So Ocasio-Cortez wants to Finance its Green Deal

David against Goliath. On the one hand, the Establishment stands for: the heavy weights from the Economy with Larry Summers, Paul Krugman and Kenneth Rogoff, flanked by the Great from the world of Finance with Black Rock CEO Larry Fink, Bond Guru Jeffrey Gundlach, and the chief of the Federal Reserve's Jerome Powell. "Complete bullshit", the voice of this group. On the other hand, a half-dozen Economists from little-known universities, led by the Economics Professor Stephanie Kelton.

Apple of discord, the Modern Monetary Theory (MMT). A concept, the boost of higher government spending, the economy and full employment. Everyone is talking about is the MMT currently mainly because of one Person, the American member of Congress Alexandria Ocasio-Cortez. In an Interview in January, she told the magazine "Business Insider", MMT had to occupy a larger part of the discussion. She definitely achieved.

Trump, thank

Ocasio-Cortez wants to with the state of huge investment spending projects such as the Green New Deal Fund – a project of the left wing of the Democrats that wants to tackle the economic imbalance and climate change. But it's not just Ocasio-Cortez, a propagated increase public spending. Also, the presidential candidates Kamala Harris and Bernie Sanders support the Modern Monetary Theory.

The concept of the way the former head of the American Central Bank Ben Bernanke and US President, Donald Trump has paved. Bernanke has shown with the Quantitative Easing that the monetization of public debt must not lead to rising Inflation. The share of state papers in the possession of the Central banks of several industrial Nations has increased in the past few years, according to an analysis of the research house TS Lombard. The Consideration of the supporters lit. If such measures Wallstreet can be saved, why should then not be financed, for example, a health insurance for all? Trump also has the budget deficit to 1 trillion. $ increases without Inflation drive. This is not, however, must remain so.

"Modern Monetary Theory makes sense when the economy is in a recession. Then the economy may need additional demand, when the potential of the monetary policy is already exhausted," says Peter Berezin, head of global Investment strategy research house BCA, in an interview. Misleading MMT but, if you assume that this condition will continue forever. "In the United States, there are not a lot of free capacity, and an increase in the budget deficit could have undesirable Inflation," he added. Markus Brunnermeier, an Economics Professor at Princeton University, evaluated the Modern Monetary Theory at the current time as a problem. "Inflation could rise with a delay by leaps and bounds to the top, and then you don't know how to bring it back under control," says Brunner Meier in conversation.

fiscal policy

For Paul McCulley are exaggerated fears of rampant Inflation. "I have faith in the US democracy," says the former chief economist of asset Manager Pimco user in the conversation. The United States could not be compared because of the economic Size and the robust institutions, also with countries such as Zimbabwe and Venezuela. For Kelton, the Inflation is the ultimate constraint in the expenditure of the US government.

Should the rate of inflation, then begin to increase over the desired Mass, it should be by a tightening of fiscal policy kept in check. Berezin is critical. "A rapid tightening of fiscal policy is not likely to be easy," he says. In addition, there is a need for a political consensus to tighten the fiscal policy. In the MMT world is only a subordinate role to the Central Bank. According to Berezin, it may be quite reasonable to raise interest rates.

In a point are MMT representatives, and various Mainstream Economists but agree. On the level of US national debt one needs to Worry about. Olivier Blanchard, the former chief economist of the IMF, argues, as long as the burden of interest was below the growth rate of the economy, devices of the debt mountain out of control. This was in the past few decades, the normal case. It is quite unlikely that this will change something.

Nevertheless, the fiscal policy should not be exaggerated. No model can tell us how Inflation will develop. In addition, it would be foolish, the independence of the Central Bank's limit, has helped the Fed with its monetary policy, the inflation rate at the current level of price stability. This is a tool you should not give out of Hand.

(financial and economic)

Created: 19.03.2019, 18:33 PM