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18/07/2019
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Perspectiva económica: Martínez-Solanas

The Modern Monetary Theory (MMT), a dangerous mirage

Last April I published in this column an article focusing on how money has been losing its intrinsic value during the last 40 years, turning in fact into fake money and creating the conditions that give way to huge trade deficits. I invite readers to check it before reading the analysis that follows.

This time I'll concentrate on the policies being promoted by the US and other governments following populist and "progressive" programs devised to gain voters and keep themselves in power.

Among the many errors that utopian socialism promotes (which transforms into "communism", "21st century socialism" or, more recently, into the so-called "progressive" policies proclaimed by populist leaders), we are suffering nowadays the syndrome of increasing budgetary waste. Such an irresponsible policy takes place through economic pirouettes that are bringing us closer and closer to the abyss of an overwhelming recession in the United States, which can plunge the world into chaos.

These "Progressive" politicians seek to hide the impending disaster through ingenious mechanisms that promote spending and conveniently hide its future consequences. In order to achieve their populist goals, they have developed the so-called "Modern Monetary Theory", or MMT for short. This deceptive Monetary Theory is gaining traction among high-profile US Democrats and "Progressive" politicians. Accordingly, they are looking for ways to finance humongous social and ecological programs that they hope to carry out in the future without having the tangible resources needed to do so. Considering the $22 trillion-and-growing debt –inherited from a policy of budgetary waste during the Obama administration, to the point of causing a public debt that doubled from 9 to 18 trillion dollars in eight years–, these politicians argue that the present monetary system is too rigid and constraining. Therefore, they firmly propose that something new is needed to provide more flexible and expandable financing. And, of course, their answer is MMT!

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Fake money, trade deficits and Trump's economic policy

Money has been losing its intrinsic value during the last 40 years. Nowadays it is just paper with no more value than whatever confidence one might have in the government manipulating it. In the past, money's value was based on the amount of gold reserves but also in its convertibility to silver coins and/or silver bullion.

It all started with the Bretton Woods monetary architecture agreed to in July 1944 during a three-day meeting gathered at that New Bretton Woods meeting in July 1944Bretton Woods meeting in July 1944Hampshire's town when the allies were anticipating total victory against Germany and Japan and agreed on the creation of the International Monetary Fund (IMF), and other issues with a main goal of post-WWII reconstruction of devastated European and Japanese industrial bases.

However, the background to these agreements goes back half a century to the point when a US a central bank was created and surreptitiously named Federal Reserve (better known as "The Fed"). The fact is that the previously named Bank of the United States, chartered by Congress in 1791 and the Second Bank of the United States in 1817 were dissolved on 1811 and 1836 respectively. Therefore, from 1836 to 1913, a period of great prosperity and inventions, the US had no central bank. The architects of the creation of the Federal Reserve in 1913 took this well into account to disguise their intentions by adopting such an anodyne name.

Any central bank has three main roles among five others: 1) it employs leverage; 2) it makes loans; and, 3) it creates money. Apart from the five other additional functions, these are the main tasks of The Fed. The last one is the most disturbing. It was precisely this economic architecture developed and strengthened by The Fed in the US, the same that was elaborated in Bretton Woods (with insignificant variants) in the creation of an international organization conceived to manage a world economy.

Again, such a creation of a World central bank was surreptitiously named International Monetary Fund (IMF) to mislead the vast majority of the less informed away from the fact that what it was being built was a global economy, pointing to the ulterior goal of an eventual World government. 

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La deuda pública de Estados Unidos apunta a un posible derrumbe económico

La deuda pública de Estados Unidos es un problema grave que sigue sin resolverse, conduciendo al país a una situación financiera y económica insostenible que hará crisis en algún momento durante los próximos 10 años si no se toman medidas de austeridad en algunos renglones presupuestarios, los que han ido alcanzando niveles muy desproporcionados durante los últimos 20 años.

Aunque en los últimos dos años el crecimiento de la deuda se ha desacelerado un poco en comparación con los ocho años anteriores, y a pesar de que la política económica del actual gobierno ha mejorado las perspectivas económicas futuras, dista todavía de ser suficiente para impedir el desastre.

Para darnos una idea, observando el gráfico y comparando las cifras, tenemos que el Presidente Bush asumió la presidencia con una deuda de aproximadamente 5,7 trillones de dólares. Durante los dos primeros años de su administración, aumentó moderadamente, hasta 6,2 trillones, pero después el gasto extraordinario de las dos guerras en Iraq y Afganistán, dispararon la deuda hasta llegar a los 9,9 trillones cuando tomó posesión el Presidente Obama. A partir de aquí, la deuda se disparó exponencialmente pese a la reducción de los gastos militares en los teatros relativamente pacificados de Iraq y Afganistán y alcanzaba ya los 19,6 trillones cuando el Presidente Trump tomó la dirección del país.

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Socialismo, Liberalismo, Conservadurismo y Economía Social de Mercado

Empecemos por el final con una breve identificación de la Economía Social de Mercado (ESM), sobre la cual abundaremos más adelante. Esta teoría de política socioeconómica surge principalmente de las ideas desarrolladas por Alfred Müller-Armack (1901-1978), quien fue profesor de Economía en las Universidades de Münster y de Colonia, en Alemania, y un elemento muy influyente en el llamado “milagro económico alemán”. Fue autor de “Economía dirigida y Economía de mercado” (Wirtschaftslenkung und Marktwirtschaft), en cuya obra acuña en 1947 el término “Economía Social de Mercado” que utilizamos hasta nuestros días y la define como la “combinación del principio de la libertad de mercado con el principio de la equidad social”. Aparte de estos antecedentes, podemos definir a la ESM como un sistema de asignación de recursos que trata de corregir y proveer condiciones institucionales, éticas y sociales que permitan una política económica eficiente y equitativa.

En el mundo moderno, la ESM enfrenta diversas otras teorías que le anteceden, basadas en el Conservadurismo, el Liberalismo y el Socialismo. Es oportuno aclarar que en Estados Unidos suelen llamar “Liberales” a los “Socialistas” y llaman “Socialistas” a los más radicales que abrazan algunas de las ideas de Marx, Lenin y otros, sin llegar al sistema socioeconómico que se identifica con lo que se ha llamado “Comunismo”.

El origen del Liberalismo se remonta a los movimientos de emancipación de los burgueses urbanos del yugo del sistema feudal que abre la Edad Media hacia el Renacimiento hasta desembocar en lo que hoy se denomina como “liberalismo clásico”, el cual quedó estructurado por la reacción que se produce en el siglo XVIII y principios del siglo XIX frente al absolutismo monárquico y al sistema económico del mercantilismo1. Algunos de sus antecedentes los encontramos en la obra de John Locke (1532-1704), quien postula la libertad individual, la estabilidad social, la tolerancia y los fundamentos de los derechos naturales a la vida, la libertad y la propiedad, que acaban conjugándose posteriormente en los instrumentos modernos de derechos humanos. Los encontramos también en la obra de Montesquieu (1689-1755), quien elabora en “El espíritu de las leyes” aquellas indispensables para restringir la autoridad de los monarcas y sentar los cimientos del sistema moderno de la separación de los poderes del Estado, así como en la obra de Jean Baptiste Say (1767-1832): “Tratado de Economía Política”.

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The truth about tax reform in the United States

The Tax Cuts and Jobs Act (TCJA), passed in December 2017, made several significant changes to the individual income tax. These changes include a nearly doubled standard deduction, new limitations on itemized deductions, reduced income tax rates, and reforms to several other provisions. In all, these changes simplify the individual income tax by eliminating the need for millions of households to itemize their deductions.

In fact, when individuals fill their tax declaration early in 2019, major changes in US tax policy last year —the biggest reform in 30 years— that will apply in the IRS tax declaration for 2018 are giving tax payers a respite and have given them a lot to consider in their financial planning.

The most direct impact for individuals, couples and families has been the decline in tax rates for most tax brackets, including a move down to 22% from 25% for the lower middle bracket, to 24% from 28% for the higher middle bracket and down to 37% from 39.6% for the top bracket.

In addition, the tax declaration to be filed for this 2018 year, includes one of the major benefits for many individual taxpayers. The higher standard deduction, which is now $12,000 for individuals — up from $6,350 last year — and for married couples filing jointly, that deduction is $24,000 now, up from $12,700 in 2017.

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