The siren song of “free money” programs like MMT and UBI
Why these are financial “roach traps”
The inevitable inflationary end of our current trajectory
What to invest in to protect your wealth
If you have not yet read Part 1: Could Modern Monetary Theory (MMT) Actually Save Us?, available free to all readers, please click here to read it first.
The current high visibility of large-scale new spending programs — MMT-funded infrastructure and New Green Deal spending, and Universal Basic Income (UBI) — suggests the groundwork is being laid for their eventual passage into law.
One reason why these programs are increasingly inevitable is TINA —There Is No Alternative. There is no alternative to funding the status quo and no alternative way to shovel enough money into households to maintain the consumer Landfill Economy of endless “growth” and give households enough cash to service their astounding debts.
(I have long held that UBI is basically a bank bailout disguised as warm and fuzzy “help.” You can be sure that UBI recipients will not be able to default on their student loan and credit card payments and still receive their full stipend.)
That something is “too good to be true” has never stopped its political passage, especially when there is no other equally painless (at least at first blush) alternative available.
Paying interest is painful; issuing “free money” is painless. Even if the Federal Reserve drops short-term bond yields close to zero, longer term bonds still accrue interest. As Japan has shown, even very low rates of interest eventually accrue monumental annual interest payments. Last time I looked, 40% of all federal tax revenues in Japan went to interest on the fast-rising debt, even though the yield on most government bonds is a paltry, near-zero 0.1%.
2018 Tax Revenues: 59,000 BY (billion yen)
2018 National Debt Service: 23,300 BY
(34.5% of Japan’s federal spending is borrowed via Government Bond issuance) (Source)
At roughly 2% yield on long-term bonds, governments must soon resort to borrowing more every year just to cover the fast-expanding interest due on the fast-expanding debt. It’s fairly safe to say that once an entity resorts to borrowing more annually to pay interest, on top of borrowing much of its budget for other spending, that entity is heading for insolvency or default, even an entity as mighty as the U.S. government.