MMT Explains: Why BIG Deficits are BULLISH

In this video, we debunk the concerns raised by macro alarmists about the growing U.S. deficits and their potential impact on the economy. As the latest Monthly Treasury Statement reveals a massive $244 billion deficit for July 2024, many are warning of impending economic doom. However, we explain why these fears are misplaced, highlighting the fundamental mechanics of government spending and debt. By exploring Modern Monetary Theory (MMT), we demonstrate that deficit spending actually adds net worth to the private sector, fueling economic growth rather than leading to collapse. We also analyze the implications of current deficit trends, showing that while deficits remain high, the real risk lies in a potential slowdown of government spending. Tune in to understand why rising deficits should be viewed as a bullish signal for the markets, and why the real danger only emerges when deficits start to decline.

[GrantLeeEdwards]

Top notch. I recently subscribed on Doug’s site. Worth every cent.

[ivanchernenko]

You ignored the elephant in the room which is the GDP output for each dollar of additional debt. In the 1960's and 70's, for every dollar we borrowed and spent, we would get $2-3 of GDP output, meaning it was a net positive. For every 5 year period since 2006, for every dollar we borrow, we get much less than $1 of economic output. For 2023 the US government borrowed $3.1 Trillion, of which only $2.3 Trillion of GDP was recorded. The remaining $800 Billion generated ZERO economic activity whatsoever. However we still have to pay interest on all this debt that was a net negative. You also failed to mention that interest on this debt is growing rapidly and is now at well over $1Trillion, making it the single largest budget item. Your balance sheet example fails to take into consideration depreciation/mal investment of purchasing items which do not generate positive economic utility and whose value drops over time yet the need to pay/roll over the debt remains and interest paid cannot be avoided.

[TheControlBlue]

You really need to get the concept of delayed consumption.

[ducdao]

Excellent quad chart! I never got why mainstream economists don’t understand the simple relationship between gov’t spending and private sector money supply. If the gov’t doesn’t spend, how would the private sector even have money? Gov’t spends money into existence and that deficit has to go somewhere.

[ashnur]

This all makes sense, but I do worry that looking at 50 years is such a narrow focus, we miss a lot.

[harounkola]

What would we do without our government creating good money for us 🤑

[TheControlBlue]

We will see who will have the last laugh.

[Skizzy]

Really enjoy your teaching style and all the work you do. Please keep it up.

On your quad box, when the asset is purchased by govt, I believe treasury would have an asset and negative net worth. No liability. Wouldn’t the Central Bank have the bonds on its balance sheet? I’m not able to keep up with your double entries in each instance.

[laurenz]

Nice sum up. Deficit spending is the wrong word bc gov spending starts always as a deficit

[borkerfieldfilms]

Bitcoin is going to break mmt, sorry guys