Glossary

Modern monetary theory (MMT)

Modern monetary theory, or MMT, has become popular on the left, both in the UK and abroad. (Wags say that it stands for "magic money tree".) 

Modern Monetary theory, or MMT, has become popular on the left, both in the UK and abroad. (Wags say that it stands for "magic money tree".) 

Central to MMT is the fact that it is governments that designate the one official currency for a country by accepting only that currency for the payment of taxes. And "monetarily sovereign" governments ie, those that issue their own currency, such as the US and Britain, as opposed to those that don't, such as Greece, which uses the euro can print as much of that money as they like. They do not need to tax or borrow they can just issue more money. Monetarily sovereign governments do not, it is obvious from this analysis, face constraints on their ability to create money and spend it.

Rather, the danger is that if they do too much of that then they will spark inflation. The government, then, should not worry about how it raises money or about balancing budgets, but should keep an eye on inflation instead and clamp down on it if it looks like it might be getting out of hand. The idea is that governments should be trusted to print and spend as much money as they see fit, on projects of their own choosing, and then cause a recession by, say, raising taxes, if things start to get a bit too hot.

Recommended

Margin call
Glossary

Margin call

When an investor borrows to bet on markets, they put down a deposit known as “margin”.
2 Apr 2021
Resource curse
Glossary

Resource curse

The term “resource curse” refers to the observation that countries with abundant natural resources also tend to be less economically developed than th…
14 Jan 2021
Balance of payments
Glossary

Balance of payments

The balance of payments refers to the accounts that sum up a country's financial position relative to other countries.
8 Jan 2021
Yield-curve control
Glossary

Yield-curve control

Yield-curve control is when a central bank aims to control long-term interest rates by pledging to buy (or sell) as many long-term bonds as needed to …
25 Dec 2020

Most Popular

How will Joe Biden’s capital gains tax rise affect crypto prices?
Bitcoin & crypto

How will Joe Biden’s capital gains tax rise affect crypto prices?

The US president wants to increase capital gains tax – and that’s going to hit a lot of American cryptocurrency speculators. Saloni Sardana looks at h…
14 May 2021
Are we nearing the end of the negative bond yield era?
Government bonds

Are we nearing the end of the negative bond yield era?

As inflation gets going, the era of the negative bond yield – that investors have to pay governments for the privilege of lending them money – might b…
14 May 2021
Inheritance tax planning: the rules around gifting
Inheritance tax

Inheritance tax planning: the rules around gifting

There are plenty of legal ways to minimise an inheritance tax bill. Perhaps the simplest is to give away assets to reduce the size of your estate. Dav…
11 May 2021