Have you heard of the term Modern Monetary Theory (MMT)? If you haven’t, don’t feel bad. It’s not a harbinger to “that moment” when you suddenly realize you’ve crossed the meridian and drifted into what’s known as middle age. You know, like, when you thought it would be better to once again become single and hang out at the local hot-spots on Friday nights, only to realize not only do you feel old and out-of-place, but you actually are. It’s not that bad, but let me just add one word of caution: yet.
MMT is something all the “cool kids” (Think, Paul Krugman et al. types) are now openly discussing. The reasoning is simple: It takes the current con game of monetary policy and turns it up to 11. In other words, adding the word “modern” awards the same results as the term “disrupter” once did. Here’s an example…
Remember how Unicorns generated (and still do) valuation metrics? If you don’t, let me remind you: They make the sh#t up. Plain and simple. And for those that think that’s not accurate, I’ll just ask this: How are all those previous IPO darlings doing in meeting those prior projections? Too soon?
Well MMT makes the above look like child’s play, for when it comes to Unicorns and companies that require cash-burn as fuel that would make a Saturn V rocket envious, MMT encompasses the entirety of monetary policy of not just the U.S., but its aspirations are for the entirety of the globe.
However, let it not be lost on anyone: we are all currently dancing to this “new and crazy beat.” It just hasn’t hit “the charts” as they used to say.
The issue I would like to bring to light, today, is that in reality you are currently living with, and being effected by, the early stages of MMT. And this “music,” if you will, is being made possible by the Federal Reserve.
Currently we are all subjected to some ever-changing version of an illusionary Rube Goldberg inspired construct of monetary policy dictated by the Federal Reserve. Interest rate policy, employment factors and more are mandates explicitly resolved to the Fed’s purview. And when it comes to how it resolves these issues and the tools it will use for such? See any Rube Goldberg or R* example for clues.
Just remember: the “oil” for effectiveness of said tools is the one of the most slickest substances known to monetary theory: Forward Guidance aka jawboning.
Without it – the entire machinery can seize, at any time. And just like things in the real world of physics (think: adding better oil to an already seized motor, it ain’t gonna help) – adding that “oil” after the fact, regardless of the quantity is – too little, too late.
“Forward Guidance” is that “oil” of Federal Reserve policy making. And just like MMT, Unicorn valuations and more. The more they make sh#t up – the slicker the entire presentation for speed and durability.
And last week Mr. Powell did not disappoint, for he poured-it-out and laid-it-on so heavy the “markets” are acting like he was on stage firing up a newly rebuilt 1000+HP crate motor.
However, did anyone actually see said motor? Or even hear it?
I mean there he was on live TV selling-and-telling quite the statistical, technical jargon for information then, without even a flinch, raised his hand, unscrewed the top and began pouring that “oil” for everyone to see and hear, aka capitulation.
But I ask again: did you see or hear the “motor?”
Answer: No. As a matter of fact he even stated, more than once, that the delivery of that “motor” (e.g., pause of the balance sheet normalization process: QT) was maybe, possibly, could be, might be, __________ (fill in the blank be) “paused” at any time, in the future. Focus on – maybe, in the future.
And there my friends is where the proverbial rubber hits-the-road. Nothing has been done. Only words and promises – no substance, no actual display of there, there. i.e., You just gotta believe.
I say again, welcome to MMT: where “belief” is all the there – there is. For that’s all that was delivered at this latest Fed meeting.
Again, I repeat, the QT process is currently still going on, unabated, at the highest set amount (e.g. $50 Billion per month) and there will be no reduction, nor reconfiguring without, at the least, another “market” panic, which is where the real problem now awaits.
MMT is, in its theory and expression, nothing more than an over-glorified central bank inspired overtake of the entire global economy as to reset it into a Marxist/Socialist/Communist inspired construct of central planning delegation, where winner and losers of business and more will picked via the delegation of money printed ex nihlo to where some central authority will see fit.
Or said differently: an utter and complete con job to gain control of all mechanics of enterprise, where the self anointed and appointed cons will be free to do as they see fit, free from of any legal, moral or ethical ramifications. (Hint: see EU, ECB for further clues.)
And free market capitalism will be taken out back behind the MMT edifice – and shot.
You just can’t make this stuff up, well, unless you’re an MMT devotee. Then? The monetary world is your oyster, that is, as long as you keep it on ice. Because once it gets to stand in the light of day for awhile? Need I say more?
So now here we are as I suggested earlier, literally dancing within the early overtones of what MMT promises to bring forth via the current iteration of Forward Guidance tones emanating from both the Fed and its Chair.
Promises have been made, but so far, none have been delivered. Forward Guidance, MMT and Unicorn valuations all promise – but delivering is quite another. The only thing they deliver is a vehicle for one to believe in – you can’t drive it, for its illusive and illusionary.
I’ve demonstrated this before in what I call the “Silicon Valley Business Model.” It goes something like this…
“We’ll gladly pay you two hamburger tomorrow, for one today. As long as you promise to never ask us to make good on it.”
MMT, Forward Guidance, Wall Street, its all much the same: Promise, promise, promise, baffel’em with bullsh#t, promise some more, baffel’em with ever-the-more stats and jargon, promise even more, then remind them you have a Ph.D, are an economist and/or Senior Fellow at some obscure think tank. And if you can list any and all professorial affiliations.
Oh yes, and do try to get on one of the mainstream business/financial cable shows. For they’ll have no clue what you’re talking about and won’t even try to ask any deep questions, so you’ll be free to drivel-on with incoherent messages till at least the next Wisdom Tree™ ETF commercial needs to air.
It’s all one giant confidence game. All of it.
The only thing holding all of together at this moment is that the “markets” are believing what Mr. Powell promised. Which is where lies the rub to all of this.
Anathema to Forward Guidance, MMT et al. is the simple truth of where facts are made to intersect with fiction, as in: those proverbial “oysters” are now currently sitting in the sun.
The fact of the matter is, that if QT was the catalyst (something I have been adamant about) for the volatility that transpired, then the promise of halting, pausing, putting bows and having rainbows shoot out of its backside (albeit may look and sound quite interesting) is absolutely meaningless.
If it hasn’t (and Mr. Powell stated just that) been paused, or altered as in put-on-ice. That means its cause and effects are still ongoing, as well as intensifying, meaning: only the illusion of a “volatility pause” is in effect. The actual circumstances for it, in the first place, are still running, unabated, and at “light-speed.”
To reiterate, if the balance sheet was the actual catalyst, with all the now “Oh my god! It’s the balance sheet!!!” hysteria coming from the mainstream business/financial media, along with the entirety of Wall Street, and the Fed’s own admission to address it, now, publicly. It’s kind of hard to say it wasn’t, no?
So if it was, and the Fed has yet to alter it, then………….?
(And for those of you that get the above reference and don’t need to click on it? “Friday’s” gone, sorry, but someone needed to say it, for your own good.)
© 2019 Mark St.Cyr