Brakes 9
1. Taxes as an Instrument of MMT for Preventing Excess Demand 1
2. Government Bond Auctions as an Instrument for Preventing Excess Demand 1
V. Conclusion 1
VI. Outlook: The Political Economy of Permanent Monetary Finance 1
References 1

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