Albert Edwards Returns From Jamaica, Talks MMT And The Likelihood Of Negative Rates In The US
When last we checked in on SocGen's Albert Edwards, he was regaling readers with a story about the time he almost died in a road rage incident.
No, wait, that was the time before.
The last time we checked in on Albert was January 10, six days after Jerome Powell's successful jawboning of markets in Atlanta. At the time, investors were wondering whether it would be enough to rescue markets. Albert's answer was as follows:
If we are indeed nearing the point where the Fed stops tightening (both
Yeah, I figured Powell would stick to his guns long enough to look the fool but he blinked and the only other logical assumption is Helicopter Money for days… the only question is will wage inflation ever be allowed or will asset values skyrocket while wages stay flat?
The only factor limiting MMT is inflation (i.e. over-pressuring available capacity). A long as deflation is a worry, the party will continue”’and for longer than most believe possible.
Wage inflation should be added as a Fed reserve mandate. That is, increased wages should be viewed as a positive goal, NOT a reason to raise rates and slow the economy…. It is possible to have progressive wages in a “managed” growth economy….However, the Fed’s track record has been an abomination….Life after the Fed would be great, if only we had a functioning government with sufficient (unconflicted) oversight of the banksters.
Like the Heis has reminded us, the financial world is a human construct. Which means we get to make up the rules.
MMT thinking is young and has a shorter record (good results so far) than the older way of thinking where we thought of government debt and deficits as being the same as household debt. But that longer record involves a lot of suffering each time resources where pulled back without having inflation as a problem. MMT does not tighten if there is no inflation problem, but governments need fiscal policy that targets infrastructure (including education and heath) in order to get the most benefit out of the easing. Otherwise it stays in the financial industry alone.
I think the limiting factor will be whether or not people retain confidence in American money if they implement MMT. If a large percentage of people start transferring their US money into Yuan or Swiss Franks or Norwegian Krona because the US money is not backed by gold or the value of American goods or anything of value, why hold it?? If the currency is in fact a fiat currency and they print the US monopoly money whenever they need it there will be no controls on it. Why bother collecting taxes?? They can just print ad infinitum.
The dollar is in a unique position. It is the world’s reserve currency and that would take a lot to change. Easy monetary policy everywhere (that matters), means all currency are in the same boat. In fact, the reserve currency MMT’ing forces the rest to follow.
“Why bother collecting taxes??”….why indeed!? Taxes only remove money from the private sector. They have been removing taxes for thirty-five years, but not replacing all of it with growth. In addition, most of the benefit has gone to the top and has stayed there (the velocity of M2 is historically low).
The next decade will be as exciting as the last.
Aging population, productivity issues, educational issues, budget deficits, debt levels, etc all suggest the next downturn will lead to Albert being correct for the most part. The average person has no idea of the carnage that is likely coming.
We have been hearing for several years now that the apocalypse is upon us. As I recall, Mr. Ricard picked a doomsday date that came and went two years ago. Mr. Dent told us about the demographic cliff that we fell from. There’s Gundlach now and the permabears that have always been there. Buffet never worries, just keeps his faith in the good ole U.S….We have been whipsawed by the Fed and the stockmarket and the banksters. The experts advertising on tv convince us to buy gold. You can do a little better now on cds. The banks may or may not be safe in the long run. Ain’t nobody that knows nothin, thats for sure. Its a risky world, but at least we can say we are civilized.
Out of curiosity… has MMT already started here in the US?