The plan’s excess spending gets out of control fast --- triggers loss of market confidence and financial collapse

(Committee for a Responsible Federal Budget, Mitch Daniels Leon Panetta Tim Penny President Maya Macguineas Directors Barry Anderson Erskine Bowles Charles Bowsher Kent Conrad Dan Crippen Willis Gradison Jane Harman William Hoagland Jim Jones Lou Kerr Jim Kolbe Marjorie Margolies Dave Mccurdy James Mcintyre, Jr. David Minge Michael Nutter June O’neill Marne Obernauer, Jr. Rudolph Penner Robert Reischauer Charles Robb Isabel Sawhill Alan K. Simpson John Spratt Charlie Stenholm Gene Steuerle David Stockman John Tanner Tom Tauke Carol Cox Wait, “Risks and Threats from Deficits and Debt ,” pg online @ https://www.crfb.org/sites/default/files/media/documents/Risks_and_Threats_From_Deficits_and_Debt_July_2022.pdf //um-ef)

MMT has widely been panned by economists on the left and right, ranging from Paul Krugman to John Cochrane.7 Its proponents often articulate a contradictory framework that doesn’t withstand even the most basic scrutiny.8

While MMT does help explain some basic insights about the constraints of an economy’s productive capacity and the technical ability of a government to borrow, it is of little use in understanding how to analyze or manage an economy or government budget.

A 2019 study by Congressional Budget Office (CBO) economists Edward Gamber and John Seliski found that every 10 percent increase in the debt-to-GDP ratio translates into a 0.2 to 0.3 percentage point increase in interest rates.9 Research from Ernie Tedeschi and Lukasz Rachel & Lawrence Summers reaches similar conclusions.10 These studies show that while many factors have reduced interest rates, high debt has increased them.

Higher interest rates on federal debt and bank reserves increase interest rates throughout the economy on everything from mortgages to student loans to credit cards. They also contribute to a phenomenon called “crowd out,” where investors purchase government bonds instead of investing in the private sector, thus slowing economic growth. CBO estimates that for every $1 of new U.S. government borrowing, total investment falls by 33 cents and an additional 24 cents of the return to investments goes abroad, resulting in slowing income growth over time.11

In 2019, CBO compared national income if debt were allowed to rise rapidly, as in their alternative fiscal scenario, to a scenario where debt returned to historic levels as a share of the economy.12 After three decades, CBO found that growing debt would result in per-person income being $9,000 lower – or a 10 percent reduction – compared to declining debt.

Figure 2: Income Per Person Under Different Debt Scenarios (Dollars)

In a worst-case scenario, high and rising debt could even spur a fiscal crisis. In this case, loss of market confidence could quickly drive up interest rates or inflation expectations, devaluing existing bonds and causing severe global financial disruptions. The likelihood of such a crisis is low in a country like the United States, but it rises as the debt grows relative to the economy.