Why MMT is still dumb, and dangerous

Taking the comment section seriously

May 08, 2026

My piece last week on why MMT is dumb and dangerous drew a good deal of engagement, a meaningful share of it highly substantive. It feels like a great honor when this happens — when many smart people take the time to read, let alone share intelligent feedback, to our work. It also brings to the fore an obligation we take seriously at Boyd: to ‘get it right.’

To recap, the TL;DR of the piece was as follows. The central operational claim of Modern Monetary Theory — that government bond yields are a policy choice rather than a market outcome — was institutionalized by the Federal Reserve over the post-2008 period through quantitative easing, regardless of whether the Fed accepted the MMT label. The apparatus held while inflation remained dormant. When inflation returned in 2022, the Fed had to dismantle it, and the structural costs the framework had insisted no longer applied — rising interest expense, a maturity wall on long-dated debt, and a constrained monetary lever — are now reasserting themselves.

The comment section revealed four distinct clusters of feedback.

1) QE ≠ MMT

This, in one form or another, was the most common objection. It was also where I think the article was either misread or its framing not articulated in a clear enough way, or both.

The perennial Substack commenter Thomas L. Hutcheson states it plainly:

"Sorry, Bill, but QE is not MMT."

In all fairness, while the title of the article is “MMT is dumb, and dangerous,” its contents are laden with the detrimental upshots of QE. So the conflation is reasonable. However, the article never actually argues that QE is MMT. It argues, rather, that QE operationalized MMT's core claim even as Bernanke and his successors would have firmly rejected the MMT label. That's a different proposition than "the Fed adopted MMT's policy package," which it certainly did not.

The distinction matters because if MMT's claim is that government bond yields can and should be set by policy rather than discovered by markets, and if the Fed spent fifteen years suppressing long-end yields by becoming the marginal buyer of long-dated Treasuries, then the MMT framework's central premise was being empirically tested by an institution that would have denied any theoretical kinship with the framework. That’s what’s analytically important; deciding whether to label the resulting regime "MMT-adjacent," "post-monetarism," or simply "the QE era" amounts to a vocabulary preference.

Semantics aside, perhaps “MMT is pervasive, and dangerous” would have been a more apt title, as my arguments were closer to “MMT-adjacent monetary policy is bad” than “MMT is here, and we should reject it.” But in any case, the substance remains the same.

Moving on to Simon Kinahan’s comment. This specific line is worth addressing first:

“You are conflating the operation of inflation targeting in unusual conditions with MMT… treating the Fed and the Treasury as if they were at least coordinating.”

Sure, it is true that there is no public documentation of the FOMC timing QE purchases to match Treasury auction calendars for the purpose of making deficits cheaper. Fed and BIS research1 consistently describes the Covid-era actions as “parallel responses” to the same shock rather than “fiscal dominance” (i.e., the subordination of monetary policy to fiscal needs). So, if “coordination” requires an Epstein files-esque transcript where Yellen calls Powell and asks him to buy more long bonds… no, that did not happen, or at least did not happen in a way that has surfaced.

But the de facto coordination was extensive, and is well-documented. Several of the major Covid-era credit facilities — the Primary Market Corporate Credit Facility, the Secondary Market Corporate Credit Facility, the Municipal Liquidity Facility — were joint Fed-Treasury creations, with Treasury putting up equity through the Exchange Stabilization Fund and the Fed lending against it under Section 13(3) authority.2 That is explicit, formal, on-the-record coordination on risk-taking and macro-stabilization design.

Beyond the joint facilities, the temporal overlap was striking. Treasury issued over a trillion dollars of new debt in Q1 2020 alone while the Fed bought over a trillion dollars of Treasuries in the same period, including daily purchases averaging $72 billion in the two weeks beginning March 19, 2020.3 Greenwood, Hanson, Sunderam, and Stein have documented that in both 2008–09 and 2020, the Fed was a net buyer of long-term Treasuries while Treasury was increasing overall supply.4

In other words: the Chinese wall (i.e., information barrier) that is supposed to discipline the monetary side did not need to be formally dissolved for the apparatus to operate as if it had been.

Later on in Kinahan’s comment, he also objects to the article’s framing on the basis of the Fed's actions being “inevitable,” arguing that the Fed had no choice but to do what it did under exceptional conditions:

“The last twenty years of Fed policy are simply a response to first a liquidity crisis, then an unprecedented real shock that was first deflationary and then inflationary that occurred when liquidity was still not at normal levels, within a regime of inflation targetting. You can argue for all three the extent to which the Fed might have caused the problem or initially made it worse, but the overall direction of policy was inevitable under and inflation targeting regime - they had to first find a way to expand the money supply faced with zero interest rates, and then they had to do it again, and then they had to rapidly reverse course. There wasn’t really any other choice except to explicitly abandon their inflation target.”

This is the strong form of the inflation-targeting-orthodoxy defense, and it's the part I'd really like to push back on.

The Fed had choices at every step. QE1 was a crisis response. QE2 and QE3 were unequivocally not — they came at times of unemployment healthily trending lower, markets functioning quite well, and long after the immediate crisis had already been resolved. Granted, inflation held stubbornly below the Fed’s 2% target, and the conventional rate-policy lever had been exhausted at the zero lower bound. So Kinahan's premise is partially right: the Fed faced genuinely constrained conditions and was operating on the unconventional edge of its toolkit. But "constrained conditions" is not the same as "inevitable choice.”

I recall in mid-2016 reading Mohamed El-Erian’s book The Only Game in Town, an extended (and prescient) warning that the Fed's continued aggressive accommodation was not, in fact, the only available response to weak demand. The reason the Fed kept being the only game in town, in his framing, was that Congress and the executive had abdicated, leaving the Fed as the only institution willing to act. And that the Fed's continued action under those circumstances was creating institutional and asset-price distortions5 that would compound over time and become difficult to unwind.

Kinahan's binary framing that the Fed had no choice except to abandon its inflation target collapses the relevant question. The Fed's continued aggressive accommodation was a choice, made under political constraints that were themselves choices, with consequences that doubtlessly compounded. Whether the Fed should have eased less aggressively, or held the line and forced Congress to act, or done something else entirely, is a separate debate worth having. But the framing that there was no other choice forecloses that debate before it can begin.

The post-pandemic balance sheet expansion exemplifies this point as it was also a discretionary policy decision, and another puzzling one given the sheer mass of fiscal stimulus coming down the pike. By mid-2020, Congress had already authorized roughly five trillion dollars in pandemic fiscal support, financed primarily through Treasury issuance. The Fed’s decision to absorb a substantial share of that issuance through expanded asset purchases — rather than letting Treasury supply meet market demand at market-determined yields — was a discretionary policy choice. The constraint cited in defense of that choice, that the inflation target was still binding from below, became progressively harder to defend as inflation expectations began to rise through 2021. The Fed nevertheless continued to expand its balance sheet through March 2022, ending net asset purchases only after (the backward-looking) headline CPI had crossed seven percent.

Inflation targeting warrants central bank easing in a deflationary environment but it does not dictate the form that easing must take. The decision to ease through trillions of dollars in long-dated government bond purchases — rather than through forward guidance, term funding facilities, direct lending programs, or some other instrument — was a discretionary one. It is also the choice whose structural consequences the article was arguing that we are now living with.

Setting up the second cluster of objections is the distinction between what the inflation-targeting regime required and what the Fed actually chose. These objections take the gap between MMT proper and what was operationalized as the starting point.

2) “MMT proper would have done the opposite”

This cluster of commentary was most analytically uncomfortable because on the whole, the pushback was hardly a misreading of the article.

Karl Spenroke’s comment articulates the objection well:

“This piece critiques fed decisions that may be adjacent to MMT, rather than MMT in the way it’s actually argued by Kelton, Wray, or Mosler… MMT economists have long criticized QE as an ineffective and regressive tool, preferring fiscal instruments instead: taxation to withdraw purchasing power, targeted spending rather than blanket stimulus, and of course a Job Guarantee as an automatic stabilizer.”

A separate part of Simon Kinahan’s comment makes an objection on similar grounds:

“The whole operation of QE is completely pointless from an MMT poiint of view. The MMT response to the financial crisis would have been something like a gigantic national jobs program, probably accompanied by direct real estate purchases, not the purchase of long term debt and mortgage securities.”

This is not wrong. MMT proper — Kelton, Wray, Mosler — does advocate fiscal tools rather than monetary tools for inflation management. The 2022 Fed response, with rate hikes as the primary instrument, is closer to what MMT theorists have criticized than to what they would have prescribed. To that extent, the article probably treated "MMT" and "the popularized intuitions of MMT that diffused into the mainstream consensus" as more interchangeable than they should have been.

Brian Flaherty also chimes in:

“It’s also odd to point to 2022 as somehow proving the failure of MMT. If MMT had really been ‘operationalized,’ why did we see rate hikes as the only response to inflation — rather than tax increases, demand-cooling, and supply-side investment? MMT explicitly argues that the fiscal authority should have responsibility for inflation management to solve the exact tension you’re describing.”

Notwithstanding the fact that rate hikes were not the only response to inflation (balance sheet taper), Flaherty is also not wrong. Neither is Just Some Guy:

“My naive take is that MMT proponents told me the only reason money has any value is to pay taxes to the issuing government, so inflation is properly controlled by raising taxes to increase the value of the money. Seems like it never was much of an infinite money glitch if that's the case.”

But here’s where I'd basically push back on all of the above.

The only piece of MMT that ever stood a chance of being institutionalized in the modern American political economy was the operational premise about yields. The full package (including Congress legislatively managing inflation in real time through tax policy) requires a fiscal policy apparatus that simply does not exist in the US. Anyone who has watched Congress for fifteen minutes would find this proposition laughable. So saying "but MMT proper would have done X instead" is essentially demanding that the framework be evaluated against a counterfactual that was never going to happen and that nobody seriously proposed implementing.

The deeper point, though, is that the disagreement between rigorous MMT and what was actually operationalized is a disagreement about means, not ends. Both reject market discipline as the appropriate constraint on government borrowing and on the price of money. Both treat yields as a policy variable that ought to be engineered rather than discovered. They differ on the engineering: rigorous MMT prefers fiscal instruments — taxation, demand management, the job guarantee — while the operationalized version preferred monetary instruments — QE, balance sheet expansion, suppression of long-end yields through Fed asset purchases.

This amounts to only tactical disagreement within a shared bias against market discipline, not disagreement about whether the price of money is a thing the state should engineer. The Fed under Bernanke and his successors chose the monetary path, probably in part because it was politically tractable in a way the fiscal path was not. But the ideological premise was always the same.

It’s a similar objection to arguing that Zohran Mamdani is not really a (democratic) socialist because New York City still operates within a highly capitalistic system — that because the full programmatic package has not replaced the existing structure, the ideological orientation is not relevant to evaluating his policies. A socialist-absolutist would say of Mamdani what MMT-rigorous theorists are saying of post-2008 monetary policy: directionally yes, but not properly so. But the directional point is what matters for evaluating operational consequences. It is true that New York remains capitalist; the relevant question is what direction Mamdani’s actual policies move it. Post-2008 monetary policy was not MMT proper; the relevant question is what direction it moved the institutional apparatus. You do not need full system replacement for the ideological framework to matter.

And to that end, again, the article was meant to be a critique of what was actually operationalized.

3) On the question of Japan, and the dollar

Debates on MMT frequently end up invoking the question of Japan (usually from the pro-MMT side). For the sake of brevity, I opted out of a Japan tangent in the article.

Nevertheless, these points deserve real engagement because the absence of crisis so far is the strongest empirical evidence available against any sort of “MMT is bad” thesis. Several comments raised the topic of Japan or, as a corollary — given the yen’s persistent status as a safe-haven currency despite Japan’s insanely high debt-to-GDP — the broader question of where global money would go if not into dollar assets.

I’ll start with Anton Frattaroli (paid Boyd subscriber!)’s comment:

“What I’ve been on the edge of my seat about this week is Japan finally (finally! what all those people you mentioned were warning about) getting stuck between unaffordable government debt levels and currency devaluation. They should raise interest rates, but that would explode government payments on interest.”

This is worth dwelling on because Japan is the empirical test case in real time. The Bank of Japan ran a version of the post-monetarist (dare I say, “MMT-adjacent”) apparatus longer and more aggressively than the Federal Reserve did — including formal yield curve control since 2016. Now its government's debt-to-GDP ratio is roughly 250 percent, much of it held by the BoJ itself, and a sustained tightening cycle would explode interest costs and crater government finances in a way that would force the BoJ to choose between credibility and fiscal solvency. It’s the dilemma the Fed increasingly faces, but on steroids.

Frattaroli goes on to mention Robin J Brooks, saying he is monitoring and covering this situation well. After reading a few of Brooks’s pieces on the topic, I agree. His framing, drawn from years of emerging-market sovereign analysis, is that Japan is exhibiting the kind of fiscal-monetary bind historically associated with EM rather than DM economies. In his view, the BoJ cannot normalize policy at the pace inflation would otherwise warrant without triggering a fiscal-cost spiral, and the yen’s persistent weakness is the market’s expression of that constraint. The asymmetry he highlights is that DM central banks have historically been able to ignore this dynamic, while EM central banks could not; Japan is the first DM case confronting it directly.

Put more simply: not tightening means the yen continues to depreciate against any currency whose central bank is allowed to act (i.e., raise interest rates in response to inflation without breaking its government's fiscal arithmetic). This is because international investors will always allocate money in assets with the highest risk-adjusted rates of return.

To that end, John Gu’s comment raises a fun thought experiment:

“I know debt to GDP ratio is a bad look (and optics are a big part of this) but I suspect that at nitty-gritty fundamentals, the question at the end of the day for American holdings (including T-bills) is: what is safer?

The ultrarich (who may be growing in number) need to park their assets somewhere. I can see a growing case for Yuan. It’s harder to make the case for the Euro.

To me, the question is, ten years from now, if you want to buy a bag of rice, a gallon of gas, or a bar of gold, which currency do you want in your bank account at that time?”

This thought experiment is one that former IMF chief Ken Rogoff does in extended form in his latest book, Our Dollar, Your Problem (highly recommend reading it for anyone interested in this topic). Rogoff's framing in the book is that the dollar's reserve-currency status is real and durable, but not unconditional. His specific argument on Gu's question is that the relevant comparison is not "the dollar versus a single alternative" but "the dollar versus a basket of marginal alternatives." If holding dollar assets becomes incrementally less attractive — because of inflation risk, fiscal arithmetic, political pressure on the Fed, sanctions risk for foreign holders — the marginal reserve manager does not need to sell dollars and buy yuan or euros wholesale. They just need to slow their accumulation of dollar assets and tilt new flows toward gold, toward yuan-denominated assets at the margin, toward other currencies with relatively better risk-adjusted profiles.

None of that necessarily looks like a moment-in-time crisis, but all of it shows up as a few extra basis points of yield demanded for the same paper, and over time, as a structurally weaker bid for new Treasury issuance. So the honest answer to Gu’s question is: probably the dollar, ten years from now, for most purposes. But “probably the dollar” is consistent with a dollar that costs the US meaningfully more to fund obligations in than it has historically. And Japan — with its (heretofore) safe haven currency, the yen — seems to be an empirical test case of this in real time.

4) The deeper agreement that MMT is, in fact, “dumb and dangerous”

Finally, despite much of the pushback, almost every comment was in anti-MMT agreement on some level. Synthetic Civilization offered a refined version of the argument the article was making:

“The MMT mistake was not noticing that sovereign money is different from household money. That part is true. The mistake was confusing temporary constraint suspension with constraint abolition. QE made debt feel cheap, auctions feel guaranteed, and rates feel like policy variables rather than market signals. But once inflation returned, the execution layer reasserted itself: term premia, refinancing costs, Fed credibility, debt maturity, and political pressure. Money is a legitimacy system built on a constraint stack. You can suppress the constraint for a while. You cannot repeal it.”

Nir Rosen delineated between MMT as a descriptive theory, and as a prescriptive one, arguing that the latter is:

“[A] bunch of garbage that assume the Government is benevolent and super efficient in a very communist manner.”

Simon Kinahan closed his commentary with:

“MMT is dumb and dangerous. Its so dumb their explanations of their ideas are barely coherent which might have confused you… but (thank god) they did not actually institutionalize any of MMTs policy recommendations.”

Look, I think MMT has proven dangerous insofar as its central premise has given license to and inspired institutions like the Fed to experiment in dangerous ways. I remain unconvinced that the 'QE era' was unrelated to MMT in any meaningful way.

What the engagement clarified is that the actual calling of MMT “dumb and dangerous” was, surprisingly, hardly a controversial claim among the people who pushed back hardest. Whatever framework you bring to it, the institutional architecture the post-GFC policy apparatus built is now constraining policy in ways that compound over time, and there is broad consensus on this point even among readers who otherwise disagreed with much of the article’s framing.

What that consensus implies is that the live questions for the next several years are not really about MMT or post-monetarism in the abstract. They are about how the US will pay down the debt the apparatus accumulated. The Fed's balance sheet is still north of seven trillion dollars. The federal debt stack reprices in real time with every monetary policy decision. The federal interest bill is the fastest-growing line item in the budget and cannot shrink without either a fiscal contraction Congress will not deliver, a tax increase Congress will not deliver, or a return of inflation the Fed will not aggressively fight. Each of those paths has political constituencies that will resist it. Some combination is going to be extracted from American voters and bondholders in the coming years through a negotiation that has not yet begun.

And that negotiation is what the article was really getting at. Thanks to everyone who engaged — we’re sharper for it.

Discussion about this post

Ready for more?