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Libertarian Modern monetary theory is the concept that Federal Governments should create money in order to fund government functions, in contrast to the current debt based monetary policy.[1]
Current money creation[edit]
Money creation in the debt based monetary policy system is created by the banks when they make a loan. The banks are leveraging out debt but they don't have to pay interest on the leverage because they created the leverage themselves. When the principle of the loan is being repaid they erase/destroy that and only keep the interest, which came from the borrowers earnings from the free market. Banks can create money and issue it as debt but they can't create it and use it to pay payroll or buy durable goods with it, it can only be issued as debt. Same rules apply to the Federal Reserve, when they create money during quantitative easing it is issued as debt, buying Bonds or buying mortgage-backed securitys.
Milton Friedman's k-percent rule[edit]
Milton Friedman's K-percent rule would be hard to apply in the current debt based monetary system because borrowers and lenders are operating in an open market, and the Federal Reserve tries to influence that market indirectly by manipulating Interest rates. Money supply increases should increase at a rate close to Real GDP + population growth + productivity gains, which is around 4-6% annually.[3]
How libertarian MMT would be applied[edit]
- See also: Coinage clause
Libertarian MMT would be applied by the Treasury and would adhere closely to the Friedman's k-percent rule. Each day, week, month, and year-over-year, everyone would be able to see how much money is being created by the Federal Government. The Federal Government would use this newly created money as revenue for the government's functions. This could replace current financing of governments, which are taxes and debt financing. The loser in all of this would be banks, they would not be able to create money, to lend out, that they created/leveraged, the era of Too big to fail and debt-slavery would end. Banks could still make loans but it would only be money that they have on hand and not leveraged/created money. Current M2 money supply trend-line is increasing at ~$100 billion monthly and increasing annulized at ~5%, so annually the Federal Budget would be ~$1.2 Trillion, increasing annually at ~5%.
What it is not[edit]
Libertarian MMT is not over spending money or creating money and then taxing the excess out of the system to try and get inflation under control. It would not have to be implemented by the Fed.
