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MMT:  A Dangerous Theory Indeed

 Responding to an article in the April 1, 2019 edition of the WSJ entitled:  "Theory Behind Democratic Proposals Gets a Public Face"

Stephanie Kelton's Modern Monetary Theory (WSJ 4/1/19), according to which the government should engage in unlimited spending since it never runs out of money, only holds true under two conditions:  1) the government holds enough collateral to cover the increased debt resulting from the spending, and 2) the central bank holds short-term interest rates near zero to prevent the cost of the debt from choking the economy.  

In the case of Japan, whose national debt is $10 trillion, about twice GDP, national savings is also $10 trillion, so the debt is collateralized.  Collateral for the US is even more impressive.  The estimated value of government land holdings, mostly oil-producing lands leased out to the private sector, are estimated in excess of $100 trillion.  Our $22 trillion gross national debt is covered many times over. That's why we can sustain low interest rates.

The second condition necessary for MMT to hold water is that the central bank must keep short-term borrowing costs near zero.  The Fed's recent increase in the overnight Federal Funds rate to 2.4% eliminated the possibility for the US government to fund at the short end with interest-free money. 

Here's a better idea:  sell off $22 trillion of government-owned oil-producing lands managed by the Bureau of Land Management.  Pay off the national debt entirely with the money raised.  Sell more government-held oil lands still to pay for education, health care, and social security.  In exchange, pass a balanced-budget amendment to stop elevated debt from increasing further to the point where collateral is exceeded.  Without a cap on government spending, eventually debt exceeds collateral and we are all in big trouble.

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