Inflating away debt is fine if it is done slowly and has been done for centuries.
The extreme asset valuations we've seen after a decade of QE are unprecedented.
ZIRP and QE are not fine and are not working for the stated purpose, if anything they're making the economy more fragile. There's an interesting overview of the choices here from Lyn Alden, none are without complications but it does sound like they'll try to aim for moderate inflation and hope they can control it, but if they need to put the brakes on in a hurry the traditional methods of doing so could have extreme effects on overvalued assets:
Rather than pushing up financial assets and then jamming everyone into more interest rate sensitive debt, why not print the money, give it to poor people, and create a bit of inflation.
MMT [with apologies to The Matrix]: “Do not try and inflate away the fiscal deficit. That's impossible. Instead only try to realise the Truth... There is no debt, and no ‘fisc’.”
While you can preprogram spending and call it “debt” in MMT, you can't understand MMT from within the metaphor of the fisc, the limited public purse which must be filled by revenue and/or borrowing to enable spending.
MMT isn't really about how you use blunt-instrument monetary policy like fed target rates, it's about not needing the separation between sharp-tool “fiscal” and blunt-instrument monetary policy, because “fiscal” policy actually lacks fiscal constraints and has only monetary constraints, and therefore can and should be used instead of blunt-instrument monetary policy. While conventional economists tend to criticize the US for being overreliant on monetary policy because of Congressional failure to deploy fiscal stimulus in recent downturns, MMT dial that up to 11, viewing the divide between fiscally-constrained but more targetable policy and monetary policy which has no fiscal constraints as artificial and unnecessary, as the constraints actually applicable to either are the same and purely monetary.
That lets you tune the inflation rate more directly than the Fed's rather distant lever arm. The Fed has been trying to increase inflation, but doing so mostly by pumping it into the financial sector, in the hopes it would trickle down. It hasn't. So all of the inflation is confined to the financial sector, in the form of the stock market (and a few other investments, these days including crypto).
Under MMT you could give the same cash directly to people as stimulus checks or UBI, and know that it will go around at least once or twice before ending up in the financials. Then you can control inflation with taxation, removing as much money as you need to, and simply burning it.
The public debt doesn't matter. Inflation gradually eats away at private debt -- assuming it's distributed properly, which it may not be.
It's flexible and elegant. Whether it actually works is less clear, but its roots are a lot like conventional economic theory. In theory, theory and practice are the same...
Taxes are separated from spending, that's just an observable fact MMT poses a (actually, quite conventional) explanation of the constraints that actually apply to that. It also tends to be adhered to by people with particular policy preferences, but that's not really all that tightly tied to the descriptive elements of the theory. (Though most argument against “MMT” is actually against the policy preferences, not the theory itself.)@
> It does away with borrowing to simply create money out of thin air, and return any money collected the same way.
Well, it doesn't do away with it so much as point out that it is an act of artifice. You can borrow or not, MMT doesn't care: government created money when it runs a deficit and destroys it when it runs a surplus, and reallocated it all the time. All borrowing does is preprogram in an allocation of certain spending in the future, it doesn't change the monetary effects of current “fiscal” balance. (“fiscal” in quotes because the central tenet of MMT is that the metaphor of the “fisc”, the finite government purse, is inapt for modern government finances denominated in fiat controlled by the government involved.)
Run inflation higher than interest rates to push down the nominal value of debt.
Usual example is the UK after WWII.
https://fred.stlouisfed.org/series/CPIIUKA
You don't need hyper inflation to inflate away your debts, just enough monetization to bring indebtedness in line.
Now, does that mean the currency will retain value vs real assets, no it means the opposite.
Hence the move in stocks, real estate, bitcoin, gold, etc;