I am going to chalk it up to the fact that there must be something huge and gargantuan that I don't understand, but on the face it, it seems to me that everyone is just crazy.
On Friday, I linked to a speech given by Paul Krugman, and focused on an excerpt where he alluded to the notion of government filling in the void for balance sheet constrained consumers when it comes to spending. I called it moral hazard, I called it inflating away the problems, I implied that I think that it will cause problems later. Whatever it is, though, it seems to represent a Keynesian point of view that does not think a funding crisis is possible as long as we are in a liquidity trap. Over the weekend, I read a post on Bob Murphy's site about Krugman and how he was again singing the praises of IS/LM in anticipating interest rates in the US. The overarching point was that in the US and in Europe the Central Banks are intervening, but rates are only shooting up in Greece (where there are solvency concerns) and not here -- which I guess is a roundabout way of saying the IS/LM model was proven correct that the size of bond issuance, in and of itself, is not the determining factor in where rates will go. That conclusion gives me pause, but rather than re-hashing the same objections in relation to the same Keynesian, we'll re-focus.
Skip down to the comments section for the post on Murphy's site that I linked to -- a couple of folks (representing the MMT side of the debate) argued that it all boils down to the following: you must look at whether a country has its liabilities denominated in a free floating, non convertible currency of which it is monopoly issuer. In other words, you need to see whether a country's Central Bank remains unconstrained and can guarantee everything/print as much as it wants. Again, there is this belief amongst the most popular strains of economic thought that you can print and print and print without consequence.
On the one hand, you have Krugman claiming victory when a funding crisis is something that can sneak up on you at any moment. (And, to put it in perspective (1) the economy is still flat to down despite humongous budget deficits, and (2) I believe the markets seem incapable of focusing on more than one thing at once, which is Europe for now -- when it isn't anymore, then we'll see how the US looks.) On the other hand, you have the MMT, quasi-monetarists who think the Central Bank can also print with reckless abandon and there is never a risk of funding crisis. And that seems to be the consistent theme, and why I have no comfort with any of these theories -- they really believe that printing worthless pieces of paper and inflation itself can right the ship.
Money should be a store of value. If the government debases it, it is punishing the most responsible amongst us who are savers and living on fixed incomes. Low rates force individuals out into the market and to speculate as a means of staying even. CPI is a number put out by the BLS that seems to be under control, but inflation can be far more pernicious.
Maybe I'm missing something. I hope that I'm missing something. I fear that I'm not.
