"If the government prints more money to spend more, some of the increased spending will end up in the banking system."
All US dollars reside within the banking system. They are not a "commodity" one can hold onto like gold. "Printing money" is a misnomer, as the government spends by marking balance sheets in the banking system up or down via instructions from Treasury and computer keystrokes.
"A certain percentage of all deposits has to be held in reserve though a bank can hold more than the minimum."
Banks haven't loaned from deposits for some time. They don't even actually loan "money", although the credit they extend to borrowers spends like money because the Fed requires them to balance loans with reserves to facilitate interbank transfers, which they must borrow from other banks at the overnight rate that the Fed sets. This balance must be maintained at 100% of loaned funds against reserves, not 10% as many believe. Reserves are a liability to banks that they pay interest on, not assets.
"In today’s system, the Federal Reserve pays interest to banks, called Interest on Reserves (IOR). Thus, the increased spending will require even more spending as the government prints more money to pay the interest."
This is only true for non-banking accounts. For banks, see above. IOR is a method to make the system more streamlined and give accounts more flexibility than is offered by Treasury bonds. The interest is minimal in the budget process, and certainly is insignificant in comparison to private sector debt, which, by the way, cannot be net retired without US dollars created by federal spending
"If IOR is not high enough, banks will lend out the extra reserves instead. This, too, is inflationary."
Banks do not lend from reserves, which is why QE was a flop in regard to increasing lending (as many MMTers predicted). It did, however, allow the Fed to mop up a lot of risky debt held by the big banks that wasn't divulged in their initial accounting. Since the Fed shares a balance sheet with Treasury it's easy to make such debt go away without a lot of fanfare.
"While technically a government could keep printing money to cover its obligations, these inflationary forces can runaway into hyperinflation. At that point, default may be preferable to continuing to print money."
Default is not a concept to even consider with the world's largest and most productive economy, and it isn't even possible for the US to become insolvent. That is the primary reason it remained the globally preferred storehouse for wealth to this day in spite of the dollar not being the currency of trade officially since Nixon removed us from the Bretton-Woods agreement in '71.
I normally don't respond to critics of MMT who cite default, (or Zimbabwe/Venezuela/post WWI Germany) as a possible future for America. They are simply showing their lack of depth of thought and macroeconomic knowledge, or their agenda. They also never equate tax cuts with deficit spending or the debt and refuse to acknowledge that such cuts increase both while they rail on about the coming apocalypse that is sure to result from allowing some poor people to eat and the middle class to have some measure of dignity not granted from the wealthy.
"I have to say I still think MMT is not going to work in real life."
MMT "IS" working in real life currently, just not as well as it could if we properly acknowledged its reality. Anyone who thinks MMT must be "implemented" or requires major changes to our monetary system simply doesn't get it.
"And now that I know MMT relies on Marxist conflict theory thinking, I have even less reason to believe its predictions."
Yes, because a theory that states that a tax cut has the same budget impact as increased spending must be entirely made up by commies. The hedge fund manager/bond trader originator of MMT, Warren Mosler. and several of his peers (not to mention Dick Cheney and Art Laffer) would be surprised to find that they are "Marxists".
"But even the US will hit some amount of government debt that will seem risky to buyers of the government bonds. To compensate for that risk, the interest rate on US bonds will have to rise. That leads to interest on the debt becoming a bigger and bigger part of the budget."
This would be true "IF" borrowing was a funding mechanism for federal spending. It is not, and never has been. In fact, federal deficits "FUND" the purchase of Treasury bonds, not the other way around. Before you get your hackles up and claim this to be absurd ask yourself how one can "borrow" what doesn't yet exist. Ditto with taxation.
Federal "revenue" is an oxymoron for actual morons that cannot view the economy as a whole and focus on sectors in isolation. Every dollar of the federal debt represents someone's monetary asset in the private sector and is the result of past productivity, not an encumbrance on future productivity. A balanced federal budget represents a theft of the resources and labor the government uses and leaves nothing to allow the private sector to store value from that commerce or to net fund economic growth, forcing it to fund its own growth and wealth accumulation with private debt.
That is far more "unsustainable" than a system that assures its members of a dignified existence. It also depends upon constant growth to maintain itself, rolling over private debt instead of retiring it, like a shark must keep swimming or die. It is a very unstable system that chokes at every little hiccup and generates asset bubbles in the place of actual wealth while placing constant pressure on the "real" resources of our nation.
The US dollar is self-funding and Congress holds the patent on it, making any misery in this economy that can be mitigated with increased spending entirely a political decision, not economics.
