Shameless “Modern Monetary Theory

In our days, the government is able to issue national debt to borrow money from the central bank without any collateral.

(The practical process is indeed more complex, because nowdays, it is forbidden for the Ministry of Finance to borrow money from central banks. The government needs to rely on commercial bank to complete the borrowing, in fact, there’s basically no difference).

For example , the government A borrowed $1 trillion this year and spent them all, then what if the government A defaults next year?

That’s easy, the government will borrow another $2 trillions next year and use $1 trillion to pay off the debt, and spend the other half. And the year after next, the government will borrow $3 trillion and use $2 trillions to pay off the debt and spend out the rest $1 trillion. In this way, the government can endlessly spend money. As for the accumulated debts, the government can always borrow then use the borrowed money to pay them off. This is the fundamental logic of the shameless “Modern Monetary Theory(MMT)”

According to MMT, when the interest rate on national debt is lower than the actual inflation rate, the debts can be litterally eliminated. Assuming that the interest is 5% and the real inflation is 10%, then the debts would bereduced by 5% in terms of purchasing power.

For example, the government owed a $20 trillion debt last year, let’s suppose that one egg valued $1 and the $20 trillion debt equaled 20 trillion eggs last year, then this year’s debt plus 5% interest turns to $21 trillion. But if the egg price inflates by 10%, which means one egg costs $1.1 this year, then the debt’s worth is reduced to 19.09 trillion eggs.

Based on the real wealth, the national debt has been reduced by 5% out of thin air within one year. That unveils the principle of “Central bank arbitrage theory”:

Lending long-term low-interest debt, holding high-quality anti-inflation asset and arbitraging the difference through central banks’ unlimited printing power.

Assuming the government borrows another $1 trillion national debt, it holds now $22 trillion(interest included) debt, which is equivalent to 20 trillons eggs. Although there’s no change compared to last year balance and a steady equilibrium has been reached, the government has an extra $1 trillon available every year.

It’s no doubt that money can be created out of nothing,while wealth cannot. The $1 trillion the government spends each year is essentially an additional legal tender issued out of thin air, a kind of inflation tax levied from all those who hold the fiat currency.

The US Congress set up a “debt ceiling” to limit its government from free spending. Of course, the US government will break this celling eventually. And the broken debt ceiling is a result of the game between the two American Parties.

Any crisis of fiat currency system may get the cryptocurrency market due to short-term panic and liquidity crisis, but will certainly bring benefits for crypto in the long term.

Here is the reason: printing unlimited notes have become the only solution to the crisis of fiat money system, so any attempt to limit the money printing (such as setting up debt ceiling and reducing balance sheets) would be headed for failure as this power is so tempting that nobody can resist.

The only thing we can do is break this vicious cycle. Blockchain and Bitcoin, since Satoshi Nakamoto left one message in the Bitcoin’s genesis block, are created to solve the unlimited money printing problem and to compete with legal tenders. That’s their ultimate mission and social value.

Don’t want to be taxed for inflation? Welcome to the free world of Blockchain,

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