Modern Monetary Theory

June 15, 2020

There is a saying, “The more things change, the more they stay the same.” Yes, I know, it is an oxymoron, but it makes a good point about the hubris (or perhaps stupidity) of human beings.

There is a “new” economic theory called MMT or Modern Monetary Theory. There is nothing new about it. In a nutshell MMT holds that whatever the government decides is needed, it can simply print money, “spend” it and get whatever is “needed.” Here is a little more:

“There is nothing new in Kelton’s introduction. MMT’ers have understood these concepts for more than a decade.

But we always must remind ourselves, as traders and investors, what’s important is to discount how the public perceives those ideas. Remember the whole Keynesian beauty contest concept (probably not the most politically correct analogy, but let’s remember that Keynes lived in a different era. In fact, I suspect if Keynes were alive today, he would be more politically correct than some of his most vocal opponents –Niall Ferguson apologizes for remarks).

Keynes rightfully understood that investors discount what the crowd will perceive as the most likely outcome as opposed to the best choice.

Which brings me to my main point. And I know some of you might think this is nuts. But I don’t care.

I have been watching for signs that the concept of “governments are not financially restrained” taking hold within the non-financial community.”

We don’t need to go any further with this. This idea is not new and it doesn’t work. It might “work” (will depend on your perspective) temporarily and that is the problem. People quickly forget and then lose sight of the cause of their misery. All this will do is change the group that prints the “money”. We already have this system with an intermediary called the Federal Reserve. The government already basically “prints” all the “money” that it needs. It is just done indirectly through the Fed. MMT would remove the Fed and have the government do this directly. As you can see, the only change is the bosses. The MMT folks will also tell you there will be no interest paid. Who will save in that environment? To keep such a system together, the government will have to forbid trading for other substances such as gold and silver, bitcoin, etc. Slavery anyone?

If you want real change, eliminate the monopoly the state holds on “money” production. Allow anyone that wants to issue “money” to issue it. The market place will sort the sound “money” from the unsound “money”. Currently, the government does not allow this sorting to take place.

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