Why the CBO Can’t Warn About an Inflation-Driven Debt Crisis

Longtime followers of infeneo (and its associated InFi podcast) know that I am no friend of Modern Monetary Theory (MMT). My chief complaint is that their ostensibly unorthodox ways of viewing government finance are incredibly misleading, at least in the hands of some of their most popular gurus. In today’s post I’ll give yet another example, this one coming from a tweet by Stephanie Kelton (and endorsed by Warren Mosler himself).

Specifically, Kelton and Mosler argue that because the Congressional Budget Office (CBO) isn’t forecasting a sharp inflation problem for the US economy, its rising debt must not be a problem after all. As I’ll explain, this argument is incredibly slippery, though perhaps Kelton and Mosler mean it in earnest.

Kelton and Mosler Make Their Case

Below I reproduce a screenshot of the Twitter exchange, which started with Kelton, whom I retweeted, and then Mosler responded to me: