MMT Eroding purchasing power and economic stagnation

After more than $20 trillion in stimulus plans since 2020, the economy is going into stagnation with elevated inflation.

Global governments announced more than $12 trillion in stimulus measures in 2020 alone, and central banks bloated their balance sheet by $8 trillion.

The result was disappointing and with long-lasting negative effects. Weak recovery, record debt and elevated inflation. Of course, governments all over the world blamed the Ukraine invasion on the inexistent multiplier effect of the stimulus plans, but the excuse made no sense.

Commodity prices rose from February to June 2022 and have corrected since. Even considering the negative effect of rising commodity prices in developed economies, we must acknowledge that those are positives for emerging economies and, even with that boost, the disappointing recovery led to constant downgrades of estimates.

If Keynesian multipliers existed, most developed economies would be growing strongly even discounting the Ukraine invasion impact, considering the unprecedented amount of stimulus plans approved.

Now we face a 2023 with even more disappointing estimates. According to Bloomberg Economics, global growth will decline from a poor 3.2% in 2022 to a worrying 2.4% in 2023, significantly below the pre-covid-19 trend but with higher global debt. Total global debt rose by $3.3 trillion in Q1 2022 to a new record of over $305 trillion-mostly due to China and the U.S., according to the IIF.

However, consensus estimates show an even worse outlook. Global growth should stall at +1.8%, with the euro area at zero growth and the United States at just 0.3%, with inflation reaching 6% globally, 6.1% in the euro area, and 4.1% in the United States.

Only a handful of countries are expected to reduce debt in 2023, with most nations continuing to finance bloated government spending with elevated deficits and tax hikes. A world where governments are constantly eroding the purchasing power of currencies and slashing disposable income of taxpayers with rising taxes is likely to show weaker growth trends and worsening imbalances.

The narrative all over the world is to try and convince us that past-peak but elevated inflation is 'falling prices' and that everything is good when debt increases, growth stalls and the purchasing power of salaries and savings is wiped out slowly.

There is no success in stagflation. It is a process of impoverishment that hurts the middle classes immensely while the excessive government spending is never curbed.

2022 was the year that killed MMT, the science-fiction fallacy of Modern Monetary Theory. Countries with monetary sovereignty like Japan or the UK found themselves in an unprecedented turmoil created by the illusion that rising deficit and debt would never cause significant problems. It only took a few rate hikes to dismantle the illusion of perennial money printing as the solution to everything.