MMT = Modern Monetary Theory. In short, MMT is where a sovereign country like the U.S. can spend, tax, and borrow in a fiat currency that they fully control; and that country is not fiscally constrained by revenues when it comes to federal government spending. Yes, means the government can borrow ad infinitum…without end or limits.

And for the record…there is nothing “modern” about it. The first major trial run of MMT was in China about 1200 years ago and lasted for a couple hundred years till it…ah, well, that’s the point I will make.

First of all a simple definition of “fiat currency” if you don’t mind. Fiat currency:

1. Has no intrinsic value.
2. Has no commodity backing its value.
3. The government controls its value and availability.
4. Is controlled by a central bank (i.e. Federal Reserve in the USA).
5. Its only true value is two parties (i.e. buyer & seller) agreeing on its value through the exchange of goods and/or services.
6. It loses value in times of devaluation.
7. It loses value in times of inflation.
8. Becomes worthless in times of hyperinflation.
9. Becomes worthless when the public/citizens or other governments lose faith/trust in the government issuing the fiat currency.

Now, back to China. About 1200 years ago the first real example of fiat currency evolved. The new dynasty of China decided to issue “notes” or paper money to replace the copper coins that had been in use. It was far more convenient to transact business and the government backed its value with their “word” and “honor”, and their ability to tax. The country did well and the economy grew nicely, employment was good, and  the country generally thrived.

So the government printed more notes and began putting more and more money into the economy. The economy boomed! Then they decided to print large amounts of money and put it into their economy through spending for large infrastructure projects. And the economy really boomed…for a bit!

One day…well, the economy stopped booming. The people lost faith and trust in the government because the prices of everything kept going up. With faith and trust in the government waning people became wary of the paper currency. Goods and services began to be more expensive because people had less faith in the paper money and wanted more of it to offset their risk of it failing. This cycle continued for a couple short years until the economy collapsed.

What followed was simple and predictable…poverty, civil unrest, government “law & order”, and then the dynasty collapsed.

This cycle has been repeated many times in history. In modern times we have the perfect example of such a MMT cycle in the form of Germany, the Weimar Republic. Beginning in 1918 the Republic began implementation of fiat currency and MMT. The 1920’s were a roaring success…till it wasn’t. October 1929 struck with the collapse of the US stock market. That collapse quickly spread around the world. And it hit the Weimar Republic like a ton of bricks.

Since the Weimar Republic was only about a decade old it didn’t have the ability to react well to the stock market problem…inflation hit and soon turned into hyperinflation. This move through inflation to hyperinflation occurred because people/citizens didn’t have enough faith or trust in their government to correct economic problems. And for good reason, their government kept printing large amounts of money, poured it into the economy, began large infrastructure projects, etc.

As the Wiemar Republic fell to pieces it was the perfect opportunity for a strong and charismatic leader to pull the country together to make Germany great again.

With convincing arguments that Germans were the best and brightest in the world, he got their attention and loyalty. With convincing cries of nationalism he got their devotion. Hence, Adolph Hitler rose to power and took over Germany by 1933. His efforts had began over 10 years earlier but were for the most part ignored…until financial problems hit their country. Then Hitler’s influence and power flourished, as did his political career. A short 6 years later Hitler plunged most of the known world into World War II.

Total deaths during WWII came to 60 – 80 million people. And far more injuries than that. So about 4% of the world’s population died…4% of the world’s population!!!

So what is my point?

MMT has never been successful in the history of the world. It has failed 100% of the time…and has caused innumerable wars, including a world war just 80 years ago.

Now, you may say that the USA has been a successful MMT implementer…because times are different and we are different. Really?

In my article (SitRep – 3/1/2021) I wrote extensively on the USA and its use of fiat currency. To make a long and boring story short…in 2020 it took $840 to equal the value of $1 in 1900. Yup, that is 840% inflation! That is averaging 7% per year. In theoretical terms that 7% inflation rate is 3.5 times higher than the standard that economists feel is safe.

And remember what China did all those years ago…printed increasing amounts of money to pour into the economy. And they spent large amounts of money on infrastructure project just a few short years before their collapse. What does that have to do with us in the good ole USA?

In the last 13 months 40% of the entire money supply of the USA has been created. Yup, the Federal Reserve and the US Government simply created 40% of all US dollars that exist today…and they did that in the last 13 months. Another way to look at it…almost half of all the US dollars floating around right now simply didn’t exist in 2019.

And approximately 60% of all money that the US Government is now spending through its budget is “created” money. Approximately 100% of all stimulus money is “created” money.

The Proposed Biden/Harris infrastructure plan will be “created” money. And if the proposal passes as now outlined…not only is there the “funny money” creation issue…it will also pull billions and billions of dollars out of private hands and transfer that wealth to the US government. Does that sound like another step of MMT?

 

Now, let me recap…MMT always follows the same path:

1. Government implements fiat currency.
2. Government runs large budget deficits.
3. Government acquires larger and larger national debt.
4. Inflation begins.
5. Government attempts to correct…and fails.
6. Depression begins.
7. Government attempts to correct…and fails.
8. Poverty increases.
9. Government attempts to correct…and fails.
10. Civil unrest begins.
11. Government attempts to quell/crush civil unrest.
12. Hyperinflation begins.
13. Unemployment grows, poverty grows, civil unrest grows.
14. Government takes drastic actions (i.e. Nazi Germany starts a world war).
15. Government falls and collapses.

And what we know as historic fact:

• The total fiat currency cycle can run from 11 – 250 years.
• Normally, from the hyper-printing of currency to government collapse is about 5 years +/-.

And we know these facts about the United States:

• The US government has used paper currency for 200+ years.
• Gold stopped being used as currency approximately 140 years ago.
• The US has been running large annual inflation rates for 120 years.
• The US dollar became official full-on fiat currency in 1971 when Nixon discontinued the redemption of dollars for gold…50 years ago.

Quick reality check…

Now remember this, it is absolute fact that the US Government began the “hyper-printing” of currency about 13 months ago.

As I see it…the US’s implementation of MMT is following the same path of every other government that has implemented. The same historically proven path that was started 1200 years ago!!!

As for me and my house…we are preparing.

What are you doing?

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Related Articles:

• Head’s Up! : The Economy
• SitRep – 5/3/2021 (part #2)
• SitRep – 3/1/2021

 

 

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