Sumner: Which will bring more deficit and debt

Monetary expert Scott Sumner notes that his colleague Larry Summers sees the same scenario of three scenarios for further economic growth in the United States, namely high inflation, a soft landing and a sharp recession. Parties Fedu. That is, a hard landing that ends in a recession. Sumner says this is a good prediction because Summers will be one way or another. “But there is nothing better than this to offer myself, only market forecasts,” says the monetary expert. It deals with the problem of rates, loans and who and how to pay them.

“Larry is now seen as an old conservative boy, as opposed to the young economists who see inflation worries as the lifeblood of the 1970s,” Sumner writes. According to him, such neglect of inflation is often associated with so-called modern monetary theory, but “it is somewhat surprising.” According to these supporters of the MMT, higher inflation should be a reflection of a higher budget deficit. If inflation rises later, the regular MMT follower should not rely on tightening monetary policy, but rather raising taxes. In other words, the MMD has said that if inflation rises, budget deficits will be much higher. It is therefore inappropriate to link MMT by ignoring the inflationary effects of the budget deficit.

However, Sumner says (and agrees with Paul Krugman) that trying to understand what MMT supporters think is very tricky. “I know for sure if there is a lot of inflation, these people will say they want to raise taxes. When inflation does not come, they say they do not expect any inflation,” Sumner writes. According to him, those who wave their hands at the risk of inflation have forgotten how such inflation really arises and can understand it. Why? The economist uses the following example: If someone sets a thermostat between 20 and 22 degrees, on average 21 degrees, for such home-grown children, the thermostat is not the cause of the temperature. According to Sumner, he is not afraid of high budget deficits due to the risk of inflation. According to him, the central bank will ultimately determine it with its monetary policy. This is “irresponsible policy because it will lead to higher taxes in the future and current growth will not be supported until the third quarter.” He says a shortage of economists could lead to higher rates, but not in countries like the United States.

“For 250 years of American history, politicians have been holding back budgets in peacetime for fear of higher inflation or higher rates, or for fear of losing confidence in the quality of gold. What will happen? So when they retire? How will they react to such information? I’m afraid we will find out, “the economist concludes.

Zdroj: The illusion of money