Will MMT Kill The Dollar As The World's Reserve Currency | WHAT REALLY HAPPENED

Will MMT Kill The Dollar As The World's Reserve Currency

For decades, the Federal Reserve claimed that monetary policy worked on an 18-to-24-month lag. Today, the Federal Reserve says that it is data dependent. It cannot be proactive and reactive simultaneously.

By making this shift, the Fed will fail, once again, to focus proper attention on longer-term consequences of its actions, and now the stakes are higher. The Federal Reserve’s post-crisis policy of 0% interest rates and quantitative easing has already been accused of widening inequality, creating asset bubbles, fueling indebtedness, and sowing seeds of moral hazard. A return to these experimental accommodative measures today risks creating a catastrophe. Fueling its pivot is an old failed theory which has reared its ugly head again, but with the new moniker ‘Modern Monetary Theory’ or MMT. MMT argues that countries will not pay a penalty for having their central banks purchase government bonds to finance deficit spending. Nothing could be further from the truth, because central bank asset purchases and debt forgiveness risks debasing the US dollar (USD).

Aided by the Fed’s low interest rate policy, US federal debt recently surpassed $22 trillion. According to the CBO it will hit $34 trillion by 2028. (These figures do not include the $123 trillion of the unfunded Medicaid and social security costs.) No doubt, the Federal Reserve’s asset purchases and low interest rates have accelerated and enabled US deficits.

To underwrite these large future debt levels, the US will need foreign countries to continue to use US Treasuries as the anchor of their foreign exchange reserves. At present, the USD is the world’s currency and Treasury securities are the collateral that fuels the global financial system.