Join institutional investors, analysts and strategists from the world's largest banks: Subscribe today
Already have an account? log in
Will Printing Press-Financed Stimulus Break The Back Of The Four-Decade Bond Bull?
Back in August, the global stock of negative-yielding debt ballooned to a cartoonish $17 trillion amid one of the more voracious bond rallies in recent memory.
At the time, tensions between the world's two largest economies had escalated anew, raising the specter of another leg lower for global growth. Recession fears proliferated, and long-end yields plunged, inverting the US 2s10s curve, much to the chagrin of risk assets and a certain US president.
Since then, yields have bounced, and so ha
Thank you for this article. Where would one look to understand this topic more fully? When I read these or macrotourist or Albert Edwards I often find myself struggling to understand. Can you suggest an outlet or publication to help more fully understand some of these economic subjects?
Watch Stephanie Kelton on Youtube
Thank you for your response, I appreciate it. I did watch a few Kelton videos on youtube at your suggestion. Essentially then, MMT says expand the money supply without issuing any debt to back it up and use those funds for “infrastructure” or other projects, ala Germany 1933-38 and MEFO bills but actually just use greenbacks as a form of stimulus (“fiscal policy”) as opposed to “monetary policy” (interest rates, fed balance sheet, etc.) Am I understanding this correctly?
Sorry if these questions seem dumb, I always considered myself a reasonably intelligent guy but for whatever reason I am having some difficulty trying to understand and follow this.
This is hard to understand because it is so different from the gold-standard monetary system. Under MMT, the value of the currency is not dependent on an arbitrary commodity, it is determined at the FOREX auction and is a reflection of the confidence and demand for the currency in the market. The natural limit to currency creation is inflation, and inflation is a result of an imbalance in supply/demand. If the created currency is productively utilized, then there won’t be a lack of supply and, therefore, no inflation.
Thank you for your explanation. So under MMT the currency’s worth would solely be determined by the market ideally based on its utilization. Rather than selling bonds to back the expenditure it would be merely “Printed” and put to use.
Why does a monetarily sovereign state have to borrow something that it can keystroke into existence? The financial system (private banks) skim 5% of GDP. They don’t want to give that up.
MMT will not be used to build productive infrastructure, at least not mostly.
It will be used for general government spending (everything from tanks to bureaucrats) and social services (healthcare, education, income supplement). It will become a structurally required part of the economy.
When MMT’s limits are reached, and inflation / yields start to rise, it won’t be possible to turn off the spending and money printing. Until the economy reaches a crisis.
Can you imagine what level of crisis will be required for citizens of a democracy to vote away their free education, free healthcare, free income? And the consequences of driving the country into that crisis, for its democracy as well as its economy?
MMT has been tried and has always ended in disaster. The theorists and politicians pushing it are disingenuous. They know perfectly well there will be no Rreturn on investment test applied to the spending. In business terms, it will be spent on opex more than capex.
I always see the same flaw in MMT….That simply put is that it is self serving and benefits certain institutions and Nations only.. and above all others. If you assume the ones who are and will be the creators and implementors of MMT can retain the reins of power ….well then there will be a limited time frame for that theory and it’s duration……..Key word LIMITED….
All economic theory has limited life span. The austerity theory died because you cannot grow by cutting and removing. MMT describes reality (off the gold standard).
How long that reality lasts is another question entirely. Was that question ever asked, never mind obsessed over, by the Austrian school?