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Countries are Promoting Growth by Raising Debt While Holding Rates Down
(Note: companies that
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story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)
Keynesian economic theory says that the government should expand and take on debt during downswings in the economic cycle and pay back the debt when the economy is strong. Keynesian theory has been thrown out the window by Modern Monetary Theory (MMT) advocates who believe the government should grow the economy up to the point of full employment (sometimes advocating for guaranteed jobs at a minimum wage) regardless of economic conditions. MMT challenges the notion that government spending should be funded by taxes, arguing that the government can finance expenditures by easing monetary policy. At the root of the argument is the belief that government debt does not compete against the private sector’s ability to issue debt. This is because the government has a unique ability to print money and the ability to influence interest rate levels through the Federal Reserve. Can Modern Monetary Theory work? Or is it creating a ticking time bomb that will create problems for future politicians and taxpayers?