Inflation is on the market’s mind, but the Fed isn’t worried because it thinks it has the the tools to tackle inflation. Raising the funds rate seemed to work in the 1980s, but there are reasons to think it may not work well today. The prior financial landscape was bank centered – raising the funds rate increased the marginal opportunity costs of banks, which discouraged credit creation and thus dampened economic activity. But we are moving into a world where …
Tag: MMT
Advanced economy governments do not need taxes to fund spending. For over 10 years the U.S. has heavily relied on the Fed to finance its ever increasing public spending, with limited effects on consumer prices or the value of the dollar. The same observation can be made in a number of advanced economies. A fiat system that holds the confidence of the public does not need taxes to fund itself (but things change when that confidence is eventually lost). Yet, …