[How About This Book] No Need to Worry About Government Debt?

"Government Can Monopoly Currency and Issue Unlimited Amounts"
"Should Have Rescued Lehman Brothers During Financial Crisis" Claims
Could This Reflect Wall Street's Greed...

The article begins with intriguing and controversial claims. In the preface, the author argues that there are several misconceptions related to money. The claims the author considers misconceptions include: "Large amounts of money were printed after the 2008 global financial crisis," "Government national debt is passed down to future generations," "Income and inequality are side effects of the market economy," and "Cryptocurrencies can replace existing fiat currencies."

The author, Paul Sheard, has worked at Baring Asset Management, Nomura Securities, and Lehman Brothers. Notably, he was employed at Lehman Brothers during the 2008 global financial crisis when the firm went bankrupt. After Lehman Brothers disappeared, he worked at the credit rating agency Standard & Poor's (S&P), eventually rising to the position of vice chairman.

As can be seen from his claims that large-scale money printing did not occur after the global financial crisis and that government national debt is not passed down to future generations, Sheard argues that the government should actively execute fiscal policy to stimulate the economy. Sheard, who claims that the distinction between monetary policy and fiscal policy is meaningless, was a strong supporter of former Bank of Japan (BOJ) Governor Haruhiko Kuroda, who implemented unlimited quantitative easing policies. He praised the BOJ’s policies during Kuroda’s tenure as a "Copernican Revolution."

In the same vein, Sheard argues that the U.S. Federal Reserve (Fed) and government should have prevented the bankruptcy of Lehman Brothers during the 2008 global financial crisis. At the time of the bankruptcy, Sheard was the global chief economist at Lehman Brothers. When the company went bankrupt, Sheard personally suffered significant financial losses. While he believes that Wall Street bankers like himself, who receive high compensation, do not deserve sympathy, he argues that it was right to bail out Lehman Brothers at that time. Retrospectively, the Fed did not bail out Lehman Brothers because it could not tolerate moral hazard on Wall Street. The Treasury Department did not want to provide funding, so the Fed had no way to rescue the firm. Six months before Lehman Brothers’ bankruptcy, another investment bank, Bear Stearns, was acquired by JPMorgan Chase through Fed mediation. Fed Chairman Ben Bernanke explained that unlike with Bear Stearns, the Fed did not bail out Lehman Brothers because it could not secure sufficient collateral to recover the loan. Sheard acknowledges that Lehman was about four times larger than Bear Stearns, making it difficult to secure enough collateral. Nevertheless, he argues that since the government and Fed could inject unlimited fiscal resources, they should have bailed out Lehman Brothers.

According to the translator, Sheard bases his arguments on Modern Monetary Theory (MMT). MMT claims that since the government exclusively issues currency, government-issued bonds cannot default, and as long as inflation does not occur, the government should issue unlimited money to stimulate consumption and investment. In fact, Sheard argues in his book that while households and businesses can only spend money within their income and profits, the government, as the issuer of money, can operate a deficit budget without concern. However, MMT is criticized for its weak logical foundation and is considered more of a hypothesis than a theory. Sheard’s claims in the book also give the impression of lacking strong logical support.

Although Sheard’s argument for bailing out Lehman Brothers appears to be based on MMT, he does not clearly present the justification for the bailout. He states, "It is impossible to assert what would have happened to the economy if Lehman Brothers had been bailed out," offering only vague claims that the shock would have been less severe or largely absorbed.

Sheard’s understanding of income inequality also seems somewhat weak. The argument that income inequality is inevitable during economic growth is quite convincing. However, he claims that implementing policies for redistributing income and wealth while growing the economic pie is more difficult than expected. While this is somewhat plausible, he fails to provide concrete evidence, which undermines the validity of his argument. His citation of economist Robert Gordon’s claim that even today’s poor enjoy a higher standard of living in many respects than medieval royalty is highly debatable.

The claim that the government can issue unlimited bonds to stimulate the economy as long as inflation does not occur is quite different from conventional mainstream economic views and is not easy to understand. On the other hand, one might be curious whether the aggressive claims such as unlimited bond issuance reflect Wall Street’s greedy perspective. Sheard has worked at various investment banks since 1995 and also worked at a credit rating agency after the financial crisis. Credit rating agencies were criticized during the financial crisis as greedy entities that sought profit by rating everything in terms of credit. Their incorrect ratings of mortgage-backed securities were a cause of the financial crisis. Therefore, it is not unreasonable to see the provocative claims in this book as reflecting Wall Street’s worldview.

Money Power | Written by Paul Sheard | Translated by Lee Jeong-hoon | Dasan Books | 388 pages | 25,000 KRW

This content was produced with the assistance of AI translation services.