Can governments really pay for everything they promise?

August 2024

Modern monetary theory (“MMT”) challenges conventional beliefs about government interaction with the economy, the nature of money, the role of taxes, and the significance of budget deficits.

This paper examines the current rise in debt levels, higher interest rates, and inflationary pressures in some sectors of the economy in the context of MMT. It considers whether advanced economies have reached a tipping point where high levels of debt push inflation higher and suppress economic growth, or whether higher deficits may not spell economic disaster after all. It also contemplates what impact higher deficits and higher borrowing costs could have on investor portfolios.