Gold Heartbeats: Rise in popularity of Modern Monetary Theory

Goldex Team

Editorial content

Hello and welcome to another edition of Gold Heartbeats.

Today we will take a closer look at MMT or “Modern Monetary Theory”, something we touched upon in the last issue.  Fear not, it’s not as dry as it sounds and its increased appearance in the mainstream press and growing popularity with academics and left-leaning politicians are significant for the gold price.

Gold’s recent decline can solely be attributed to the increased hope of a deal between the U.S. and China on trade. Whether this actually happens is one thing, as is the detail of the detail and efficacy of monitoring as well as actual adherence. But in the meantime, the economic numbers are truly troubling, Let’s take a look at the Purchasing Managers Index for some key Asian economies (the PMI is an indicator of economic health for both the manufacturing and the services sectors). In the last few days we have seen:

  • Singapore’s PMI (considered the most open economy in Asia, perhaps the world, and a great barometer of the greater region) went into contraction territory at 49.8.
  • Hong Kong’s PMI at 48.4, is also contracting.
  • The Japanese PMI at 50.7 – just hovering above the danger zone.
  • China’s Caixin Services PMI was also only just above water at 50.7 – and this is with a significant amount of stimulus already.
  • South Korea’s PMI is at 47.2
  • Taiwan’s at 46.3

And, that’s just Asia. These are terrible numbers and yet equity markets have rallied like hell. And we all know why don’t we? The worse the data, the more likely there will be more stimulus. More intervention and more money printing are on the way as part of the curious beast which is MMT.

Bernie Sanders’ 2016 advisor on Trump’s economy and Modern Monetary Theory

If the above doesn’t scare you, then you’re not paying attention. The idea that one can just dismiss inflation and then in the next sentence dismiss the debt issue because there’s no inflation is beyond worrisome.

Because if the debt doesn’t matter, then what’s really the value of the currency that same debt is issued in? If you know tomorrow that the government can just expand the monetary base by trillions, why have faith in fiat currency as a store of value and a medium of exchange, or that future fixed income (salaries, pensions, bonds, etc) will have reasonably predictable purchasing power?

That is why the independent central banks’ emphasis on inflation has been at the cornerstone of our financial system for so long; because we have seen the propensity of governments and politicians to continue to spend money that’s not theirs, or create money from thin air leading to inflation, hyperinflation and thus societal and state breakdown. And when people are unemployed then hopeless charismatic leaders can take advantage of resentment and create monstrous dictatorships. We saw this happened in Europe not that long ago.

And yet MMT continues its ascent. Deficits don’t matter, and apparently, there’s no inflation coming either.  So let’s take a closer look:

Modern Monetary Theory is nonsense, just more voodoo economics

Why a hot new idea in economics is actually a bad idea

Ever heard of modern monetary theory?

After reading those I would imagine you are very afraid. Once again, the “dismal science” of economics thinks it can understand entire multivariate economies with a few arbitrary policy levers. The tendency to interfere is a human one for certain, but especially for Ivory Towered PHDs. Their overconfidence time and time again has led to disaster, not to mention the moral, philosophical and political implications of such a huge expansion of government. All of this would make QE look like a drop in the ocean.

The same people on the left in the U.S. are the ones coming up with ideas such as the Green New Deal. Something which the former founder of Greenpeace aggressively took issue with:

Greenpeace Co-Founder: AOC is a ‘pompous little twit,’ Green New Deal would be ‘worse than WWII’

Nevertheless, MMT’s momentum continues. It’s so simple and easy to argue the case for it when there’s no inflation… but the reality is that there has been inflation. Asset bubbles, stock indices, and over course Gold prices are all indications of (and are all indicating) what happens when governments and central banks go crazy. Just because wage growth, clothes, food and tech have driven some price components down, it doesn’t mean there’s no inflation.

Regardless of anti-MMT arguments, government intervention is here to stay. And, with a fairly left-leaning contender list for the 2020 U.S. Presidential election, the days of fiscal prudence are very much in the history pages.

We’ll leave you with this wonderful quote about MMT:

Modern Monetary Theory – which is neither modern nor a theory – is a post hoc rationalisation of political expediency and power-expanding action.

It makes us feel better about all the bad stuff we’ve done with money and debt for the political efficacy of Team Elite. And all the bad stuff we’re going to do.

Modern Monetary Theory or: how I learned to stop worrying and love the national debt

As mentioned last time around, so long as politicians ponder alternative theories such as MMT (at odds with the principles that have guided most Western policymakers for decades) there will always be a reason to buy Gold.

See you next time.



Important disclaimer: this document is not an official research report and the views expressed in it are those of the authors. The authors are not registered research analysts and there is no assurance the trends mentioned will continue or that the forecasts discussed will be realised. Gold as a commodity is not a specified investment for the purpose of giving advice under the Financial Services and Markets Act 2000, therefore, this it does not give rise to rights to claim compensation under the Financial Services Compensation Scheme.