My title is a bit of an exaggeration, of course. But it’s intended to inspire you to head on over to the opinion pages of the Financial Times and read Cullen Roche’s excellent article on the contributions of the modern monetary approach to our understanding of economics in the 21st century.
Roche, a ridiculously prolific guy who runs two must-read websites (Pragmatic Capitalism and Monetary Realism), while also trading for himself and his clients, provides a very concise summary of the practical consequences of the theoretical insights of modern monetary economics.
I’ll sum them up quickly but I encourage you to read Roche’s FT article.
Read it at CNBC NetNet
by John Carney | Senior Editor
Look like Cullen was right. The financial world will listen to the advances made in the understanding contemporary monetary economics — as long as it is minus the "socialism" that it enables.
I am not sure that this is necessarily going to result the advance that most of us expect once this understanding becomes widespread. I suspect that the understanding is already implicit, in that everyone in finance knows that by definition a fiat currency is operationally unconstrained in the amount of fiat that can be generated through "printing."
What they assume, however, is that adequate limits have been imposed legally to establish political restrains requiring taxing and borrowing for instead of unlimited issuance. To the degree it is discovered that this may not be the case, then there will be a strong political push tighten the political restraints. This is what Ron Paul's monetary and financial reform is all about, although his concern is more specifically about the Fed providing unlimited liquidity to the financial sector.
That is to say, a correct understanding of monetary economics under the present system reveals that it creates much more policy space than a convertible fixed rate system, for example. Politicians will naturally use this space on policies that push their favorite programs. The right, to expand the military and provide subsidies to "job creators." The left, to the garner the votes of the "great unwashed" by extending popular social programs.
The masters of finance do not like extra policy space, however, so count on a push from their side to tighten the reins, should a push in the other direction come from greater understanding of how the present system actually works.