Seeking Alpha has the article Bad News – The U.S. Government Posts A $214.25 Billion Budget Surplus For April 2018
Here is one of the introductory bullet points.
Net financial assets in the private sector declined by $214.25 billion in April and have prolonged the current stock market retrace.
This article is a 9 page dissertation in how Modern Money Theory (MMT) justifies the title of the article.
This is an ideal example of where MMT goes way off the rails. I have read the book Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems and much more about MMT. I don’t need 9 pages in this article to see the hole in the argument, when they emphasize the flaw in one of the bullet points.
Here is where the flaw in the analysis is buried “Net financial assets in the private sector declined by $214.25 billion in April and have prolonged the current stock market retrace.”
When you only talk about net assets, you exclude the counting of borrowed assets like money because the borrowed money is cancelled by the debt in the static analysis of net assets. But that does not mean that the borrowed money during the life of the loan isn’t producing economic benefits. It doesn’t mean that the benefits disappear when the loan is paid back.
When any entity borrows money and puts it to productive use, the borrowed money is producing profits that exceed the cost of borrowing the money. It’s called leverage. If people don’t think that the use of leverage is economically important, they haven’t understood the mantra of “buy now, pay later.” Surely borrowing can lead to trouble if the purchase doesn’t more than pay for itself, that’s why leverage is risky. However, well calculated risk usually has big rewards.
So the bullet point is right that net assets, more accurately called high powered money in MMT lingo, has been removed from the economy. However, they are failing to take into account the private lending can, under the right circumstances, replace the missing high powered money with low powered money created in the private sector through the making of loans. If you only look at a one piece of the economy, you cannot always predict what the consequences will be.
I haven’t even thrown in the mark-to-market asset valuation technique that also has huge economic impacts. Can one tulip bulb really have a value that was placed on it during the Dutch Golden Age?