What is valid about Modern Monetary Theory isn’t modern, and what is different about it is, and has always been, whack.
Modern Monetary Theory is a heterodox theory arguing that the deficit is a shibboleth. With fiat money, there should be no fear of deficit spending. If the economy is underperforming, just have the government spend more. Following the Financial Crisis of 2008, Paul Krugman bemoaned that the world wasn’t being invaded by space aliens because such a threat would induce massive, huge, ginormous spending, and that spending would solve all our economic problems.
Last year, with the deficits associated with the Pandemic and the government-ordered shut-down, the Amazing Joe Biden said, “There’s nobody suggesting there’s unchecked inflation on the way, no serious economist.” This year, inflation is surging.
Modern Monetary Theory supposes that money has no intrinsic value, but is essentially an unbacked or fiat currency. Accordingly, government spending isn’t constrained by tax revenue or even by the ability of the government to borrow. The government has only to print up whatever amount of money is needed for spending. Those who insist on balancing the budget are obsessing over something that is no longer relevant. They aren’t “modern.” Or, as Amazing Joe put it, they aren’t “serious.”
If deficits don’t matter, what then is the purpose of taxes?
Aside from redistributing wealth, MMTers say the purpose of taxes is to control inflation. If inflation were to break out – definitely not because the government is deficit spending and printing new money! – then the government can tidy up that little problem by removing some of the money sluicing around in the economy by raising taxes.
Wait, you may be saying, doesn’t this use of taxation to fight inflation effectively bring us back to mainstream economics?
No, you’re missing the point, MMTers say. Modern Monetary Theory is a different approach. Instead of restraining spending because of concerns about the deficit and inflation, Modern Monetary Theory says spend freely. If inflation results, just raise taxes.
What is valid about the connection of fiat money and taxation was discussed by Adam Smith and incorporated by the British Parliament into the Currency Acts of 1751 and 1764.
The Currency Act of 1751 pertained to the New England colonies (only). It normally limited the issue of (non-interest bearing) “bills of credit” (i.e., fiat currency) to the “current service” of government. While having no intrinsic value, these bills circulated as money (even though not enjoying legal tender status) because they could be used to discharge taxes coming due in the near term. The Currency Act of 1764 essentially extended the same terms to the other colonies of British North America.
Adam Smith, in The Wealth of Nations examined the experience of tax-backed fiat currency in British North America, and said that if the quantity of paper money was kept below the amount payable in taxes, and if it were otherwise convenient as a medium of exchange, that paper money would circulate at its face value. However, he said the quantity of paper money “was in all the colonies very much above what could be employed in this manner.” The latter statement was something of an overgeneralization. The colonies abused the power to issue paper money to various extents. Not all of them “very much” abused this power.
Two additional episodes involving tax-backed fiat currency come from Texas during the mid-19th Century. When Texas gained its independence from Mexico in 1836, it had no significant tax. The first President of the Republic of Texas, Sam Houston, estimated the demand for a national medium of exchange to be $800,000, and thought that this demand could be partially satisfied with a limited issue of tax-backed currency, in conjunction with enacting a tariff and restraining spending so as to quickly bring the budget into balance.
His successor, Mirabeau Lamar, was something of an MMTer before there was such a thing. Lamar had great ambitions for Texas, along with the requisite spending plans. And, where was the money to come from? Through the issue of millions of dollars of Texas Treasury notes characterized as “Red Backs.” Needless to say (to mainstream economists), the Red Backs fell to pennies of a U.S. Dollar per Texas Dollar.
During the Civil War, Texas, now as one of the Confederate States, issued Treasury warrants that circuited as money. After the collapse of the Confederate Dollar, Texas raised taxes and instituted other measures to support its warrants. The warrants then rose in value until continuing issues and the advance of the Yankees did in the Texas warrants, as these things had already done in the Confederate Dollar.
Later in the 19th Century, there was yet another test of the tax-backing of money. This test involved silver money, either in the form of coins or in the form of (paper) silver certificates. As the value of silver fell relative to gold during the late 19th Century, the United States found itself in a quandary. Either continue to issue silver currency and be forced off gold and onto a devalued silver standard, or limit the issue of silver currency.
This matter came to a head in 1893, when President Grover Cleveland, the last of the hard money Democrats, called an extraordinary session of Congress to repeal the law mandating the issue of a certain amount of silver currency and, thus, commit the U.S. foursquare to gold.
Time and time again in the history of this country, the ability of taxes to support an unbacked or insufficiently-backed currency has been tested. Every time the answer has been clear: The acceptability of a currency for the payment of taxes can support the value of such a currency; but, this ability is limited. If the issue of an unbacked or insufficiently-backed currency exceeds the amount needed to pay the tax, and even exceeds the amount in demand as a medium of exchange, the value of that currency will fall (or, there will be inflation).
You might think that somebody as old as Amazing Joe would know this history. Yet, if this history wasn’t written down by a student sitting next to him during a test, it’s not clear he would ever have learned it.
- Concerned about your life’s savings as the multiple challenges decimate retirement accounts? You’re not alone. Find out how Genesis Precious Metals can help you secure your wealth with a proper self-directed IRA backed by physical precious metals.
Article cross-posted from AIER.
Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
