Daily Archives: April 13, 2020

The Use and Abuse of MMT

Counter Punch has the article The Use and Abuse of MMT.

Most of this seems correct to me, but some of it seems a little off. This article is coauthored by Michael Hudson, so I shouldn’t be questioning it.

I am still thinking about this claim

The asset-price inflation effect of money creation by banks is thus to exert a downward impact on commodity prices, to the extent that the carrying cost on bank credit reduces the net purchasing power of debtors to buy goods and services.

It does not seem right to me to call the reduction of purchasing power as deflation. Increasing costs for financing does lower the money available to buy what is being financed. However, the price of houses did not decline. The size of the house you could buy for a given amount of money did go down because the price and the cost of financing did go up. The total cost of the house went up, but in some respects the cost of the components, the house itself and the cost of financing, could go in different directions. As the mortgage interest rates dropped, the money a person could afford to spend for the house itself went up.