Wednesday, September 16, 2020

Modern Monetary Theory (MMT) and the Power of the US Dollar in the World Economy (Part 1) — Stansfield Smith,


Stansfield Smith mounts an interesting argument that the USD is the only truly sovereign currency in the world taking the present monetary arrangements into account. 

Owing to dollar hegemony, all other counties are dollar-dependent to one degree or another, which limits their ability to conduct policy independently in spite of their meeting MMT criteria for currency sovereignty. 

So, while the MMT position may be correct technically, there is more to it than that, and this is an important element in the pursuit of neoliberalism, neo-imperialism, and neocolonialism as a world system and world order. It allows the US to both make the rules and also to break the rules when this is to its advantage. In other words, it is an imperial system.

While the author doesn't mention it, there is also the issue of the US actively opposing other countries'' asserting independence from the dollar. Longish but worth a read.

Dissident Voice
Modern Monetary Theory (MMT) and the Power of the US Dollar in the World Economy (Part 1)
Stansfield Smith, Chicago ALBA Solidarity, long time Latin America solidarity activist, publisher of AFGJ Venezuela Weekly, and Senior Research Fellow at the Council on Hemispheric Affairs

5 comments:

lastgreek said...

Thanks for the excellent article, Tom.

"While the author doesn't mention it, there is also the issue of the US actively opposing other countries'' asserting independence from the dollar. Longish but worth a read."

Reminds me of the book by John Perkins: “Confessions of an Economic Hit Man”.

Global Markets Training said...

I agree. It is more difficult than commonly asserted for many -- especially developing -- countries to become completely sovereign in their own currency. Thanks for this article.

NeilW said...

It's interesting how these sort of articles completely miss the point by failing to address the process end to end - and making the same mistake over and over again.

Ultimately if you want to sell anything into a country with its own currency somebody along the chain has to take the local currency and buy in the foreign currency. Invoicing is utterly irrelevant. All it means is that the actual exchange point is within the developing country rather than being over the border. In other words *the currency area is smaller than the country's border.

You see that all over the place. In Northern Ireland near the border many places accept Euro. Go to Canada over the border (Niagara for example) and things will be dual priced in US and Canadian dollars.

The MMT position is that everybody buys things with the currency they hold and everybody selling ends up with the currency they want to hold, and it is the job of the finance system to make that work. Where they can't there is no deal. And since there will be no deal in that case, there won't be an invoice!

Calgacus said...

Global Markets Training:It is more difficult than commonly asserted for many -- especially developing -- countries to become completely sovereign in their own currency. Thanks for this article.

Sometimes, and it is not a panacea for development, but the belief that this or that country has such a difficulty is a MUCH BIGGER problem than this difficulty. Look at all the countries suffering under the Euro. Look at South Africa's economic policy - far worse than the old Boers' who at least stood up for themselves and told the rest of the world to f--k off. Look at Venezuela with its exchange rate follies, Brazil's Dilma Rousseff caving in to a completely imaginary, comical, "debt crisis". etc etc etc All of these countries would benefit enormously from taking easy MMT currency sovereignty steps. They don't because they have been brainwashed into insanity.

The author provides a good quote from Wray:They’ve got to move toward food independence and energy independence, because those are usually two of the things that they import.

One of the truly horrifying things happening in the last 50 years is that back then almost all countries were food independent, while now a great many are not.

But he spouts this nonsense: Consequently, only in the dollar can we find a currency that meets the MMT conditions for being sovereign.
That's just plain false. He's talking about some other conditions, not the MMT conditions.

When asked if there were any Third World nations follow the conditions MMT recommends to develop, Kaboub replied, “Unfortunately, not that I know of.”

That's partly because if you follow even vaguely MMTish policies - you quickly become a not-Third World Country. Good doctors cure their patients. It's been known to happen.

This author, who focuses on Venezuela, expresses his economic ignorance in another piece - supporting Venezuela's suicidal fx policy. Showing he shouldn't be giving advice to anybody until he learns more.

"The private financial system has used all manner of evading the currency exchange system and the controlled basic food prices we have had for 15 years. Business found cracks in these controls which allowed all Venezuelans have access to food at regulated prices.."

Venezuela: "We live under a financial dictatorship, under an ongoing business coup"

No, Venezuela's exports are what allow food imports. Their currency exchange system is/was an incredibly inefficient and indirect way of achieving goals that could easily be achieved directly. It crazily became an ideological issue, completely reversing reality, with the crazy system seen as "Marxist"/socialist/Bolivarian and floating as "Milton Friedman" aid to capitalists. Mark Weisbrot and other economists went to Venezuela repeatedly to advise Maduro to get rid of it. But nitwits, who this author seems to lean towards, won. The current assault on Venezuela only came after it had weakened itself with the self-inflicted wound of hyper-inflation.

Calgacus said...

His next article at the same place is worse

Why the US Can Keep Increasing its Debt and not Suffer Inflation (Part 2)

Reverses the US economic activities which are beneficial and detrimental to other countries, by making the most neoclassical full employment everywhere and always assumptions imaginable. Insists both currency appreciation and depreciation must hurt the poor countries. Culminating in this lunatic sentence - intermediate steps cut out.

"a rising value of their own currency .... increases the local cost of imports"
So if your currency rises - imports are cheaper, which means import prices go up. Uh-huh. Gone to a Mad Hatter's tea parties recently?