Viewer Question #2: What is the next stage for monetary policy?

Obvious from the last issue is what will be next in a world where negative interest rates exist how much further can we go? Well, negative interest rates have been seen in Japan and other European countries and their effects have been inconclusive. Many state that negative interests’ rates will force people to hold on to their money themselves rather than deposit it into a bank, holding less money for the banks to lend. In addition, studies state that negative interest rates compel the banks to lend less money out to people as they lose money that they lend. Such a situation would be counterintuitive to the purpose of negative interests’ rates which is to incentivise spending, the less loans given, the less enterprise created and the less cash within the economy.

Furthermore, we are also seeing a divergence from generic monetary thinking from the proponents of Modern Monetary Theory. An explanation of this theory is beyond the borders of this explanation its tenets are thoroughly based as an extension on fiat money. Fiat money is no new concept simply it is currency that is not backed by a commodity such as gold and is established by the government. This currency is used by most countries. It then leads to the assumption then that money holds no real value and any fears of defaulting will be eradicated by more government created currency (again a generally safe claim).

The main point of divergence is how government spending is funded, where classical economics will tell us taxes and purchase of bonds, MMT does not concern itself with debt and counters rising inflation with increasing taxes rather than the other way around. The purpose is to spend as much public money as necessary to reach a point of full employment, and then tax everyone. Therefore, MMT’s main crux is that it allows governments to spend as much as they wish on public services without worrying about a pesky budget. Many argue that this theory’s proposition creates conflicts with the political system and economic utopia. In today's day tax increases meet heavy public scrutiny as the people wish to give less and less to their respective governments, while tax cuts and refunds are the political buzzword to ensure an economic victory. Therefore, it may be slightly naive to believe that the people would not mind significant tax hikes, especially given the fact that they most of society are uneducated about complex economic theory.

While Modern Monetary Theory is interesting, for it to find a mainstream consensus the evidence of its efficacy must be made more clear. In addition, MMT theorists must state a clear contention for what their idea is, for the information given above are the recent depiction, 10 years prior MMT espoused differing views on how to counter inflation.