Everything You Wanted To Know About MMT (But Were Afraid To Ask)


If you read only one MacroTourist post all year, this is the one I want you to read. I think it’s that important.

Today’s topic is sure to incite some pretty strong reactions. There will be cries of “no! that’s just wrong!” from the hard-money advocates. The cynics will proclaim “that’s going to end in disaster” and the pessimists will shake their head in disbelief while muttering something about “the follies of the ivory tower academics” as they walk away.

For some of you, the topic of Modern Monetary Theory (MMT) will be old hat. For others, this will be a new term. For those who are not familiar, I suggest you take some time to learn about this new branch of economic thinking as it is coming to a screen near you.

Although I have an opinion about what is best for our economy and society, I am not here to convince you of anything except the fact that MMT is gaining traction and to remind you that spending time arguing about its relative merits/detriments will not help your trading or investing one iota.

You see, I try to be like that joke; “Dear Optimist and Pessimist, while you were busy debating over whether the glass was half-full or half-empty, I drank it. Signed the Opportunist.”

I know I am nowhere near smart enough to influence policy. So why even try? Nor do I have any desire. So why bother debating it? Yet I love trying to figure out this great big game we call investing. In that vein, putting your head in the sand regarding MMT would definitely be a mistake.

Let me take you through my journey of trying to understand MMT, and along the way, I hope to maybe help a little with your navigating the coming changes in economic thinking.

It was about a year ago when MMT started popping up on my radar. Realizing that all I knew was what the acronym stood for (Modern Monetary Theory), I reached out to Bespoke’s George Pearkes who is a wealth of knowledge when it comes to economic thinking. You see, I am basically a markets guy. George is a markets guy, but there is also a big part of him that is a purer “economist”.

And George was his typical super-nice-guy self. He guided me to some great resources but ultimately pointed me in the direction of the face of MMT - Professor Stephanie Kelton from Stony Brook University.

Last autumn Professor Kelton gave a speech at Stony Brook University titled “But How Will We Pay for It? If you have an hour to spare, this is probably the best introduction to MMT out there.

[As an aside, George and I recently had a chat about MMT on his podcast BespokeCast. Fast-forward to about half-way to get to the MMT stuff.]

Back to my journey of learning about MMT. Apart from being a professor, Stephanie was also the economic advisor for Bernie Sanders’ campaign.

Given the general more right-leaning bias of people in the finance arena, I can already hear the groans and the clicking to the next article. But wait! Before you go and listen to what Alex Jones is screaming about, remember that your job as an investor is not to forecast what should be but rather focus on what will be.

So let’s get to it. What exactly is MMT?

Modern Monetary Theory is a macroeconomic theory that contends that a country that operates with a sovereign currency has a degree of freedom in their fiscal and monetary policy which means government spending is never revenue constrained, but rather only limited by inflation.

This is my layman’s version after reading and listening to everything I could on the subject, but I think I got the gist of it.

MMT’ers believe that government’s red ink is someone else’s black ink. Sure, the government owes dollars, but they have a monopoly of creating those dollars, and not only that, the creation of more and more dollars is essential to the functioning of the economy.

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Gary Anderson 1 week ago Contributor's comment

MMT doesn't have only inflation to fear. It has the bond market to fear. Massive collateral destruction and margin calls the world over. Remember when W Bush spent like a madman and Cheney said deficits don't matter? Well, about that time US productivity declined and the Great Recession was on. Helicopter money would control the growth of the money supply. I don't see that happening with MMT.