In September 2021, I wrote that Modern Monetary Theory (MMT) was not a breakthrough. I still believe it is a political costume, a way to present old ideas in new garments and to hope no one looks closely at the seams. The argument then was simple. If a nation convinces itself that debt does not matter, it will behave as though consequences do not exist. Once a government behaves that way and convinces taxpayers that it is true, unusual, and harmful behavior will eventually follow. The world’s only example of a “successful” MMT use was Japan. But even in Japan, they have learned that inflation and capital flight impose limits that MMT would prefer you ignore.
Unfortunately, Americans are now so financially and fiscally illiterate that politicians see many ways to deceive them into a place of comfort. If Japan can convince its citizenry that debt at 250% of GDP is not a problem, then we still have a lot of maneuvering room.
Circular Financing
Five years later, the consequences are arriving. Like rust on an old pipe, they arrive quietly, slowly, steadily, predictably, and largely unnoticed. The consequences are reshaping the political landscape in ways that should concern anyone who still believes arithmetic is neither optional nor pliable. Japan has now acknowledged that its extended period of near‑zero rates and heavy bond purchases created economic distortions, and it has moved toward higher interest rates to keep investment money at home.
The problem for the United States is that this policy shift encourages the Japanese to invest at home and stop buying US Treasury Bills and Bonds. Japan has been the largest purchaser of US debt, as Japanese investors sought higher yields. The zero-interest-rate policy also encouraged foreign investment through the Yen Carry Trade. This circular financing has worked for decades. In this process, the Japanese Central Bank looked smart because demand for its debt remained strong at zero interest rates, and US investors looked smart because they could borrow at nearly zero and reinvest in US debt at a higher rate. Because they traded sovereign debt on both sides of the Pacific, it was a near-zero-risk arbitrage.
This worked well, until it did not work at all. Many Japanese households took pride in their ability to invest, and learned to invest abroad for higher yields. As domestic investors moved money overseas, the Bank of Japan had to offer higher rates on its bonds to keep capital at home, effectively killing the Yen Carry Trade. Without interest‑rate arbitrage, demand for Japanese sovereign debt fell, and the Bank of Japan sold Treasuries to stabilize its currency and its bond markets. The panic in Japan raised concerns in Washington and led to an agreement for our Treasury to “lend” money against their Treasuries. This maintains the illusion of Treasury demand.
The Yen Carry Trade Illusion
Imagine two small businesses on the same street. One is a bakery. The other is a coffee shop. Each is struggling, but they discover a trick. The bakery buys coffee from the coffee shop every morning, and the coffee shop buys pastries from the bakery. They tell their bankers they are thriving because their sales look strong on paper. Money moves back and forth, and each business points to the other as proof of success.
The problem is simple. Neither business is making money. They are only circulating the same dollars in a loop and calling it growth. The moment one stops buying from the other, the illusion collapses. The books no longer match the story. The prosperity was never real. It was only a shared agreement to pretend.
That is the Yen Carry Trade. Japan made money available at nearly zero percent. Investors borrowed that money to buy U.S. debt that offered higher returns. Japan looked strong because demand for its bonds was always there. The United States looked strong because Japanese investors and the Bank of Japan kept buying Treasuries. Each side pointed to the other as proof of stability. This circular flow created the appearance of success without substance.
When Japan raised rates, the loop broke. The bakery stopped buying coffee, and the coffee shop stopped buying pastries. The prosperity narrative could not survive the end of free money.
Soft Sell Socialism
Until I started this article, I had not thought of Modern Monetary Theory as a form of socialism. I do not think of Japan in these terms. Now I see structural similarities. The belief that government can suspend consequences. The belief that prosperity can be created by decree. The belief that arithmetic can be bent to political will.
The modern socialist-leaning candidate no longer uses the word socialism. They learned that lesson. The term is too heavy, too blunt, too easy for voters to reject. So, the vocabulary changed, but the promises did not.
Today the pitch is wrapped in softer language. Equity. Investment. Guarantees. Rights. The architecture underneath is familiar. Government expansion into private sectors. Redistribution framed as moral duty. Federal programs with no credible funding mechanism. A belief that prosperity can be legislated instead of earned.
None of this is about personalities. It is about structure. And the structure mirrors the same assumptions that underpinned Modern Monetary Theory. That debt is irrelevant. That fiat currency is limitless. That government can manufacture outcomes by decree.
American politicians watched Japan spend without consequence for thirty years. They saw a nation carry debt at 250 percent of GDP and remain stable. They learned the wrong lesson. They learned that voters will tolerate anything if the consequences arrive slowly enough.
I hope readers will verify a political candidate’s position on finance and look for signs in the business world. MMT is no longer confined to government finance. It has begun to infect the private sector in ways that may prove disastrous. Historically, government and business have had opposing incentives. Today they are drifting toward the same dangerous assumption. Those consequences can be postponed forever.
A Financially Unprepared Electorate
The most dangerous trend in American politics is not ideology; It is ignorance. A population that cannot explain compound interest cannot evaluate national debt. A population that does not understand inflation cannot detect when leaders are causing it. A population that treats debt as lifestyle cannot recognize when government does the same.
The data is consistent across surveys. Many Americans cannot define basic financial terms. Budgeting skills are weak. Retirement planning is often nonexistent. Debt is normalized. Savings are rare.
This is not a moral failure. It is a civic one. And it is the predictable outcome of an education system that deprioritized economics and civics in favor of test‑driven compliance. Promises easily persuade a financially illiterate electorate with the word “free.” Politicians who understand this exploit it.
Fiscal Policy Without Consequences
The fiscal landscape in the United States today is the natural extension of the Japanese MMT mindset of deficit spending as routine. Debt ceilings are raised reflexively. Monetary policy is used as a pressure valve. Federal programs are expanded without revenue. Inflation is treated as an external force rather than the predictable result of policy choices.
The pandemic provided cover for extraordinary spending. But the extraordinary has become ordinary. And once voters are conditioned to expect federal rescue packages, politicians are conditioned to provide them.
Cycles like this do not continue forever; they break, usually when voters and politicians least expect it.
The Cultural Cost of Economic Illiteracy
When citizens cannot evaluate financial claims, they default to emotion. When emotion rather than meaningful debate becomes the currency of politics, the most theatrical voices win. When theatrical voices rise, competent governance falls.
This is where we are, and the results are visible. Policies chosen for their slogans, not their outcomes. Candidates rewarded for outrage, not expertise. Fear, not understanding, mobilizes voters. Leaders who do not understand institutions weaken them.
This is not a partisan failure. It is a structural one.
Restoration, Not Reinvention
The solution is not revolution. It is restoration. America does not need new theories. It needs old disciplines. We must rebuild financial literacy beginning in middle school. We must restore civic education as a core requirement in middle and high schools. All across schools, business, and government, we must reward competence over performance. As we have explained in our Rebuilding America Series, we must return to more manageable-sized cities and reassert local control as a stabilizing force. This reinvention will help rebuild cultural expectations around the responsibility and truths that come with community.
Déjà Vu All Over Again
In 2021, I warned that Modern Monetary Theory was simply socialism with a new label. Today, the label is more visible, and the substance is no longer disguised. The promises are unsustainable; the math is worse. And the consequences are beginning to surface. When Treasury Secretary Scott Bessant set up a special account to help Japan out of its fiscal mess and avoid Treasury sales, he confirmed the circular financing between our two nations.
America is not doomed, but we are drifting from our core principles. The drift is slow enough to ignore in the short term, but fast enough to matter. In quiet ways, we are rusting faster than we notice. The solution is clear. Restore literacy. Restore discipline. Restore competence. Restore the expectation that leaders must understand the systems they seek to control.
A nation that educates its citizens, demands fiscal honesty, and rewards competence will endure. A nation that does not will not.
The choice is ours.
References and Further Reading
Functional Finance and the Evolution of MMT, by L. Randall Wray, Levy Institute, levyinstitute.org, Last accessed September 14, 2026.
Key Books & Articles on the History, Philosophy, and Economics of Money, by Allan Pedersen, Philosophers Mint, philosophersmint.com, April 21, 2026.
Modern Money Theory (3rd edition), A Primer on Macroeconomics for Sovereign Monetary Systems, by L Randall Wray, MMT Works, mintworks.com, March 26, 2024.
The MMT Project, by Phil Armstrong, Pavlina Tcherneva, L. Randall Wray, and others, MMT Project, mmtproject.org.
The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, by Stephanie Kelton, Public Affairs Books, publicaffairsbooks.com, June 9, 2020.
MMT Workshop (Exploring Economics), by L. Randall Wray, Stephanie Bell, Pavlina Tcherneva, and others, Economics.org, economics.org, December 17, 2021.
