Inflation Prep With Kevin Muir And Koyfin CEO Rob Koyfman

There is perhaps no more vociferous debate in the always exciting world of macroeconomics than that associated with the marriage of fiscal and monetary policy in the wake of the pandemic. By now, even casual observers (armchair economists, as it were) are acutely aware that central banks are enabling fiscal stimulus, in some cases on an almost dollar-for-dollar basis. In essence, the pandemic necessitated and brought forward the real-world application of Modern Monetary Theory, although the pr

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7 thoughts on “Inflation Prep With Kevin Muir And Koyfin CEO Rob Koyfman

  1. MMT is not something that get’s applied… it’s a description of fiscal and monetary operations. You either believe that MMT correctly describes macro or that it does not, regardless of policy response.

      1. Warren Mosler’s fundamental insight is that the currencies must be issued (govt spending and lending) before it can be collected (tax collection and bond sales). Therefore the govt isn’t revenue constrained with regard to it’s ability to spend it’s currency. The currency is a liability of the issuer and and asset to the users.

        These aren’t things that you apply or “do”. They are either true descriptions of the our monetary system or they are not. Recognizing that the govt can expand fiscal in response to a pandemic without 1st checking the balance of the treasury’s acct or the mood of bond vigilantes, doesn’t mean that doing so is somehow the application of some new theory.

        Those that believe MMT accurately describes the monetary system, may propose policy prescriptions informed by said description but that’s beside the point.

        1. You speak as though you’re not a long-time reader (which you are). I’ve been preaching this for years, something you are surely well aware of. The problem, though, is that while I’m as close as one can come to being all-in on this without actually being all-in, there isn’t anything “fundamentally insightful” about the fact that a country which issues a reserve currency can issue currency. That is a tautology. Everyone (including MMT’s staunchest critics) understands it. You can’t claim “truth” from a tautology. That’s like me strolling out onto the back deck and shouting “I declare water wet!!” and then claiming I’ve said something that’s worth saying. There has to be (must be) some nuance, and where that nuance comes in is when you start to talk about when and where this framework for describing the system is applicable or, more precisely, where sticking with a description of reality that is technically and semantically correct, will lead you to ruin in the space of a week. Speaking to that, anyone who’s ever traded EM FX or debt will tell you that no matter how semantically accurate this is, it is damn sure NOT applicable for every nation which issues a currency. Sure, you can assert that no currency-issuing government is revenue constrained when it comes to spending its own currency, but that is meaningless for a country like Turkey when the lira goes into one of its periodic spirals. Because what happens is that the locals don’t want lira anymore, and suddenly you get a dollarization impulse. At that point, saying that Erdogan can buy anything he wants to buy as long as it’s priced in lira is irrelevant. Absent this kind of nuance, you haven’t said anything that’s worth saying. It’s one thing to (correctly) assert that policymakers in developed economies have, for decades, subscribed to misguided notions about debt and deficits, and have failed to “leverage reality” (so to speak) when it comes to spending. It’s another thing to implicitly say that it hadn’t occurred to anybody on planet Earth besides MMT advocates that currency issuers can issue currency, and that there is no such thing as “dollars” in the absence of dollars. I mean, I’m totally on board with the program here, and I spend countless hours every week preaching it to hundreds of thousands of readers (literally). But let’s not get so circular with this that we’re taking credit for tautologies.

          1. Your arguing against points that I never made here. I am a long time reader. And I do know your position on the meat of this debate. I’m only speaking to the common statement that this or that CB or fiscal authority is “doing MMT”. As any ‘descriptive’ macro framework, it’s not something that you “do”. It’s either a accurate and/or useful description or it’s not. It describes a budget surplus just the same as a budget deficit. It leads to all sorts of silly statements like “if the govt does MMT we will get hyper-inflation, etc. Where the framework becomes reduced to just a synonym for deficit spending.

            I’m pretty sure on this (and much of everything else) we are in agreement. Also, your point about EM FX and Turkey engages in the same tautological argument that you lament. Your retort to the statement that “Erdogan can buy what ever is for sale in lira” is that for one reason or another somethings may not be for in lira. On this we are in violent agreement. But I digress.

    1. State changes happen over time; market actors (including those with blank checks) who believe that MMT is an accurate model of fiscal/monetary interplay will tend to behave differently than those who don’t. Even if nobody decides explicitly to “apply MMT,” the feedback loop could cause MMT-inspired policies to propagate for some period of time (longer or shorter depending on MMT’s accuracy as a model, I suppose).

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