Sean Corrigan Crucifies MMT

Tyler Durden's picture

While hardly needing a full-on onslaught by an Austrian thinker, when even some fairly simplistic reductio ad abusrdum thought experiments should suffice (boosting global GDP by a few million percent simply by building a death star comes to mind), Diapason's Sean Corrigan has decided to take MMT, also known as "Modern Monetary Theory", to the woodshed in his latest missive in a grammatical, syntaxic (replete with the usual 200+ word multi-clause sentences) and stylistic juggernaut, that only Corrigan is capable of. So sit back in that easy chair, grab your favorite bottle of rehypothecated Ouzo, and let the monetary hate wash through you.

Money, Macro and Markets

by Sean Corrigan of Diapason Commodities Management, and author of the excellent Santayana's Curse

As regular readers of these scribblings have hopefully come to appreciate, this is not the place to come to slake your thirst for mechanistic ‘models’ and fancy-dan macro-correlation studies (for the technically-minded, this is precluded by the subjectivist, methodological individualism of the Austrian School to which we adhere).

The only exception to this—if, indeed, an exception it is—is to be found in out penchant for mapping out developments in money supply and, in particular, real money supply and relating these to potential changes in the revenue stream percolating through the economic structure and, hence, to their implications for income, returns on invested capital, and the supportability or otherwise of the accumulated debt burden.

To an Austrian, the credit cycle IS the business cycle, while, more generally, the many disruptions to the progressive delivery of greater material satisfaction we suffer —outside of those forcefully visited upon us by the political process—are almost inevitably the result of some unlooked-for departure in the rate of provision of new money from that to which people had become accustomed. Just occasionally  it is not the supply itself, but rather some unwonted alteration to the eagerness with which money’s recipients hold on to that which comes their way which brings about these changes. In other words, every once in a while it may be a question of a changed appetite for, rather than a changed helping of, cash-at-hand which occasions a disruption. Such departures are hard to pick up from an inspection of the raw data, making their interpretation both more challenging and more a matter of inference than of brute manipulation of a  spreadsheet. Either way, once ‘monetary disequilibrium’ breaks out, look out below!

If there is one incontrovertible thing about monetary matters, it is that they offer a field rich in misunderstandings, obtuseness,  half-reasoned suppositions, and outright crankdom—much of it a wearily reworked canon of old fallacies dressed up in (terminologically)  new clothes by a profession which has long since decided that mathematical dexterity and political expedience is far more important than an awareness of its own history, meaning it never manages to build cumulatively on past insights, unlike the physical sciences which its practitioners so envy, alas!

Among the latest vogues is the so-called ‘Modern Monetary Theory’ - a truly laughable epithet, given that Mises was deriding its Chartalist-founding father Knapp’s vainglorious use of exactly the same term almost exactly a century ago.

Among its supposed ‘breakthroughs’ is the truism that a government which issues its own fiat currency can never go bankrupt—at least  in an accounting sense—and so should never shrink from commandeering ever more resources from its subjects (we shall overlook the mere trifle that it may well be able to set the nominal terms of its actions, but has little control over the real ones; or that there do, in fact, exist limits to its seigniorage, not least of which the one which arises when the mass no longer accepts the money which it has so determinedly debauched, whether or not taxes are to be paid in it!)

One of the classic examples of faux reasoning disported by this soi disant school of innovative thinkers is one which leaps from the tautological observation that a flow-of-funds reckoning of an economy—conveniently, if rudely, carved up into vast, faceless blocs labelled, ’Public’ and ’Private’—must see a net private surplus offset by a net public deficit (ignoring the external ’sector’ for the moment) and hence, that the overspending state is doing all its subjects a favour by living beyond the means honestly voted to it, otherwise their aggregate desire to acquire net new ‘assets’ (i.e. retaxed claims on taxes!) could never be fulfilled!

On this reckoning, the Greeks, far from being the most fiscally benighted and sorely afflicted of peoples, should rejoice in the effulgence  of their status as beacons of true MMT enlightenment and prosperity!

Suffice it to say that we can put this canard—one equivalent to saying that we benefit from paying protection money to the Mob if only the Capo holds the monthly dinner party for his lieutenants in our pizza parlour—firmly to rest after carrying out only the most trivial of disaggregations.

Absent the predations of the Provider State, individuals may well, on balance, engage in saving (with a view to better providing for their future needs) by acquiring claims on entrepreneurial endeavours, these latter being happy to put the funds so raised—and, by extension,  he resources so spared—to a hopefully profitable, productive use.

Under these circumstances, the consolidated balance sheet of the private sector will certainly still show a zero balance but the twin  aggregates which comprise this will show an expanding count of genuine capital accumulation, even without some insistent spendthrift in office to ’remedy’ the associated joint lack by throwing a good war, or an equally useless Olympics!

Moreover, MMTers also bruit about the ludicrous idea that such grossly confiscatory measures as are entailed by government spending and borrowing are easily justified because they ensure that an otherwise elusive medium of exchange is called into existence. In effect, they are asking us to believe that, short of having this paternalistic blessing conferred upon us by our selfless Platonic Guardians, it would be utterly beyond the wit of Acting Men to devise some alternative means of lubricating their frequent, voluntary, and so value-enhancing transactions. Risible!

As part of their insidious idea that no government can be too big, no deficit too wide—saving only that Leviathan has not foolishly ceded control of the printing press to some party beyond the reach of his coercion—the MMTers also insist that the gargantuan programme of monetisation being undertaken as part of the global bank rescue attempt has not and, moreover, cannot, under any circumstances, lead to ‘inflation’ (by which they conventionally mean sustained price rises in goods and services, of course).

Well, let us here quote the words of an early 20th century thinker on such matters, Harry Gunnison Brown, in the slightly different—but still relevant— context of denying that there can ever be such a phantasmagorical creature as a ‘liquidity trap’:

“ has been argued… [that] it is impossible for banking policy - or any purely monetary policy devoted to increasing the circulating medium - to bring business back near to normal in any reasonable period, once depression has become acute. For, it is contended, the increased money will in any case merely be hoarded. Depression psychology will prevent borrowing from banks for business expansion, however large... reserves become through favourable Federal Reserve policy. Depression psychology will prevent any person or persons from whom the Federal Reserve banks purchase securities, from either investing or spending the money so received! And if the federal government directly supplements Federal Reserve policy, printing billions of dollars of new money which it then pays out to buy back or redeem federal government bonds, this new money will also be hoarded, every dollar of it, and so will have no effect toward increasing  the demand for goods and restoring employment! “

“In this view it would appear that if each person in the country, during a period of depression, were put into possession of more money than before whether twice as many dollars or 100 times as many or 10,000 times as many-there would nevertheless be no appreciable  increase in spending, no increased demand for goods and no stimulus to business and employment! Instead, production would remain low or even sink lower, spending would remain low or even become less, prices of goods would remain low or fall even lowed All this, of course, is preposterous nonsense but it is to such a conclusion that those economists must inevitably be driven who do not admit that monetary policy can possibly promote recovery from depression.”

Now it may well be the case that what Brown is here exploding is the nonsense associated more closely with the ineffable Paul Krugman and his fellow-travellers, but the MMTers seem to be even more precariously balanced than he, straddling as they are, the Great Deflationary Abyss— with one foot planted firmly in a land where live those who believe that money can be effective in reigniting a temporarily slackened desire to spend, but with the other dangling in mid-air, well short of the opposite bank where reside those who take this to the logical conclusion that too much money can likewise easily lead to far too much spending, vaulting us headfirst from the frying pan (or the freezer cabinet, as may be the more suitable image) and into the fire of inflation.

Memo to those who espouse this rehashed mumbo-jumbo: inflation is alive and well; central banks have been furiously expanding base (or outside) money and a good deal of that has gone into supporting the addition of new quantities of deposit (or inside) monies, to boot.

Unsurprisingly, this undertaking has seen the prices of bonds, stocks, and commodities increase, even if the usual concomitant of rising property prices has not yet become universal (largely by the happenstance that this was the pre-eminent medium through which the last inflation was given vent and hence its overhang remains largely unliquidated and its components in widespread oversupply in several of the worst offending markets).

Just look at the evidence. Despite the unquestioned disruption of the Crash itself and the fire-in-a-theatre rush for liquidity which it  occasioned, the central bank expansion programmes at just six prime exemplars have seen their combined balance sheets doubling in the past four years, with more than half that expansion coming since the first emergency injections began in earnest, in early 2009.

Money supply has risen by a not incomparable amount, even if the efficacy of the marginal bank reserve in generating bank demand  deposits has been reduced lately to below unity (partly, one suspects, because the pre-LTRO, pre-Draghi ECB was expanding more by providing its stricken and mutually-distrustful banks and sovereigns with an intermediate, ‘credit-wrapper’ than by a deliberate and very  un-German recourse to the money-spigot). As a direct consequence, prices have risen—i.e., whatever temporarily elevated desire there  has been to hold more money (whatever reduction in ’velocity’, if you must); whatever difficulty in accessing the credit with which to economise on the stuff itself; an expansion of the money supply has lead inexorably to a rise in prices—fiscal austerity and output gaps and other such Keynesian mental clutter notwithstanding!

To understand why we are here is one thing of course: it is yet another to try to work out where we seem to be heading next. If  aggressive monetary easing has pushed the likes of the US Small Cap index to all-time highs and triggered renewed buying of high-yield and emerging markets over the past few months, can we expect yet more largesse—and hence more price gains—ahead?

To answer this we must recognise that the world economy seems to have divided into three camps—a more ebullient US of A, a bemired  Europe, and an obscured Asia—so we have a triad of central bank actors to second-guess in each of these if we are to attempt a little divination regarding this question.

In the first of them, the Fed seems to have truly let the dogs out: even without the launch of what seems an increasingly-redundant  QEII, the aggregates are surging ahead as domestic banks eat into their excess stockpile of reserves (cash down $135 billion, bank credit up $375 bln to a new high, C&I loans up $100 bln).

We have previously shown that the rate of money creation is currently further above its 30-year real trend than at any time in that  sample, but, for the sake of variety—and with a firm injunction not to take the projections as anything other than broadly illustrative—we look instead at money supply per capita. Here, too, a clear pattern emerges.

Zero growth in the halcyon days of the 50s and early 60s saw CPI typically around 1.5%. 5.5% compound money growth in the rather  less complaisant two decades which followed saw average CPI lurch up to 5.7% before a deceleration to 4.2% per head in money and a  coincident 3% rate of typical yearly price increases. Fast forward to the QEra and we have been running at nothing short of 10% per annum—an outpouring which risks—on the showing of the previous regimes—a typical CPI rate somewhere in excess of 7%. If long maintained, it will also acclimatise the economic structure to a level of laxity which cannot indefinitely be sustained, something which therefore sets us up for a nasty setback—and a prematurely renewed stimulus—whenever the Fed finally moves to regain control of the stampede it seems to have unleashed.

As for our second main player, the ECB, this week marks the second great confusion of capital with liquidity comes to its  multiple hundreds-of-billions second installment. Expectations are high—as they were ahead of the apparently successful (but yet to be  implemented) negotiation of the Greek debt accord. Your author, however, cannot entirely suppress the nagging suspicion that, just as  that ostensible landmark brought only grumbling, not relief, perhaps Super Mario will also fail to excite jaded palates and a near-term disappointment might be the result no matter how clear the progress to full Weimarization. We shall see.

Further out in Asia, where the world’s marginal consumer of and producer of stuff has slipped into the statistical Lunar shadows of the New Year holiday, all is meant to be on the up again as the PBOC has unveiled not one, but two successive cuts in reserve requirements.

The act has not exactly been greeted with dancing in the streets, however, one reason for which may be that it has simply addressed a touch of overkill in cranking up the ratios last year. More binding at this stage may be a loan:deposit ratio which seems to have surged to six-year highs. At a point where the average rests only 3 points below the mandatory ceiling, this must leave a sizeable tail of the distribution scrambling to avoid official sanctions and so hardly best placed to swell its constituents’ already engorged loan books.

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nope-1004's picture

 Fast forward to the QEra and we have been running at nothing short of 10% per annum—an outpouring which risks—on the showing of the previous regimes—a typical CPI rate somewhere in excess of 7%. If long maintained, it will also acclimatise the economic structure to a level of laxity which cannot indefinitely be sustained, something which therefore sets us up for a nasty setback—and a prematurely renewed stimulus—whenever the Fed finally moves to regain control of the stampede it seems to have unleashed.

Precisely!  The FED is in a box and has to keep the stimulus coming.  Benocide is a bold faced liar, that's all.  Inflation is here - any idiot shopping for food knows it.  They will keep hitting PM's to keep a lid on the debauchery, but at some point this pig is going to squeel.


RockyRacoon's picture

My favorite:

... it is impossible for banking policy - or any purely monetary policy devoted to increasing the circulating medium - to bring business back near to normal in any reasonable period, once depression has become acute.

Depression is becoming acute, and shall be full-blown in short orderIt is merely masked at the present time by the government hand-outs and shadow banking maneuvers.

Taku's picture

Is there perhaps a customizable color palette for the new planetary fortress? I'm rather partial to 'carbon grey' or 'titanium grey', y'know..

XenoFrog's picture

I'd stick with an orbital command unless it's a hard to defend expansion.

Mr Lennon Hendrix's picture

I'll grab a beer, Tyler.


Manthong's picture

My ouzo is overcollateralized..

But my retsina is rehypothecated.

spiral_eyes's picture

Let's be clear Tyler: MMT is so wacked out and inflationary that even Paul Krugman understands that its full implementation would lead to currency crises.

schismjism's picture

Krugman doesn't understand MMT, as should be plain to anybody who follows the topic even in the slightest. And for all you Austrians out there who keep predicting the collapse of the US bond market, the collapse of the UK bond market, the collapse of the Japan bond market, how are those predictions going? MMT predicted the outcome of all three.

MMT 3 - 0 Austrians

Toolshed's picture

Yeah.......I guess you could say "Mission Accomplished!"  I think you may be declaring victory a tad prematurely, however.

ATM's picture

Reminds me of the Nazis claiming total victory during the throes of the Battle of the Bulge! yes the MMTers are claiming victory but that war itself is already lost. 

Lednbrass's picture

Indeed, lets see how things look in the back half of the decade.  Your post is akin to declaring that you beat the spread after the first quarter of a football game.  There are a very large number of complex interactions yet to play out.

r00t61's picture

I wish that people would stop rebutting Keynesians, Monetarists, and MMTers (K/M/M).  The K/M/Ms have no new arguments to be trotted out in favor of their economic "theories", and the likes of Bastiat, Mises, and Rothbard have already smacked them down long ago.  To continue to engage them in debate is to actually give their discredited thoughts an air of credence. 

After all, what value is there, in, say, debating whether astrology controls the destiny of mankind?

bigwavedave's picture

god has a plan for all of us. except astrologers of course.

gwar5's picture

Wish that were so, but they won't take utter collapse for an answer. Gonna have to dance on their grave and make fools of them so the next monetary system will be a sound one.  The Keyensian bastards are already trying to scapegoat capitalism for the failure of their fiat propelled welfare-statism.




ATM's picture

but, but, but.... it's the speculators! And the hoarders!! And the bourgeoisie!

LOL. I thought that shit went out in the 1920s but then the US elects Obama. History repeats.

andyupnorth's picture

+3 for  Bastiat, Mises, and Rothbard!

and +1 for Ron Paul!

Lednbrass's picture

Thanks,  I have been reading up on MMT lately and its new "MMR" variant and this covers some of the weak spots.

I do expect though that some MMT or R adherent will say this is an entirely invalid comparison because Greece doesnt print its own money.  They do at least recognize that "money" is now simply created in vast amounts by pressing a button with nothing whatsover to back it or keep it as a store of value and labor, but after that it kind of goes off the rails for me.

putaipan's picture

i ain't even gonna try to read the above article. at least when i read

dr. hudson i can understand him. what the haters never mention tho'

is the other half of what they are suggesting- monetary policy is balanced

by a land/rentier tax. i won't even try to explain/defend that around here-

("....what !?! raising taxes on my home! they're already to high! etc)

putaipan's picture

ok ok . i gave it my best black sambucca effort. no luck. this guy is a

wanker compared to the folks at u.m. kansas city. and like i said- they

do not isolate monetary policy outside of taxes and .... regulation and

prosecution- plus, they've got bill black on their side .live from italy-


traderjoe's picture

I'm no MMT adherent, but as I understand it - it proposes the sovereign printing money as opposed to borrowing money from private corporations through fractional reserve banking. In that sense, the United States Note (Lincoln Greenback) is a form of MMT. In addition, no taxes are required under MMT because the sovereign can print money without revenue. Sure it would be inflationary over time (all governments spend spend spend). But IMHO a no debt-money system with no tax regime is better then what we have now.

Lednbrass's picture

But what happens when all of humanity concludes that (under MMT) they dont need to work at all because the government can just create vast amounts of money infinitely, that there is no need for a bond market, inflation is a must but benign, and taxes are only there for the hell of it to reduce demand?

What would be the point of doing anything? Heck, everyone would go fishing or to the beach- why bother with work? Just print some money and hand it out.  "Gimme my check Uncle Sam" as a lifestyle choice would comprise the majority of the population.  Anyone who does work at that point would be a fool.

I cant help but think that everyone jumping on that bandwagon would have some rather unintended consequences which are only addressed by vague phrasing like "government must be a good steward of the currency" and rather nebulous references to productivity (as if anyone would bother should that view be accepted).

Vinz Klortho's picture

I don't see anything from the MMT people that I have read that suggests anything like what you are suggesting.

Inflation is the result of creating money in excess of the productive capacity of the economy.  No productive capacity == no money creation.

You should spend your time reading to understand MMT, rather than making false statements about it based on your ignorance.

Vinz Klortho

Lednbrass's picture

Then it should be quite simple for you to produce something that shows a definite, universal, provable relationship between productivity and inflation or currency creation by the banking sector.  I have not been able to find it and suspect you cant either. Sounds good as a general proclamation- now prove it. If you have somethign that proves that productivity and inflation are linked I would love to see it, and would also like to see something showing that when productivity is reduced so is the creation of fiat currency.

That you think human beings would continue to go out and work if MMT became universally accepted is naive in the extreme, they would not and would simply elect leaders who would continue to create currency- after all the government and banks can just continue to make as much as they want.  Feel free to lecture people on the need for "productivity", but in the real world on planet earth if humanity accepted the premises of MMT the entire thing would fall apart. Remove all taxation and cancel all bond auctions tomorrow- the resulting chaos would be tremendous.

Cullen Roche has repeatedly stated the underlying assumption that government must be a good steward of currency in order for it to function in multiple places, though he has rewritten a bunch of his stuff and may have removed those exact words.  Once again, this sounds good on paper but will be (and is currently) being abused severely in the real world.

Though in some ways it may be desriptive of how things currently work, it is describing a system that is not viable in the long run and in the process of failure.

Vinz Klortho's picture

As I point out in my other comments, the weakness of MMT as a monetary system is in the political aspects, not monetary operations.  The monetary aspects are just the realities of a fiat money system.  My belief is that politically, MMT would be viable only in a small government system where the powers of the govt are greatly reduced over what they are now.

Vinz Klortho

El Viejo's picture

Thanx Joe for a crumb of intelligence in a sea of stupidity. Now please explain why Greece is not an example of MMT. Maybe one or two of these idiots will learn something from it.

Vinz Klortho's picture

Please spend more time reading the information available on MMT.

Taxes serve a function in the system.  Inflation is possible, but not required or inevitable.

Vinz Klortho

gwar5's picture

Notes:  While Bernankistan was talking smack about more QE which killed the gold and stopped equities, a massive, but little noticed $714 Billion QE was dumped into the ECB.  Gold back up $25 tonight.


Sophist Economicus's picture

Duly noted and am enjoying the bouyance of the PMs.   Feels like these guys are starting to loose the war at last

Yen Cross's picture

 I read this " Article", and understand the syntax of it. It " REEKS" of Hildebrands' wife.

   SNB _-_-_--_

sitenine's picture

Word of the day: seigniorage

Who ever would have thought that there was a even word for that?

Totally awesome.

If you dig cartoons like I do, this oldie will explain why this is going on.


Just what the hell have we been teaching our kids in these past 20+ years anyway?

[edit] I've seen a few posts about Bernank killing PMs today.  Rubbish.  Check out this SD article -

Count Manzeppi's picture

Your diction is precise, yet your message is lost. :(


Count Manzeppi's picture

OK, I'm drunk and I prefer the Mogambo Guru style of delivery. SUE ME! :)


ebworthen's picture

"Your author, however, cannot entirely suppress the nagging suspicion that, just as  that ostensible landmark brought only grumbling, not relief, perhaps Super Mario will also fail to excite jaded palates and a near-term disappointment might be the result no matter how clear the progress to full Weimarization."

Donkey Kong (the FED, or central banks) eventually loses.

Too bad Mario is trying to save Princess Peach the bankster instead of Princess Peach the Plebian.

The charts don't lie; debt, debt, and more debt along with money printing.

How this doesn't cause currency debasement and stagflation only the Bernank can conceive of in his wet dreams.

If they wouldn't recommend this course of action for the individual and household there is no reason they should be pursuing it themselves; unless of course they suffer from a severe case of hubris combined with a pox of fallacious boils.

Yen Cross's picture

 Easy. Limpus Impressionis<>  Lack of cash = lack of Ladies.

GovtMediaLiars's picture

Great article. Those MMT guys and their accounting identity smokesceens rub me the wrong way. Just more utopian central planners no different than any others.
Mises forums are filled with refutations of their nonsense as well. 

Market Madness  

hotkarlandtheclevelandsteamers's picture

MMT'ers are always good for a that bozo over at  Oil will be 250 SPY 200 Gold 3000, he will still say no inflation.

Carp Flounderson's picture

Thinking Greece represents anything in MMT other than a perfect example of NOT MMT shows this guy didn't spend more than 5 minutes reading about the material Tyler claims he "crucifies".  Nothing here but  syntaxic masturbation.  Massive massive fail.  There's plenty material written in the past few months showing the relationship between Austrian and MMT economics.  They're far closer than anyone here gets.  Use the googles.

dootyfree's picture

Exactly.  You would think someone would would want to understand what they are writing about.  Embarrassing.

Yen Cross's picture

You people are still talking about Greece?  PSI and all that stuff?

q99x2's picture

No wonder 17 states are considering State Banks.

chindit13's picture

Unless one is already a convert to the faith, this message is lost in the verbiage and Rube Goldberg-like structure.  He needs to understand cadence.  Though I am prone to prolixity myself, I must admit I find Thomas Pynchon easier than Sean.

Mr Lennon Hendrix's picture

Your last sentence should have been seperate from the rest.  

It made your critique awkward.

Milestones's picture

Well "The Crying of Lot 49" and "V" were not bad I found Sean easier than other Pynchon works. I do agree however, Sean was showboating with some of thee stuff he wrote. Interesting anyway.         Milestones 

Element's picture

Yeah, but what does that drivel have to do with the real economics of earning a living and paying your way through life?

Times 7-billion

What a load of sophist wanking.

simone's picture


There is a wonderful script that lets one block asinine users.  It's not too user friendly, but well worth the effort to get it running.  Let's you avoid the drivel.  Give it a try.