Skip to content

Glorious MMT!

The official inflation measure points to prices rising at a 24-year high of 78.6pc and food costs almost doubling over the last 12 months.

Warren M, the founder of MMT, stated that lowering Turkish interest rates to zero was the cure for this. As Spud also signs on to…..

5 thoughts on “Glorious MMT!”

  1. If Turks had a CBDC that increased in lockstep with inflation, would nominal prices even matter anymore, since everyone’s real income purchasing power would remain stable no matter how high or fast nominal prices rise?

  2. Ducky McDuckface


    A vague attempt;

    MV=PQ. M = total amount of money available, V = the number of times that money changes hands, P = average prices level, Q = quantity of goods demanded by the population. MV=PQ is measured, as a snapshot or average, over a specific period, one month, one quarter, one year.

    If the population increases, then Q goes up. For P to remain the same (-ish) then either M increases, with V staying the same, or V increases with M staying the same, or both change.

    Can you be accurate in a prediction of changes in the population, and thus Q, over the next period you are interested in managing, controlling, the rate of change of P?

    Sorta, kinda, maybe. In practice, you can’t unless you’re willing to put up with a series of both under- and over-shoots, which you then have incorporate into your level of either M, V or both in the next period after the immediate one. Errors will propagate forward over the periods.

    Your notional CBDC, or any currency for that matter, has to be able to handle a change in Q, such that P remains the same. So, M increases as Q does.

    A reduction in M can be considered the equivalent of a tax. Ahem. However, it’s probably best to think of it as the government running a surplus, from tax, where total government spending varies over time, from surplus to deficit, equivalent to shares in a firm moving from free-float to treasury (bit of a hint there) and back out again. The shares (money) aren’t destroyed, they are put out of reach for an indeterminate period of time, where they can not change P.

    Balls the tax rate up, and you will change P. Or V.

    How do you handle money creation by credit? The interest rate I, is the price of money now, as opposed to money later. There are base rates, or Fed funds rates, or whatever you want to call it. But if you are an actor in the economy, you will not achieve that rate, unless you are very close to being the central bank.

    A firm wishing to invest in new kit, will bear the interest rate I, which is the risk free (central bank/sovereign rate) plus a spread for risk. Risk consists of specific risk (is the MD of this firm a nutter?) to sector risk, shared by all firms in the sector, up to systemic risk, all firms in all sectors, and inflation risk is systemic.

    An investor offering currency to a firm, can change M in doing so, by creating new money. MV=PQ is recursive with respect to M.

    This produces the scenario where to control the rate of change of P, you need to be accurate in predicting Q (related to changes in the population), and control the rate of change of M, which implies credit controls, the bluntest of which is I, the interest rate, and T, the tax rate.

    Assume that you are successful in reducing the rate of change of P to essentially zero. Price signals no longer exist. There is no way any actor can determine whether any particular innovation, or change in the use of capital, land, labour or the co-ordinating function (entrepreneurs/managers), can produce an increase in wealth, or aggregate utility. The entire economy resolves to a static state.

    If no signals (information) can be deduced from changes in P, actors look to information arising from changes in V, Q or M itself. You get gamed. The whole sequence starts again.
    It can’t be done. You end up in impossible trinity territory, with too many actors, too many lags, and too many cascading under- and over-shoots. Too many differing expectations changing predicted actions. That’s before people start actively gaming the shit out of you.

    And that’s in a closed system, before you get to BiS comment.

  3. @bloke in spain, Ducky McDuckface

    What if Turkey prints money for dollar currency swaps? As long as dollar sellers are not restricted by sanctions, can’t Turkey still borrow dollars and print lira to pay for them?

    As for the Quantity Theory, why does every empirical proxy for V that I can find indicate V has gone up with M even as P decreased or stayed relatively flat for decades?

    I.e., if you look at daily transactions, don’t you find trillions in financial market transactions compared to a tenth of that in real economy market transactions? In other words how relevant is the Quantity Theory when V is unobservable but likely far higher than the theory predicts?

    Also, where are derivatives such as inflation swaps in this story? Why can’t firms hedge inflation with TIPS, inflation swaps, and other financial products?

    《It can’t be done.》

    How can you prove that your story isn’t mostly in your head?

    What if we tried an inflation-proofed CBDC basic income which you too would have access to, to protect your savings (but only if you chose, you could of course hedge inflation your own way)?

Leave a Reply

Your email address will not be published. Required fields are marked *