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May 2, 2019 | Modern Moister Theory

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

One thing Bitcoin and crypto crazies cherish is the thought central banks will go poof. This is something the rad left is also embracing. And, yes, the moisters seem to be lining up behind a new economic model for the world – one where wealth inequality is replaced by a sharing utopia.

What does this mean?

Well, for ages now we’d had a form of Keynesian economics in place (relax – I will make this simple). Good old Mr. Keynes postulated that when times suck (like 2008) central banks should stimulate the economy by crashing interest rates and increasing demand. Cheap mortgages, for example. They make people want to buy houses, which puts drywallers and realtors to work.

The downside is people become hooked on cheap money and pickled in debt, so raising rates again is hard. Also when things get better inflation jumps and everything costs more than it should. Meanwhile governments raise taxes to try and contain the runaway spending caused by increased social benefits (like unemployment payments).

In good times, conversely, Keynes said interest rates should rise to contain demand and cool things off – keeping inflation under wraps and the value of money stable.

This is the way it’s been for the whole time you’ve been alive. It’s worked okay. But a byproduct has been a bigger wealth gap and that ever larger mountain of debt. Middle-class families bought into Keynesian economies bigly by borrowing to the max to afford houses which the same policy inflated in price. More debt means less savings. The gap grows. So does resentment, and the feeling there must be something better. When moisters can’t afford houses the way their parents did, the appetite for change grows insatiable.

And here it is. MMT.

Modern Monetary Theory isn’t new – been around for decades. But now it’s hotter than that Shar-Pei bitch down the road that Bandit fancies (he’s delusional). The princess of MMT is AOC, the new US politician (Alexandria Oacasio-Cortez) who is the nemesis and hate-object of the Trump deplorables. Her “Green New Deal” is based on an economic system which can provide full employment, give everyone a guaranteed income, free education and health care plus solve the climate crisis. All this in a country with $22.2 trillion in national debt and a budget deficit which this year will hit $1 trillion.

 AOC may well be a fruitloop and the thing-du-jour, but MMT is sure turning into a big topic. Just this week billionaire hedge fund dude Ray Dalio claimed it’s “inevitable” this way of thinking will replace the central bank monetary policy that’s shaped our lives. The basic premise is that governments dump central banks and print all the money they need to do whatever the majority of people desire. That would include financing public programs (like health care), buying real estate that’s then converted into housing (the moisters’ Holy Grail), eradicating public debt and, during recessions, just sending people cash.

The big threats are (a) all this could be wildly inflationary as the supply of money expands and becomes worthless, destroying private savings and (b) capricious elected politicians like AOC, not crusty, cautious central banks, would be in control. The MMTers’ solution to a soaring cost of living is to jack up taxes, thereby putting a chill on economic activity.

For these reasons traditional economists are having a minor cow. MMT decouples spending from taxing. It eliminates all this fussing about debt, deficits and revenues. Since governments print their own money, it means there’s an endless supply. No reason not to rebuild infrastructure, give everyone a guaranteed income, create jobs and provide lifelong services. Interest rates would be irrelevant since money and goods would be freely available as dictated by government policy and public demand.

Of course, caught in this orgy of printing and spending would be private enterprise and savings. With the government providing so much more, competition for goods and services would increase. So would corporate costs, and prices, begetting higher taxes to maintain equilibrium. As for savings and investments, they’d be hollowed out a little more every time the digital printing presses fired up and the money supply increased. After all, the more money that circulates in a society, the less your pile is worth. And that is exactly how the MMTers deal with the wealth gap. Everyone gets a basic amount, and the rich are dissipated.

If this sounds a little like, you know, commies talking… you get it. MMT is a blend of state socialism, Keynesian extremism, political opportunism and a fair amount of weed. Establishment economists like Paul Krugman, himself judged a lefty by the Trumpians, see it as fantasy. Others are shocked that elected politicians – answerable to a public always wanting more for less – would be given the levers of the money supply with no system of checks and balances. The outcome, they warn, could be epic. And, worse, unknown.

But that hasn’t kept AOC from being a social media and political rockstar. It hasn’t slowed the Millennial pushback against The Man. The yellow vests are still subsuming France. Brexit is calving the UK. Bernie Sanders is still kicking. Trump’s still dissing the Fed. Millions of people seek political and economic options to a system they think has failed modern expectations. Look at BC. When people can’t afford houses, they’ll do the damnedest things on election day.

That’s worth remembering.

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May 2nd, 2019

Posted In: The Greater Fool

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