8-31-19 Modern Monetary Theory

Nearing Midnight: Modern Monetary Theory - Todd Strandberg - https://www.raptureready.com/category/nearing-midnight/

 

During the past several years, the Federal Reserve has been managing our growing national debt by using a series of financial terms. The shell game started with the Fed taking on the role of our rich uncle and did Quantitative Easing. The Fed reinflated the stock market by loaning the Treasury $3.5 trillion.

 

Then came Operation Twist in 2011 where the Fed sold short-term Treasury securities and bought long-term Treasuries. By selling a two-year bond and buying a 30-year bond, the Fed was giving Washington 28 years to balance its financial books.

 

Next came Quantitative Tightening where the Fed would sell off the bond it had on its balance sheet. When Wall Street had a negative reaction to the actual unloading of bonds, the Fed said our credit is so good, it would end the program and hold onto the bonds forever.

 

The new term that is becoming popular in Washington is Modern Monetary Theory. The core teaching of MMT is that a nation with the ability to print its own money can never go bankrupt. It can always fund its spending by printing more money. The nation's deficit can be managed by simply printing money to pay for the shortfall.

 

MMT can trace its origins back over 100 years, but it has gained renewed popularity in recent months thanks to freshman Democratic Congresswoman Alexandria Ocasio-Cortez and economist Stephanie Kelton. When people add the cost of her proposed Green New Deal to an insane $22 trillion-dollar national debt, AOC said we can use MMT to pay for her program.

 

Some would argue that the Federal Reserve would never fall for MMT, but former head Ben Bernanke has already laid out the framework for how MMT could work. Bernanke traveled to Tokyo in July 2016 and suggested a way to stimulate the Japanese economy. He said the Ministry of Finance, Japan's equivalent to our Treasury, should issue non-marketable perpetual bonds with a zero-coupon that the Bank of Japan would buy with printed money. The Japanese government could then use the money from these bond sales to pay its bills.

 

A perpetual zero-coupon bond means the principal never has to be repaid, and no interest payment is ever due. Bernanke was basically suggesting the issuance of a new form of currency. Cash never matures, and you do not have to pay interest for holding it. He should have just said that Japan should print vast amounts of yen.

 

Abraham Lincoln once posed the question: "If you call a dog's tail a leg, how many legs does it have?" and then answered his own query: "Four, because calling a tail a leg doesn't make it one." Abe would have felt lonely on Wall Street. MMT is simply the printing of money for the purposes of funding government spending. It has been tried hundreds of times and has always led to massive inflation.

 

The Treasury Department is currently using "extraordinary measures" to prevent the US from breaching the debt ceiling. As of the 9th of March, the US officially hit the debt ceiling, capping the national debt at just over $22 trillion. The Treasury can fund the government until late September or early October by using an array of bookkeeping tricks.

 

The US is not the only nation that is allying MMT to its government spending. Last month, China unleashed a massive credit expansion. In what was dubbed the Shanghai Accord 2.0, the People's Bank of China announced it had flooded the economy with a gargantuan 4.64 trillion yuan in various new forms of debt. Injecting nearly $700 billion in credit in one month was more than the GDP of Saudi Arabia. In the past 40 years, Beijing has increased the money supply by an amazing 10,000-fold.

 

Since assuming the premiership in 2013, President Xi Jinping has been a consistent critic of the large-scale stimulus that their predecessors launched in response to the 2008 financial crisis. It is dumbfounding to traders that Xi complains about the dangerous increase in debt by others, and then does the same thing himself.

 

In a normal world, any attempt to implement MMT would mean instant financial disaster. The same basic financial rule has worked for thousands of years. If you print too much of your own currency, its value will collapse.

 

The ability of the world's central banks to throw all cares to the wind is not the result of some new economic miracle. I am convinced that the rapture is the reason why such reckless spending is going unpunished. Everything is to remain calm right up to the moment the Church is removed. To reach the irrational level of MMT spending, it tells us that the end must be very near.

 

"Therefore be ye also ready: for in such an hour as ye think not the Son of man cometh" (Mat. 24:44