Paying for Lunch – MMT Style

Dan Kervick, New Economic Perspectives A common criticism of Modern Monetary Theory is that it is a naïve doctrine of free lunches. The critics grant that a country like the United States, which issues its own freely floating fiat currency, can always make the policy choice to issue whatever quantity of that currency it deems …

How Safe Are Money Market Mutual Funds?

Written by Steven Hansen I really have two focus discussions this week and will start with the headline topic.  Most of us have a few coins parked in our brokerage account – and usually this money is swept into a Money Market Mutual Fund (MMMF).  A little reported study was issued this past week by …

The Big Question: Has Austerity Gone Too Far?

by Giancarlo Corsetti, Voxeu Is austerity self-defeating? Is it keeping Europeans underemployed for years and destroying the very growth needed to pay off the debt? Or is it steering nations clear of Greek-like tragedies? So starts a new debate on Vox on austerity, introduced in this column. Fiscal tightening is the watchword all across Europe. …

Nominal GDP Targeting

by Dirk Ehnst

Paul Krugman has embraced nominal GDP targeting. And we are back at the old QE discussion. It is Richard Koo in the red corner, vs Paul Krugman in the blue corner. One is left with the impression that the whole case for a nominal GDP target is based on dubious assumptions and mixed evidence at best. The case for fiscal policy is much more clear-cut. Targeting nominal GDP is OK with me, as Paul Krugman says, why exclude the fiscal side? As it stands, it is a lender’s strike. Investors want to see aggregate demand rise, and not expect that it rises. Only then you get back to talking about credibility and confidence and all those things. Since we are in a situation which resembles the Great Depression, I am not aware that any country escaped from that event by changing expectations. Two things did it: exiting the gold standard (which gave you control over the interest rate and money supply), and ramping up fiscal policy. I wish there were another way.

The Trillion Dollar War of Choice and the Constraints on Macro Policy

by Guest Author Menzie Chinn

The cost of the Iraq War has reached almost trillion dollars – at least $805.6 billion as of the end of September, not including debt service and additional reset costs; around $940 billion including interest payments.

As the US economy faces the prospects of stagnant growth or recession, it is of interest to see why the scope for fiscal policy is so circumscribed — that is, why is the debt level so high given that in the last year of the Clinton Administration we were paying down debt? Figure 1 depicts part of the answer (other parts, here).