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Comment by hodwik | Hacker News Reader

Ignored for years? What? From what I can tell that's how we got into $19 trillion dollars of debt. The only reason it's now being defended as a systematic theory is that it's become embarrassing to still believe it in the face of all evidence.

Simply put: MMT completely ignores floating exchange rates.

The only reason that hasn't been completely catastrophic (for the US) is that we're the global exchange currency, and can basically tax the whole world by printing more money.

The long term problem is that too much inflation (or, more accurately, taxation) may drive people away from our currency, and MMT will be shown for the sham that it is.

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> MMT completely ignores floating exchange rates

I'm not sure where you're getting this from, but I learned the difference between fixed & floating exchange rates by reading MMT economists.

>The only reason that hasn't been completely catastrophic (for the US) is that we're the global exchange currency, and can basically tax the whole world by printing more money.

No, the only reason it hasn't been completely catastrophic is because there's basically no consequence to having this level of debt. Interest payments on our debt are close to the lowest they've been in decades. What's the catastrophe supposed to be, again?

I don't think you can drive people away from the US dollar, simply because any such destabilising action will hit the real economy first. And the US has seen low consumer inflation for years now.

MMT absolutely does take account of forex by recognising that a government has a large amount of power to dictate money flows within the country, but very little power to compel terms of trade overseas. And most countries need to continuously import certain things which cannot be substituted locally, especially fuel.

Expanding the money supply lets people buy more locally produced stuff, but not more imports. This even scales down to local token currencies ("Bristol pound") or Krugman's "babysitting tokens" thought example.

" a government has a large amount of power to dictate money flows within the country, but very little power to compel terms of trade overseas."

Isn't the petrodollar system precisely the historical exception that allows the USA to have a lot of power when it comes to "compel terms of trade overseas"?

edit: obviously the other side of that ability to "compel terms of trade overseas" being the US formidable military power that allows them to further twist other countries arms when they refuse to play by the petrodollar system rules (see Libya, Iraq, etc)

> "Expanding the money supply lets people buy more locally produced stuff, but not more imports."

Right, so for most developed nations this would be disastrous.

The worst you can be imposed on you (outside an embargo situation) is balanced trade, paying for real imports with fx acquired through real exports.

Which, for the US, would be a very serious downgrade from our current situation.

Depends on your position in the current situation.

Well, then let's clarify: For almost all Americans -- who produce essentially nothing of value, yet consume a lot of very real, imported goods -- balanced trade would be a complete disaster.

Trade deficits are definitely a net positive, but that lack of demand they cause actively harm a large swath of Americans.

There's a reason NAFTA has been so unpopular.

>Simply put: MMT completely ignores floating exchange rates.

Horseshit.

>The only reason that hasn't been completely catastrophic (for the US) is that we're the global exchange currency, and can basically tax the whole world by printing more money.

Yeah, yeah, and the only reason it wasn't completely catastrophic for Japan is for some other completely different reason (aging population, people like to save - take your pick).

Be consistent at least about your excuses. Make sure they apply to the US and Japan.

Japan's QE was in response to deflationary pressures. That's a far cry away from QE while inflation is already happening.

Further, I don't see why you can't have two completely different reasons for the same effect.

And while demographics are important, I wouldn't call it the primary effect, instead I'm with Haruhiko Murayama from the Bank of Kyoto: "[Japan deflation is caused by] a lack of demand, which in turn is attributable to the fact that emerging countries such as China, South Korea and Taiwan have come to manufacture inexpensive high-quality electrical products by introducing new equipment and by taking advantage of their cheap labor."

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