MMT: The Beginning of the End for Fiat?

2021年4月30日

Let's begin by introducing Modern Monetary Theory (MMT), which is a contrarian view to the orthodox macroeconomic theory's of the past, such as the Autrian School of Economic Theory. The theory suggests, inter alia, that soveriegn nations which maintain a monopoly on their currency, can essentially use that monopoly to fund government spending, without the need of raising taxes, of even having a productive, functional economy (initially). The main attraction here is that a government cannot be forced to default on debt, denominated in it's own currency, because it can simply print it's way out of debt. Alan Greenspan, former Fed Chair, famously said, "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." What we've seen in the past 12 months is a shining example of MMT, a well coordinated effort to monetize government spending across global markets, which has dwarfed any traditional effort to revive the actual labour market, or real economy (GDP). Heck, if you can simply print GDP, then why have taxes, or a labour market for that matter?

MMT has it's shortfalls, and here's why we could looking at the beginning of the end for fiat currency. Although central banks across the globe are coordinating a fiat debasement scheme, which would see citizens in many countries become poorer as a result, there's essentially a proportionate loss in the standard of living benchmark across the fiat spectrum, because all of the major central banks are printing in sync. However, the fact that the bottom half (50%) of households, hold essentially no assets, means MMT is a direct tax on those households. The more money the government "prints," the less value the fiat currency has. Hence, stock prices, real estate, commodities, good and services, and everything you can trade in fiat, appears to be rising in value. But, it's not. It's rising when priced in fiat.

The incredible demand for an alternative solution to this seeming wealth extraction mechanism called MMT, is the idea of a digitally finite crypto "currency" such as Bitcoin. Now, I'm not necessarily saying Bitcoin is defensible as an alternative to fiat. But, I'm saying it's a much better store of value. Having said that, crypto faces many hurdles over the years, including pressure from quantum computing - rendering traditional encryption technology moot, as well as power grid concerns pertaining to access, and the list goes on.

The goal of MMT isn't to make everyone poor, and that has to be said. It's a powerful tool which aims to achieve maximum employment, while curbing inflation (fiat debasement), by eventually gathering more taxes from the wealthy, to offset rapidly rising prices. However, what we've seen over the past 12 months, is nothing short of extraordinary. The top 20 wealthiest people in the world saw their wealth increase by an average of over 30% from pre pandemic levels. Main Street on the other hand, has been encouraged to borrow more, and spend more, synthetically increasing the velocity of money, and hence the prices of essentially everything priced in fiat. The issue here is the velocity of money can't rise organically because the system is bloated with historic debt levels. If interest rates were to ever rise, for any reason, variable lines of credit, including mortgages, would become next to impossible to service.

The Bank of Canada recently admitted to "printing," $3 Billion per week, which was a figure they released just 2 days after the Trudeau Administration released their spending budget for the next year, of you guess it, $3 Billion per week. Coincidence? No. This is perfectly in line with MMT, and the direction central banks all across the globe have signaled they're taking monetary policy. Now, I'm not opposed to the evolution of monetary policy, and I'm also not saying MMT is all bad. But, inherently, it doesn't address real economic productivity, and it aggressively extracts wealth from the bottom 50% of households (no assets). The shortfall in production, which is being replaced by printing GDP, is likely going to lead to a stagflationary environment in the near futures, and economic hardship for the most financially vulnerable. We will see higher taxes on the wealthy in an attempt to control inflation, but the Fed has admitted it can't see any inflation. They're still trying to get inflation to 2%, while the price of Lumber just rose 500% in a year.

Don't take my word for it, in today's economic data release we saw personal income rise by a whopping 20% YoY. When you dig a bit deeper, you'll see that more than a third (33.8%) of total US household income, came directly from the US government. Now, if that isn't printing GDP, and going full-throttle on MMT, I don't know what is, my friends. Trade accordingly.