How AOC Set A "Death Trap" For The World's Most Powerful Central Bank And Set The Stage For MMT

Submitted by Eric Peters, CIO of One River Asset Management

"She got it right," said White House economic advisor Larry Kudlow, marking the first time a senior member of Trump’s team has had anything nice to say about Alexandria Ocasio-Cortez (AOC).

“She said the Phillips curve is no longer describing what is happening in today’s economy,” continued Kudlow, “And Powell largely agreed. He confirmed that the Phillips Curve is dead, the Fed is going to lower interest rates.” For two years, the only thing Republicans and Democrats could agree on was that China is America’s adversary.

"I hope to sit down soon with Ms. AOC to discuss supply-side economics," said Kudlow. But of course, AOC would rather discuss a Green New Deal, made possible by Modern Monetary Theory.

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In early 2014, the Federal Reserve believed the long-term neutral unemployment rate was 5.4%,” said Alexandria Ocasio-Cortez to Fed Chairman Powell, gently placing a hunk of cheese on the trigger plate.

“In 2018, it was estimated at around 5.4% and now your estimate is 4.2%,” continued AOC, pulling back the killing bar.

“What is the current rate?” she asked, delicately positioning the holding rod so that even the slightest nibble by the Fed Chairman would activate the mousetrap. “3.7% unemployment,” answered Powell.

“And inflation is no higher today than it was five years ago when you thought the neutral rate was 5.4%,” she said, sounding surprised, after all, the seven-member Fed Governing Board includes the nation’s leading economists, and has at its disposal the most comprehensive data available on the US economy.

“Given the facts, do you think it’s possible that the Fed’s estimates of the lowest sustainable unemployment rate may have been too high?” asked AOC, stepping back slowly, as Powell drew closer to the cheese, incapable of wandering away.

You see, the Fed’s record has been so utterly wrong in so many ways, over so many years that even the simplest line of questioning presents an inescapable death trap.

“Absolutely. It’s substantially lower than we thought,” answered Powell, doing his best to sound upbeat to the executioner.

“So the idea of a Phillips Curve is no longer describing what is happening in today’s economy?” asked AOC, smiling.

“Very much so. The connection between slack in the economy or level of unemployment and inflation was very strong 50yrs ago. But it has gotten weaker to the point where it’s a faint heartbeat,” said Powell, nibbling the cheese.

The killing bar swung down, snapping with a crack as Alexandria Ocasio-Cortez publicly undermined the authority of the world’s most powerful central bank. Paving the way for a new approach to policy. Modern Monetary Theory. MMT.