What Is Modern Monetary Theory?

Is printing more money the magic solution to our problems?
Modern Monetary Theory (MMT) has gained mainstream popularity in recent years with Senator Bernie Sanders of Vermont and Representative Alexandria Ocasio-Cortez of New York sharing their support of the theory. In simple terms, MMT believes that countries that print their own currency can never run out of money (technically, a true statement). Instead of being concerned over deficits and balancing the budget, it focuses on investing in programs like free college or universal healthcare without increasing taxes, so long as inflation is held in check. While this theoretically makes sense, could magically making more money work practically?

What’s in it for each party?
Why is MMT gaining interest? For Democrats, this seems like the perfect solution to finally funding public investments that haven’t received financial support rather than trying to tax the rich or increase taxes for the middle class. While many Republicans don’t support MMT, it could be an easy way to create tax cuts that will add to the deficit without too much objection. With opportunities for both sides to get their way, why is it likely that MMT wouldn’t be adopted by the Fed and the U.S. government in the near future?

Could MMT be passed in Congress?
For the past six months, Congress was deadlocked on how to move forward with coronavirus aid. While providing the American people aid during a global pandemic may seem like an easy agreement to reach, it’s been much more complicated to move forward due to the Senate and House disagreeing on what other initiatives should be included in relief. So, what makes people think that we could move forward with MMT? Many believe that if Democrats win the Senate runoff elections in Georgia that all Democratic initiatives proposed will pass easily through Congress, but that won’t be the case. With what could be a 50/50 split between Democrats and Republicans, it only takes one senator to deny a proposal. MMT is controversial, so there are likely multiple moderate Democrats who would not want it to become the standard for the U.S. government.

How would this affect me?
If MMT were to ever be implemented, it’s not as easy as the government printing more money when they need it. If the money created exceeds the resources, it can lead to hyperinflation, which is then controlled with an increase in taxes. So, while it seems like printing the money we need as we need it is a simple solution, there are consequences we would have to face. The first question is how fast would Congress act to raise taxes? Congress does not easily raise taxes, and not raising taxes when needed could lead to hyperinflation. And, once we begin raising taxes to slow inflation, there’s no telling where it will end. The truth is that while MMT may seem like a wonderful tool, spending money with the idea that taxes can be raised later to stem the tide of inflation is a dangerous game to be playing.

The reality is that Congress already functions to a degree as if MMT is the standard. Money is spent before it is borrowed. The danger is runaway inflation, and few people really believe Congress can act rationally to control this. While there is much to like theoretically, practical matters make MMT a dangerous proposition.

The First Steps of Your Accounting To Open Your Company

If you want to improve decision-making or seek financing, you must learn to organize your money flows. Discover the necessary tools to do it in a reliable and updated way.
The best way to project your business is by measuring all the progress. If you don’t, it is difficult to evaluate and outline future projects. To do this, you must analyze the progress of day-to-day operations through accounting records that will allow you to leave a trace of all decisions about the financing and use of your resources.

What types of accounting books do I need to use?
A good book entry must be easy to make and understand, and certainly must be reliable, accurate, consistent, and designed to provide timely information.

From a legal point of view, accounting records must permanently and completely reflect the income and expenses of the company. There are various types of books and accounting systems, mainly the following:

  • Double entry accounting. It is the one that most schools teach as a basic accounting course. Each operation is recorded in two accounts, of which one has to be charged or debited and the other paid or credited for an equivalent amount. This system is excellent; however, it requires an accounting training to understand and master it in detail.
  • Computer accounting systems. There are various programs on the market. They are fast and allow you to make calculations and also generate daily financial statements on a daily basis. However, you must be cautious when choosing them and avoid falling into the temptation of buying material that is too expensive or too elaborate in relation to the real needs of the company. Most small businesses will eventually need to maintain an electronic accounting system for managing increasing inventories and / or a greater number of operations.
  • Simple entry accounting (inputs and outputs). In this system, operations are recorded only once, either as income or expense, as assets or liabilities. All records are made in a journal. It is simple and easy to understand (it is, in fact, the system that is described in the example in this article).

To know more:

When starting your business
In the creation of a new company it is necessary to follow the following stages:

  1. Incorporate the company before a notary public and register it with the Ministry of Finance and Public Credit. Remember that when you set up as a company, the single entry method will no longer be useful for you and you will have to use the double entry method.
  2. In order to avoid confusion between personal assets and what belongs to the company, it is key to open an independent bank account for the operations of your company.
  3. Choose the accounting record system to use. In the simple starting system you will need a spreadsheet with the number of columns necessary depending on the number of expense accounts. In our example we will talk about 12 column sheets. Likewise, you must send to make your invoices numbered and with the name of your company, as well as the checks, orders and all the stationery that you use.
  4. Seek tax advice, so that you know what expenses are tax deductible and what their requirements are. The ideal is to contact a public accountant who will prevent you from making mistakes and will advise you on what you need.

It is key to open an independent bank account for the operations of your company. / Image: Depositphotos.com

How to make an accounting record with the simple entry system?
This is an exclusive method for individuals with business activity and legal entities that are registered with the Ministry of Finance and Public Credit under the simplified regime.

Use a notebook or spreadsheet to record the trades for the month and the monthly totals for each column. Use at least one page for each month of the year, the size of which will depend on the number of monthly transactions and will report the totals.

In the first three columns, record the date, the details of the transaction, and the check number. Try to pay all bills with a check and be sure to record all the details on the stub (purchase, date and invoice number). Also record the number and date of the check on the paid invoice. Get in the habit of making it easier for you when you have to record operations.

To know more:

Reserve the next two columns for income and expenses. Each operation must be registered in one of the columns. Income represents the amounts associated with the company’s sales, while expenses equal the payments made by the company.

The other columns are used to record the categories of income and expenses that vary from company to company. In general, you will require a sufficient number of columns to incorporate the expense items for which you most frequently write checks. If you only write one check per year for a specific expense, you don’t need to open a column for that item, you can record it in a column for “miscellaneous expenses.” In our example, the revenue is recorded in the “sales” column.

You Can’t Cancel the Debt, You Can Only Move

Let’s talk about the practical and personal implications of debt cancellation, a noble but dangerous concept.
Imagine buying a second home, one that you must repair. You spill your sweat, not to mention your money, to make it look good. Once you’re done, you decide to rent rather than sell it. It will take longer to recover your investment, but you will have a stable source of income later. Maybe you can even stay in retirement.

But then the city council sends you a letter: “Times are tough for tenants now, so we forbid you to collect rent.” After freaking out a bit, call the city hall and ask if the council members have prohibited the bank from charging you each month for the $ 100,000 loan you asked for to buy the house.

They say no. The city council just canceled the rent. I’m sorry.

Unfortunately, this is no longer a hypothetical situation. The city of Ithaca in central New York wants to cancel the rent to ease the burden on tenants. He has said nothing about the burden that decision would place on others.

You may be interested: Options to negotiate credit card debt during quarantine
This is just one recent example of a trend that resurfaces among good people who want to help, but don’t want to learn from history: Let’s solve our financial problems simply by declaring, “The debt is dead.” There is also a movement underway in Congress to write off $ 1.6 trillion in student loan debt – as if that amount of money could be wiped out.

Canceling the debt only changes the burden
Can city leaders really order you to let people live on your property for free? Not fortunately. Not in this country (United States), anyway, and not without an eminent domain – paying you fair market value for the property the government is seizing.

Of course, the Ithaca leaders have not thought this through. As USA Today recently reported , “Ithaca does not yet have a plan for how it would execute the cancellation of the rental if the state approves its request.” The mayor told reporters that the city would develop the rental cancellation structure more fully if it is given approval to go ahead.

Image: Depositphotos.com

If the mayor went ahead with canceling the debt, he would be sued immediately. Landlords would argue in court that the government is effectively repossessing their property by ordering them not to collect rent.

I’m a CPA and personal debt specialist, not a lawyer, so I don’t want to discuss legal matters. I want to talk about the practical and personal implications of debt cancellation, a noble but dangerous concept.

In the long term, debt cancellation doesn’t help much. In fact, it can end up hurting everyone.

Why Debt Cancellation Cancels Nothing
In April, Representative Ilhan Omar (D-MN) proposed the Rent and Mortgage Cancellation Act , which would “institute a nationwide cancellation of rents and home mortgage payments for the duration of the coronavirus pandemic.”

So that the financial burden does not fall solely on the owners, the proposal includes an unspecified “relief fund”. But the text of the bill never mentions even an approximate amount of dollars in that relief fund, although I would expect it to rise to hundreds of billions of dollars. Who would pay for it? All of us. All taxpayers in the United States would pay for this relief.

So the legislation would not really cancel the debt. It would simply make every American pay rent for apartments and houses they don’t live in and have never seen.

Fortunately, the bill has been stuck in the House Financial Services Committee since it was first introduced in mid-April. But the concept of debt cancellation lives on in the minds of many.

Debt cancellation ignores the real problem
Although the concept of canceling debt is not new, it broke into the media six years ago when a group created out of the Occupy Wall Street movement did something new: Organizers bought nearly $ 4 million in bad student loans – and then they announced that they would not be charged. They canceled it.

At that time, I approved of his move. It was compassionate capitalism in action: Individuals bought private debt and decided to cancel it. There was no coercion, no asset forfeiture, and no taxpayer money at stake.

But I also noticed that even if they paid off all of the $ 1.6 trillion in student loan debt, they hadn’t solved the problem. In another decade, there would be another $ 1 trillion in student loan debt. Back then, the big news was that student loan debt was in excess of $ 1 billion nationally. Nowadays? It’s $ 1.6 trillion .

Forgiving student loans is like emptying a bathtub when the faucet is still on top. You will have to keep doing this forever, unless you can turn off the water. Let’s talk seriously about closing the debt instead of canceling it.

The way to follow
Let me be clear: there is no silver lining in a pandemic. But there are lessons we can learn that have more to do with financial health than physical health. Obviously, we have all learned to spend less on eating out. USA Today reported that prior to the pandemic, Americans spent $ 228 a month “on food eaten away from home, including fast food, takeout, delivery, vending machines and food trucks .” Although takeout and home delivery are popular right now, everyone has personal stories about learning to cook at home again. I can’t tell you how many friends of mine on Facebook have posted photos of spices and cans of food that they didn’t remember owning that were pushed to the back of their pantry.

People are pinching pennies today because they don’t know if they will make a dollar tomorrow. Many have been laid off, and those receiving unemployment assistance do not know when it will end. So spending of all kinds is down. That’s necessary now, but if we can maintain some of that frugal spirit when life inevitably returns to normal, we won’t need to talk about canceling debt. We can start paying it. It won’t be easy, and it certainly won’t be fun. But it is not only the best way; it’s probably the only way.

The Truth About Money Management

Money can be a terrifying topic, but don’t let fear get in the way of making informed financial decisions.
Money can be a terrifying topic. Even the word itself seems daunting, with all of its underlying connotations. Because of this, some turn away from dirtying their hands and gaining important, empirical knowledge in the world of money managing. Instead, they turn their faces from it, and turn their money management over to someone who knows better.

The unfortunate truth is these types of people will never generate the wealth they want or need. Money knowledge (what to do with it, how to use it, where to invest it, how to make it work for you, etc.) is one of the most important instruments in the tool belts of the wealthy, and they wield it as a weapon.

I sat down with reputed money-management mentor Chris Naugle (who, full disclosure, is also a personal friend) to discuss this important topic, and he started off with this gem: “Money isn’t complicated. I’ve spoken with so many people who have held onto this common misconception that they’ve developed from an early age. This leads them to believe that you’re better off handing it over to someone who can do more with it, or understands it better, than you can.”

Related: Learn the Personal Finance Habits of Wealthy Entrepreneurs

And this misconception isn’t only reserved for a select few. Naugle admits he felt this same way before diving head-first into life as a financial advisor. However, after years of education, practic and even some failures, he’s learned some valuable lessons, like this one:

“The truth is that money is simply a tool. A tool that has a right and a wrong way to use it. Unfortunately, most of what we are taught is the wrong way, and that’s where a majority of our money problems stem from. Trust me, I know it’s hard to hear — or believe — that everything you’ve ever been taught about money is flat-out wrong.”

Here is Naughle’s insider breakdown on optimal money management:

The down-low on privatized banking
If you’re not in control of your money, someone else is, and you can bet they’re using your money to get richer. So the idea is to put your money in your own hands.

You may have heard this concept before. It goes by many names: The Money Multiplier, Infinite Banking, Privatized Banking, etc. But the name isn’t what’s important; it’s the significance. This concept puts you in control of your money and makes you your own bank. You are able to use a specially designed, whole-life policy with a mutually owned insurance company that pays dividends and puts you in a position of power.

The bottom line: It’s your money, and you need to be the one earning the interest on it. Your bank isn’t doing you any favors with that skimpy rate.

Why you shouldn’t be asking for money to fund your deals
I still get baffled looks at the mere mention of this nugget of truth. You may be wondering, “How on Earth is that even possible? Don’t they always tell you to ask until you find a ‘yes’?” That’s what most people say, but that information isn’t correct either.

Instead of coming from a position of needing permission, try solving someone’s problem. That way you can approach them from a position of authority and power.

As an example, let’s you spark a conversation with your neighbor, Jim. Both of you have exchanged many stories over the years, so this starts off just like any other conversation. Except this time, you’re listening to him differently so you can really tune into what problems Jim may be having that you can help solve.

Jim tells you that everything is going great, he’s in good health, his kids are having kids and he’s now enjoying being a grandfather. Recently, he’s started looking at RVs that would be big enough for the whole family to enjoy on camping trips. But before he gets an RV, he wants to finish paying off his truck.

Ding Ding Ding

Now, that’s a problem you can solve. You and Jim have been neighbors for 12 years, and it’s pretty safe to say he’s got some equity in his home. What if he could loan you $100,000 of that equity at 12% interest (enough to pay the interest he owes and enough money to pay off his truck)? Then, you could complete your deal and he could make money. That’s a win-win. He already knows and trusts you, which makes him far more likely to lend to you, and you both could make money on the deal.

That’s it! We’re just trying to solve someone’s problem. Give them an offer they can’t refuse, and you’ll both come out ahead. (I will add here that Jim will only trust you if you’ve been a good, upstanding neighbor. Yes, relationships and how you treat people really do make you wealthy.)

Demystifying winning strategies with options trading
If I told you that, in less than 10 minutes a day, you could earn higher returns than your High Yield Savings account offers, would you think I was crazy? Well, regardless of what you think, it’s true. You can earn higher returns just by investing 10 minutes of your time, per day, in Options Trading. From there, the process can be repeated and simplified, so you may only need to spend 10 minutes a month to get the same, mind-blowing results.

So what does it take? The trick is finding the right strategy that fits your goals, and sticking with a method that works. We’re not trying to reinvent the wheel here. There’s no need to overcomplicate it.

Related: The 8 Most Common Areas of Overspending in Business

The bottom line is, without the proper knowledge and consistent application of that knowledge, you’re going to stay stuck in a place you don’t want to be. How many years of your life are you willing to give up control, simply because you’ve been given the wrong information about how money really works?

I’ve watched Naugle change the lives of thousands of people through this simple, and correct, money-management advice. The truth is, money doesn’t have to be complicated. It doesn’t have to intimidate or scare you. And, most importantly, your money can work for you.

So, have your money make you more money. That’s managing wealth, intelligently.

Why We Should Advocate for Decentralized Finance and Its Regulation

Technology has proven time and again that innovation has the ability to identify trends that enable success. It can also help businesses worldwide with their attempts to attract funding by going public.
Decentralization is the current trend in the global financial market. However, it’s far from the only innovation that the industry has seen in recent times. As corporations aim to accelerate their capital raise, such businesses have taken to innovations toward opening their companies to public investment.

This can be accomplished in several ways. You may recall Bill Ackerman’s $4 billion blank check company created to buy a yet-to-be-named business. Likewise, there is news about Softbank’s planned shell company in the U.S.

Such shell companies are often utilized as special-purpose investment vehicles as part of a company’s strategy for reducing the financial risk or improving the efficiency of certain financial activities. For one, utilizing a reverse merger scheme with a public shell company can save millions of dollars in underwriting and listing fees, as well as shorten the time in which a business can get publicly listed on the stock exchange.

Kings of Shells
The strategy being undertaken by Ackerman or Softbank is not exactly new. In the late 1990s, Aaron Tsai, Chief Capitalist at MAS Capital, Inc., used public shell companies as a strategy for bringing businesses public in a shorter amount of time and lower expenses than a regular IPO. Tsai created 101 shell companies, cashed in on the trend and became a multi-millionaire by the age of 29.

Tsai was described by the Wall Street Journal as a businessman “at the leading edge of the resurgence of ‘blank check’ or shell companies.” Not many were convinced it was a good idea to build a business model out of companies with very few assets and barely existing income, products, business activity or a long-term plan. But Tsai saw profitability in dealing with these “companies in the business of doing nothing.”

Shell companies were not a new idea when Tsai saw the potential of generating millions with them. However, because of the stock market’s unexpected gains in the 1990s, largely driven by internet-related offerings, there was renewed interest in these instruments. Only a few discerning businessmen would have perceived this value, though. Tsai was one of them.

Tsai used his public shell companies for reverse-merger deals as an alternative strategy to underwritten IPOs. He merged his shell companies with other corporations, getting a portion of the merged company’s outstanding shares in return. This accelerated the public listing process for these businesses and resulted in considerable returns for Tsai, as well.

This strategy not only helped his own business, it also benefited other companies that struggled to raise capital during the dot-com era. Even before 2000, Tsai saw the potential of the internet to become a tool for investing success. “We believe the internet will open the equity markets to individual investors, create alternative stock-trading systems for them and thereby change the model of capital formation that exists today,” said Tsai in his Journal interview.

Are shell companies still relevant now?
The way shell companies are used now may not be the same as how they were employed in the past. However, the core idea of the purpose of having these companies, at least in the legal or legitimate sense, remains unchanged.

In a way, they have evolved into something with a less disconfirming connotation: special purpose acquisition companies (SPACs). A recent report reveals how SPACs have been booming and are likely to perform even better in the year ahead. In 2020, SPACs have outnumbered traditional IPO deals, 200 to 194. Interestingly, SPACs and traditional IPOs raised almost the same accumulated amounts of capital. Companies that went public using SPACs raised a total of $64 billion, while underwritten IPOs managed to generate $67 billion.

Paul Dellaquila, head of the Defiance Next Gen SPAC ETF, says that SPACs will only become more prominent in 2021, as many big names are already behind them. The entry of Virgin Galactic and DraftKings, for example, is giving SPACs more credence. Dellaquila adds that sports teams may also decide to go public, and SPACs will be their likely vehicle in doing it.

Moreover, a recently released Goldman Sachs forecast paints a rosy outlook for blank check companies, saying that a surge of these entities could drive $300 billion worth of mergers and acquisitions in 2021 to 2022. Suffice it to say, Tsai’s expertise and experience with shell companies continue to be a live round in his ammunition stock. His insights on blank check companies are useful in light of the growing prevalence of SPACs. According to BTIG, there are more than 200 SPACs currently seeking acquisitions over the next 18- to 24-month period.

Moving forward with decentralized finance
Even before 2000, Tsai already saw the potential of the internet to become a tool for investing success. “We believe the Internet will open the equity markets to individual investors, create alternative stock-trading systems for them and thereby change the model of capital formation that exists today,” Tsai added to the Journal.

Inferentially, Tsai already had the idea of decentralized finance at the back of his head. He foresaw the concept of individual and institutional investors snagging investment opportunities of various types in different parts of the world. He did not see the advent of blockchain, smart contracts, FinTech and decentralized finance, but he knew that someday everyone would be able to participate in investments globally through the internet.

As the latter part of the 2010s saw disruptions in entire industries brought about by blockchain and digital token offerings, Tsai once again demonstrated his resilience, versatility and ingenuity. The relentless capitalist learned to adapt and explore new technologies and business models.

Thus, MAS Capital Group, Inc., was founded. This new venture operates as a financial advisory business under the management of financial professionals based in Asia. This marks Tsai’s foray into decentralized finance. He started testing new waters and again demonstrated his knack for innovation.

Tsai saw how billions of dollars in digital currency went to Initial Coin Offerings (ICOs). At the same time, he observed the gap in how investors conducted due diligence when it comes to securing capital. This new business landscape inspired the creation of new services, which led to the founding of MASEx.

MASEx has been in operation for more than a year now, and the company plans to pursue further growth by engaging emerging economies through an AI-powered decentralized platform. The company aims to expand its STO ecosystems to enable the unbanked and underbanked to participate in investment opportunities.

Tsai realized how STOs are set to form part of the new normal in investing and capital raising, especially in Asia. “As we enter a new decade, do not be surprised to see the largest STO exchange in the world based in Asia or China.”

To be clear, his message was not a rebuke to traditional financial institutions but a challenge for everyone to level up if they want to retain control or take the dominant role in the global financial industry.

The need for regulation in decentralization
Even with all the promised benefits of decentralization, there are still crucial challenges. In STOs, in particular, there are stumbling blocks that prevent companies and exchanges from achieving optimum outcomes. Tsai points to regulatory compliance as the main challenge, especially its implications when it comes to due diligence and regulatory checks.

“We are going through a seismic shift that extends across the entire financial industry. This will disrupt the existing oligopoly of financial institutions in banking, securities and fund management sectors. Regulators must rise to the occasion,” Tsai said during a keynote speech in 2019.

It may seem counterintuitive, but the MASEx Founder and DeFi advocate calls for the urgent regulation of STOs which are decentralized by design. He describes the spirit and letter of the U.S. securities laws as in need of a refresh. They are not in tune with the disruptively accelerating trend of digital currency adoption, financial decentralization and self-regulated Security Token Offerings.

DeFi companies often feel challenged with regulations that limit what they can do. At the same time, they find it problematic when there are no regulations in place to assure customers, investors, or traders that the digital assets they are getting from a decentralized financial market bear real value.

Defying obstacles with DeFi
Decentralized platforms transcend geography, although partnerships with key industry players will be essential in achieving trust and traction.

Technology has proven time and again that innovations have the ability to identify trends that enable success. It can also help businesses worldwide with their attempts to attract funding by going public.

Regulatory requirements make it difficult for many companies to get publicly listed. Through STOs and even with the innovative business model with shell companies, the long and tedious process of raising capital can be reduced significantly.

However, it is also important to take regulation into account. Decentralization has numerous advantages, but without regulation to provide assurances to investors and consumers, it will be difficult to attract investors into trusting new financial services and security classes. Regulation and compliance build trust, and this may just be what DeFi needs to gain traction in the financial community.