No deal Brexit will cause the £ to fall. OK, change in terms of trade, change in value of currency, obvious. But it’s a nice test for MMT:
Consultant Capital Economics suggests an even bigger drop to $1.15 against the dollar and below parity against the euro. Capital says the Consumer Prices Index (CPI) might hit 3.5pc next year, the highest since George Osborne’s austerity VAT hike pushed up prices in 2011.
We get inflation. At which point Snippa tells us we have to curb new money creation – and thus spending – and raise taxes. But this will be at a time of rising unemployment and spare capacity in the economy. Which is when we shouldn’t curb spending nor raise taxes.
That is, we’ve a test of the MMT contention, that we can control the money supply, inflation and the FX rate all at the same time through the same instruments. We can’t, of course. There ain’t no economic philosophers’ stone.