Report
Patrick Artus

For "Modern Monetary Theory" to be possible, economic agents must be willing to hold a massive amount of money without trying to get rid of it

According to Modern Monetary Theory, it is possible to maintain full employment in a country by permanently using a sufficiently expansionary fiscal policy while avoiding the resulting rise in interest rates thanks to permanent monetisation of public debt by the central bank. There is therefore a continuous and parallel increase in the public debt and in the money supply (in the size of the central bank's balance sheet). This policy obviously gives rise to fears of major financial imbalances: inflation, excessive private sector debt, asset price bubbles. These imbalances will appear if economic agents try to get rid of the money they receive: they can then buy goods and services (leading to inflation), real estate and financial assets (leading to bubbles), or bonds (leading to lower long-term interest rates and increased demand for credit). But if economic agents do nothing with the money they receive, then there will be no inflation, no bubbles, no abnormally low interest rates and no excessive debt. Modern Monetary Theory can therefore only be imagined if there is a strong increase in the demand for money from economic agents.
Provider
Natixis
Natixis

Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.

 

Analysts
Patrick Artus

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