The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

AOC Wins . . . and Dick Cheney too!

03/24/2020

In 2002, Republican Vice President Dick Cheney said “Reagan proved deficits don’t matter.”  Unfortunately, his comment unleashed a serious question – do deficits really matter at all?  Modern Monetary Theory (MMT) emerged from that discussion and has since been popularized by Democratic Representative Alexandria Ocasio-Cortez (AOC).

Under MMT, the U.S. Treasury can spend ANY amount of money and pay for that spending by selling bonds, which are bought by the Federal Reserve System as assets to hold on their balance sheet, which is unlimited.  Think about it — you could even make every American an overnight millionaire by simply mailing them a check!  It’s the ultimate sugar hit.  Of course, that would likely cause roaring inflation and a crashing dollar . . . IN THE LONG RUN . . . but not now.

Assuming the fiscal stimulus will cost $2 trillion, that spending would be added to our current budget deficit of $1 trillion each year and would total $3 trillion for this year.  Adding that to our National Debt of $23.6 trillion raises our total debt by 13% . . . in just one year.

Maybe, you should thank your children and grandchildren for the loan?  Of course, under MMT, they won’t have to pay for our spending or their spending either, because the Treasury will simply issue more bonds for the Fed to buy.  A real monetary Merry-Go-Round?

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