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Modern Monetary Theory Bites The Dust

Tyler Durden's Photo
by Tyler Durden
Friday, Jul 15, 2022 - 09:00 PM

Authored by MN Gordon via EconomicPrism.com,

Fashion changes from one year to the next so fast it’s best to ignore it.  Not only will you save money by not chasing the latest shiny object.  You’ll also retain more of the most valuable commodity of all.  Your time.

Non-fungible tokens (NFTs), for example, were the popular new movement just a year or two ago.  Digital art, made by hipsters with names like Beeple, was going to make the world a richer, more stylish place.  Now only dorks and dweebs collect NFTs…and they do so in secret.

Similarly, just a couple of years ago Modern Monetary Theory (MMT) was all the rage.  But that was before rampant money printing triggered an official consumer price inflation rate, as measured by the consumer price index (CPI), of 9.1 percent.

Hindsight is always 20/20.  Yet, sometimes, foresight is 20/20 too.  In the case of MMT, practically everyone could see there would be hell to pay…even through broken spectacles.

The future consequences were crystal clear.  Printing up money and passing it out around town, thus entitling people to claims on goods and services without commensurate production, is fundamentally foolish, reckless, and outright suicidal.  Only academics and central bankers were blind to the arrival of today’s inflation.

If you recall, as inflation was heating up during the second part of 2021, Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen told everyone it was transitory.  Then, as inflation continued unabated, Powell finally admitted in December 2021 that inflation was no longer transitory and that the word needed to be retired.

Powell and Yellen have their finger prints all over this consumer price inflation mess.  Yet they didn’t act alone.  Advocates of MMT cheered on their mass money printing with righteous assurances.  They said inflation wouldn’t be a problem.

But now that consumer price inflation is raging at a 40 year high, where did the promoters of MMT go?  Why aren’t they tackling inflation with the same enthusiasm?

Tard-buckets-Opotamus

Fanciful schemes offering the more abundant life always yield the unsuspecting and outright gullible to the assurances of dreamers, schemers, theorists, reformers, and scoundrels of all stripes.  Promises of something for nothing are too intoxicating to pass up.

For several years Alexandria Ocasio-Cortez, Bernie Sanders, and other American socialists, served up fresh pitchers of grape Flavor-Aid laced with MMT as a solution to all the downtrodden’s problems.  To join the cult all you had to do was drink from their cup.

MMT, as you may have heard, offers booms without busts, and money without limits.  The nuts and bolts of the theory state that a government that creates its own money, like the USA, cannot default on its dollar based debts.  Therefore, the USA can print all the money it needs to amplify the economy – debts and deficits be damned.

Should such overt dollar debasement lead to price inflation, MMT has just the solution.  Raise taxes and issue bonds to remove the excess money from circulation.

Taxes, you see, are not for funding government spending.  Rather, they’re for throttling back the money supply to attain the magical balance of growth and inflation.  With MMT, big government statists can hatch boondoggles first, and leave taxation for later.

The whole theory, or lack thereof, is abundantly retarded.  Yet in early 2020, something abundantly retarded was precisely what was needed.

When quantitative tightening (QT) was abruptly terminated and reversed in September 2019, the Fed’s balance sheet was $3.7 trillion.  Soon after, in the face of the fabricated coronavirus hysteria, the Fed jacked up its balance sheet by $5.2 trillion to a high of $8.9 trillion.  A good part of this took place between March and June 2020.

What happened next…

Cult of MMT

At first, the consequences were nonexistent.  In February 2021, after nearly a year of monster money printing, the CPI showed an annual rate of inflation of just 1.7 percent.  MMT supporters were riding high.

By that point, the U.S. government, and by extension the American people, were fully committed to a program of currency debasement to finance government mandated lockdowns.  Washington was also attempting to inflate away its debt burden.  The authorities prefer an implicit default via inflation as opposed to missing bond payments to creditors.

Intelligent minds, from John Law to Charles Ponzi to Bernie Madoff, from John Maynard Keynes to Milton Friedman to Ben S. Bernanke, from Benjamin Strong to Alan Greenspan to Jerome Powell, and everyone in between, have promised something for nothing.  They’ve put their intelligent minds to the task…

Countercyclical stimulus spending.  Interest rate suppression.  Quantitative easing.  Elastic currencies.  Money shuffling.  Inflation targeting.  Smoke and mirrors.

…all so governments, and individuals, can spend well above what they can afford, and then welsh on the debt without consequences.

During the rampant money printing of 2020 and 2021 Stephanie Kelton emerged as the MMT messiah.  In June 2020, her book, “The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy,” was published.

It quickly became a New York Times Bestseller.  And it also received rave reviews from unlikely places.  Upon reading the book, gangsta rap pioneer, Ice Cube, for example, tweeted on September 3, 2020, the following means of salvation:

“America loves to cry broke.  But in America money does grow on trees.”

“America is a currency creator so there’s no reason for people to live like this.  Government and the banks have made a deal to keep the people in debt.  They always say if you print money it will cause inflation.  They just printed 3 trillion.  Little or no inflation.”

Does a 9.1 percent CPI reading, with an unofficial reading of nearly 18 percent, constitute little or no inflation?

Modern Monetary Theory Bites the Dust

Currently, the Fed’s balance sheet is roughly $8.9 trillion.  And consumer price inflation is raging at a 40 year high.  What’s more, the Fed is hiking rates with the purpose of containing inflation.  But the only way for the Fed to contain inflation is to trigger a massive, 1930s-style depression.

Yet MMT proponents have gone silent.  Why aren’t they using MMT to attack inflation?

The cult of MMT, like most cults, has proven to be lacking for the general populace.  Instead of bringing wealth and abundance to the American worker it has brought wealth and abundance to the elites and central planners who first receive and direct the flow of the newly minted fake money.

Moreover, like most cults, when MMT’s leaders are needed most, they conveniently disappear.

Is Kelton not a true believer in MMT, after all?  Because if Kelton was a true believer, wouldn’t she be advocating for higher taxes right now?

That’s how MMT is supposed to work, right?  When inflation heats up, taxes are supposed to be raised to remove excess money from circulation?  Isn’t that the MMT solution to inflation?

Kelton, however, is not banging the drum for higher taxes.  Perhaps, this is because higher taxes are perennially unpopular.  Similarly, promoting money printing is much more hip and cool than promoting higher taxes.

So what’s Kelton up to these days?

Her most recent tweets include pictures of her dog with a paper towel roll in its mouth and dirty mother clucker sandwiches where a glazed donut is used for the bun.  There’s also a recent tweet documenting her first time having a smoked old fashioned – which she highly recommends, sans the simple.

Did MMT just bite the dust?

For now, it appears to have.  We suspect it will be gone until a massive depression wipes away inflation.

Then it will be resurrected to great folly so the money printers can really get to work.

*  *  *

Years of radical money printing have set American investors up for slaughter.  Unfortunately, many people’s life savings will be wiped out as the economy slips into depression and the bear market picks up in earnest.  But I’m not going to stand around powerless as Washington’s control freak sociopaths destroy everything I’ve worked so hard for.  For this reason, I’ve dedicated the past 6-months to researching and identifying simple, practical steps everyday Americans can take to protect their wealth and financial privacy.  The findings of my work are documented in the Financial First Aid Kit.  If you’d like to find out more about this important and unique publication, and how to acquire a copy, stop by here today!

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