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May 23, 2020


David Brown

Chris, surely as a well respected financial journalist you should be able to get on Today? Why not offer your services? Then you can gradually smuggle in some of the good sense you share in this column.

Ralph Musgrave

Actually Osborne could be right (though for reasons which are probably a mile above his little head). Reasons are thus.

Corvid stimulus is causing a big rise in the stock of base money and govt debt held by the private sector (and incidentally base money and govt debt are pretty much the same thing as MMTers, Warren Mosler in particular, have explained).

Base money and govt debt are assets far as the private sector is concerned. Thus a rise in that stock can be expected to cause a rise in demand and inflation, all else (e.g consumer confidence) being equal. Ergo, if all else actually is equal in two or three years time (and that’s clearly a big if) then demand will be excessive, so it will have to be reined in via artificially increased interest rates and/or a budget surplus (i.e. raised taxes and/or public spending cuts).

That would not, repeat not, repeat not result in austerity in the sense of excessive unemployment, and for the simple reason that if the interest rate rise or budget surplus is only JUST ENOUGH to counter the above excess inflation, then by definition, unemployment will by definition be as low as it can go without causing excess inflation.

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