Over the past several years, Modern Monetary Theory has become de facto U.S. government economic policy. To refresh your memory, MMT posits that the government can spend as much money as it likes without worrying about how to pay for it because essentially, it owes the money to itself, plus it can simply print more money as needed. Since the 2008 global financial crisis, the U.S. has done that mainly through the Federal Reserve, which has seen its balance sheet balloon to $9 trillion as the national debt has swelled to $30 trillion.

The only constraint on government spending, according to MMT, is when inflation gets out of hand, at which time the government should impose tax increases and reestablish equilibrium. There doesn't appear to be any magic number for what constitutes worrisome inflation, but reasonable people surely believe we have already reached that point, which should mean that the time is right to start raising taxes.

Not surprisingly, recent converts to MMT only really like the first part of the theory since it gives the government license to spend freely and not have to worry about the consequences. Now, however, MMT is being put fully to the test; inflation is here.

As we have seen, though, there is absolutely no interest in Washington to raise taxes to fight inflation and pay for out-of-control spending. Instead, we are now beholden to the two people, namely President Biden and Fed chair Jerome Powell, most responsible for creating the inflationary pressures in the first place to stuff the inflationary genie back into the bottle. Can they do it? Continue reading "Powell To The Rescue, Yet Again" →