Via Alan Kohler today:
The RBA’s bond holdings represent only about 11 per cent of the government debt, well short of what the Fed or the ECB and Bank of Japan are doing, but it’s also true that the RBA has effectively financed all of the JobKeeper program with new money.
Is that bad? No, it’s good. In fact, why should future taxpayers fund any of the 2020 pandemic rescue stimulus?
That idea is based on the fallacy that the government is like a household or a business, and that what it borrows must be paid back. What’s the difference? Simply that a government issues its own money.
…Modern Monetary Theory, or MMT – for that’s what we’re talking about – does not suggest that the government has a magic pudding.
In a new book on the subject, called “The Deficit Myth”, economist Stephanie Kelton says: “Just because there are no financial constraints on the federal budget doesn’t mean there are no real limits to what the government can (and should) do. Every economy has its own internal speed limit, regulated by the availability of our real productive resources … If the government tries to spend too much into an economy that’s already running at full speed, inflation will accelerate.
“There are limits. However, the limits are not in the government’s ability to spend money or in the deficit, but in inflationary pressures and resources in the real economy. MMT distinguishes the real limits from delusional and unnecessary self-imposed constraints.”
Quite right. There are other limits too: fairness, meritocracy and the normatives of capitalism. But it’s fundamentally true.
Somebody better tell The Kouk who is still living in the nineteenth century.
