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The limits to Modern Monetary Theory

Summary:
As we all know Modern Monetary Theory insists that a government which prints its own money can simply never run out of money. Thus it is always possible to finance ever more government spending. The rest of us have the occasional problem with that idea but we are stilled by the thought that, well, the people who make money never can run out of it, can they? There was that time in Zimbabwe of course, where the last print run of 0 trillion dollar bills weren’t worth enough to pay for the ink to print the next one. But surely that’s an exception, right? There is also an £18million black hole in the accounts after the company revealed in May that the Venezuelan central bank has been struggling to pay its bills.De La Rue was hired by Venezuela to print bank notes. And the people who received

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As we all know Modern Monetary Theory insists that a government which prints its own money can simply never run out of money. Thus it is always possible to finance ever more government spending.

The rest of us have the occasional problem with that idea but we are stilled by the thought that, well, the people who make money never can run out of it, can they?

There was that time in Zimbabwe of course, where the last print run of $100 trillion dollar bills weren’t worth enough to pay for the ink to print the next one. But surely that’s an exception, right?

There is also an £18million black hole in the accounts after the company revealed in May that the Venezuelan central bank has been struggling to pay its bills.

De La Rue was hired by Venezuela to print bank notes. And the people who received the printed bank notes don’t have enough money to pay the bill for them. It would appear that we have a second testing to failure of this central contention of Modern Monetary Theory.

Perhaps we should revert to the more sensible Marxist - tendence groucho - economics and point out that even if we’ve an idiot proof system like MMT we need to find a moron to properly test it. For a central political point is that inevitably one or more of them will get elected somewhere.

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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