A chara, – David McWilliams ("It's not money we lack, it's vision", Opinion, October 2nd) writes approvingly of the fact that the many central banks around the world (most notably the Federal Reserve but also the ECB) are pursuing Modern Monetary Theory-inspired policies (MMT) by monetising government debt and creating currency units out of fresh air.
He also opines that a government deficit matters not, as government spending creates a surplus for someone else and that “government debt is never paid off, merely rolled over, another little secret ‘deficit hawks’ rarely admit”.
Well a few little secrets David McWilliams seems loathe to point out are that governments can only fund spending in one of three ways: taxing (ie taking the purchasing power from taxpayers now), borrowing (taking the purchasing power from taxpayers in the future) or printing (taking purchasing power from all holders of assets denominated in the currency being printed, including savers, those in receipt of fixed salaries and compensation and pensioners).
The burdens imposed on the taxpayer by taxing and borrowing are more visible and understandable (and therefore more likely to be resisted by) the taxpayer. It is the shrouded, pernicious and longer-lasting burdens imposed by printing money and inflating the money supply which makes it both more destructive and the choice of government (owing to the burdens being obscured and less likely to engender resistance).
Given that government spending relies on taking purchasing power from various groups and transferring that purchasing power to the government, the benefits lost to those groups arising from their loss of purchasing power are costs most proponents of government spending either fail to comprehend or wilfully ignore.
MMT is essentially quantitative easing on steroids and is implemented by continuous issuing of fresh currency units. Issuing fresh currency units by central banks is the primary reason interest rates have been forced downwards and asset prices upwards for the last 25 years, especially property assets.
There is no magic money tree that produces an unending stream of wealth for us (which David McWilliams seems to believe), only a fiat currency system which is an ongoing exercise in cannibalising the purchasing power of the existing currency stock as each and every additional currency unit is created. This has resulted in soaring asset price inflation, rising consumer and producer price indices, and falling returns to pensioners and savers. – Yours, etc,
JAMES MURPHY,
Dublin 2.