Brien

I don’t know who wrote this headline or story, but I have been voting since 1976 and I guarantee you this is not “normal.” The more they say stuff like this, the less I trust them.

We are seeing a total failure of MMT around the globe. QE and deficit spending (after 2008 and during COVID) was basically an attempt at Modern Monetary Theory (MMT). In a nutshell, MMT says that we can print and deficit spend at will without any fiscal or economic complications. So, central banks held interest rates at zero, forcing markets to accept absurdly low rates. At the same time, these central banks printed massive amounts of money and absorbed a lot of this new debt themselves. MMTers said we could do this with no inflation. Clearly they were wrong. Friedman taught us exactly what would happen, and it did. Inflation took off. The result, central banks were forced to raise rates and stop expanding their balance sheets. So far, governments have resisted fiscal sanity and are still running massive deficits even though central banks stopped funding them. The result? In the past 3 months, 10-year bond yields are up 50 bps in the UK, 90 bps in France, 72 bps in the US, and more than 40 bps in Germany. Governments were already too big in 2008, but this crazy experiment over the past 18 years has pushed things toward a breaking point. France proposes to freeze government pay and pensions, and raise some taxes and we should expect more movement toward austerity in other countries soon. MMT is basically Keynesianism on steroids. It didn’t work. The fix is a revival of Austrian, supply-side economics. Smaller governments, lower tax rates, tighter money, and less regulation. Some will say this is a pipe dream. But it is the only way out.