What Exactly Is Modern Monetary Theory (MMT)?

In this video (Part 1 of 2), I discuss "Modern Monetary Theory" (MMT) and its relationship to more traditional forms of government borrowing.

A government has two primary ways of raising capital: it can tax its citizens, or it can borrow money (either domestically, or from international investors) in the form of issuing government bonds.

If there is not enough market demand for government bonds, the central bank may be forced to step in, print new money, and absorb the supply of bonds.

Modern Monetary Theory does away with the traditional separation of the U.S. Treasury from the Federal Reserve. Instead of going through the motions of involving primary dealers (big banks) in the distribution process, MMT posits that the government should directly create as much money as it needs to spend.

If the economy begins to overheat or if there are incipient signs of inflation, the government can always reduce the money supply by raising taxes (withdrawing money from the economy) or by cutting government spending, thus slowing down the distribution of new money.

Only a tenured academic rent-seeker could ever have come up with this absurd theory.

Quantitative easing already inhabits the space of clown world.

MMT makes it official by creating a full-fledged economic circus.

Not investment advice! Consult a financial adviser.

Modern Monetary Theory:

Watch the Fed's balance sheet grow:

Matthew Kratter is the author of the Amazon best-seller "A Beginner's Guide to the Stock Market":

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#MMT
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[JW-cpuv]

This was such an awesome video. One of your best ever, if not the best. Can't wait for Part 2!

[ioannislazaridis]

The most straightforward explanation ever on this topic. Congratulations !!!!

[derekmcdaniel]

“Debt" is a legal relationship. Because of sovereign immunity, etc, it is impossible for governments to have domestic debt-- there is no external authority. Only subjects can be indebted, legally speaking. Private wealth is actually dependent on legal protection and rule of law. Without a government, your wealth is limited to what you can personally enforce. This is not hypothetical, all animals live this way: squirrels stashing nuts, etc. Most animals cannot even clothe themselves.

Anyway, a government must define an accounting system. This is done by imposing debts and property rights on private citizens. Property rights are in fact a restriction on everyone EXCEPT the property owner. Governments do not sell goods and services, they perform their activities according to political will, not financial incentive, that is their purpose, so they couldn't possibly “repay“ anything. All they can do is forgive your tax debts.

Accounting IS the imposition of rule of law. All financial wealth(even bitcoin) is dependent on rule of law.

The government offers to punish an unlimited amount of actions. There is no reason why it cannot similarly offer to reward actions.

MMT simply says that inflation is the only thing limiting goverment spending, which you state in your video. All MMT points out, is that those limits, especially in the modern world, with our tech and supply chains, are much bigger than we can imagine. MMT is not new, but it is the only theory that correctly describes the modern world. Older theories may have partially worked in the past, because inflation was common in history. But we have had 30 years with very little inflation. Entire lifetimes. That by definition is not a bubble.

[GenXstacker]

Excellent video. Great job explaining it.

[nathaninvestor]

Hi Matt,

Is it a good time to get into gold or stocks now?
Would high quality companies be insulated from inflation/debasement?
I still feel good stocks could outperform gold in terms of returns

[carlosbaena]

Staying tuned for part II, thank you.

[henrygustav]

Uhm, where in this video are you discussing MMT? It seemed to me you were going to describe federal finances thru a mainstream view, then thru the MMT view or is that in the next video? It seems to make you make the common mistake of thinking MMT is something to be implemented. MMT is how it already works.

[joeltreliving]

Matthew, can you explain the difference between MMT and previously failed economics systems that create as much money as it wants. What is there to say that the west can do it better than Zimbabwe or Venezuela?

[ekwink]

I learn so much from your videos and would love to see a part 2 to this. Also would love too see you do a video on what you would do to fix our current monetary dilemma or what should have been done differently in the past to avoid this mess. I suspect it is beyond repair at this point. Thanks so much for what you do.

[samntiros]

I’m glad you trashed MMT. I was a little worried that you wouldn’t. Then again, I am a new subscriber

[Rob-fxdw]

You are spot on with the faces of the Federal reserve. You are right about that for sure.One of the many, many problems with MMT is that it denies taxes are re spent by the government and says that taxes reduce the amount of money in the economy to' fight inflation ' which is totally WRONG. MMT's most well known advocates Mosler and Kelton, Mitchell and Randall Wray perpetrate this myth.
If government spends more money funded by deficits those deficts are a tax themself because they take resources from the economy and redirect them without any consideration of price discovery but with a lot of consideration of political policies that are just aimed at getting politicians re elected.

[rickl]

I realize some of my colleagues see you as a conspiracy theorist, but you have a lot of solidarity to your logic and figures. I usually look forward to your videos with great anticipation of what the day's topic will entail

[wism]

I'm interested in paying for his course but I'd like to know some opinions. Would you recommend it? Is it worth the price?

[jannar]

Very nice informative video. Waiting for the second one.

What about money getting accumulated with the rich who are not taxed proportionately.

The money getting printed can keep accumulating with the top 2% rich people.

[NuNuRokd]

Have you seen the pump and dump about to happen on dogecoin? A video on TickTock was telling everyone to buy $25 of doge coin to pump it up to one dollar and everyone will make Thousands of dollars so huge amounts of money is being dumped into the coin.

[teddison]

Is taxing the whole way to suck dollars out of the economy? What about selling bonds etc?

[nicksundby]

Superb video, but a bit terrifying to learn what our leaders are doing

[TylerAATW]

Ticker SNAP made some good movement, Pulled out halfway though it. But PTON seems to be doing well. Great picks Matt!

[Rob-fxdw]

Trader - Interesting article. - We are talking about sovereign money today as it exists.
You say "A government has two primary ways of raising capital: it can tax its citizens, or it can borrow money (either domestically, or from international investors) in the form of issuing government bonds" . Not quite correct because it only has ONE way to provision itself. i.e. - Taxes in one form or another. All the other is detail that is aimed at collecting taxes. Borrowing is taxation that is deferred since the public is forced to pay taxes when the Treasury bonds that were used for government to benefit from their sale actually mature and the public have to pay them out via taxation.
Originally taxes were taken by authority taking goods or services that people produced instead of money. That taking of property still happens when people default on their taxes and government take their property in lieu of money they don't have.
MMT is all confused about taxes and their implications with claims of taxes making the money more valuable (Mosler, Randall Wray and Kleton).
They fail to see that taxes existed in ALL of the countries where inflation caused the money to fall to absolutely no value at all despite those taxes.
When asked about it they cannot answer. (it blows their theory to bits).
The reality of money today is it is all fiat money credit money. MMters don't understand or accept this because they are mentally stuck in a world between the gold standard and fiat credit money.
The reality of credit money is that it all is created out of credit by either private banks when they lend to borrowers or by the various government's Central Reserve banks which lend to the government.
When private banks lend there is loan document create by the bank that the borrower is required to pay off. That is done with existing money from that circulation the private sector.

When Central banks create more money there is a Treasury bond that the government's Treasury sells to the central bank in exchange for the new money they create out of nothing.
Eventually bonds mature (like private loans mature) and the government pays for them via the tax system which means taxes from the private sector are used because there is no other source of revenue income for government than taxes to pay it's bills.
Summary - All roads lead to the following :- Taxes from the private sector pay for new money that government spends and pays for existing revenue spent by government.

[brentlawrence]

Keep up the great videos. I have learned from each video. Lately, I have been reading/googling about how to protect some wealth when an economy turns to socialism. The opinions on the net are numerous. I would like to hear your perspective because you seem to have a good balanced head on your shoulders.