kervick

One response to “kervick

  1. Hello,

    I am rather new to MMT, but when I first encountered it it made perfect sense right off the bat. I have a question.

    When we stop using Treasury notes to fund Government deficit spending, basically the nonsensical notion of the Government borrowing from itself at interest, wouldn’t the Federal Reserve still have a federal funds target rate for lending to the banks? If so when there is inflation the Federal Reserve could raise the federal funds lending rate to banks thus contracting the money supply, as they do now. I can still see a beneficial role for this type of monetary policy in controlling inflation by raising rates thus taking money out of the system. Monetary policy could be very useful, since raising taxes and/or cutting spending in the face of inflation which in theory is fine would be nearly impossible politically. In essence the banks would be paying interest to use Government money at varying interest rates. Monetary policy would still be a tool to control inflation (raising rates when there is inflation and lowering rates when the economy needs stimulating). Such a function of the Federal Reserve may be very useful, especially in the short and intermediate term, until fiscal policy makers were able to get their act together. I hope my youthful naivete is showing too much…

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