Page 54 - COVID-19: The Great Reset

(meaning that public expenditure will go up at a time when tax
revenues decline). Put in the simplest possible (and, in this case,

simplistic) terms, MMT runs like this: governments will issue some
debt that the central bank will buy. If it never sells it back, it
equates to monetary finance: the deficit is monetized (by the
central bank purchasing the bonds that the government issues)

and the government can use the money as it sees fit. It can, for
example, metaphorically drop it from helicopters to those people
in need. The idea is appealing and realizable, but it contains a
major issue of social expectations and political control: once

citizens realize that money can be found on a “magic money tree”,
elected politicians will be under fierce and relentless public
pressure to create more and more, which is when the issue of
inflation kicks in.

1.2.3.1. Deflation or inflation?

Two technical elements embedded in the issue of monetary
finance are associated with the risk of inflation. First, the decision
to engage in perpetual quantitative easing (i.e. in monetary

finance) doesn’t have to be taken when the central bank buys the
debt issued by the government; it can be left to the contingent
future to hide or circumvent the idea that money “grows on trees”.
Second, the inflationary impact of helicopter money is not related

to whether the deficit is funded or unfunded, but is directly
proportional to the amount of money involved. There are no
nominal limits to how much money a central bank can create, but
there are sensible limits to how much they would want to create to

achieve reflation without risking too much inflation. The resultant
increase in nominal GDP will be split between a real output effect
and an increase in price level effect – this balance and its
inflationary nature will depend on how tight the supply constraints

are, so ultimately on the amount of money created. Central
bankers may decide that there is nothing to worry about with
inflation at 2% or 3%, and that 4% to 5% is also fine, but they will
have to define an upper limit at which inflation becomes disruptive

and a real concern. The challenge will be to determine at what

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