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March 25, 2021
Dear WEALTHTRACK Subscriber,When a fringe economic theory goes mainstream and is actually implemented by policymakers you better pay attention. The once fringe theory in question is called Modern Monetary Theory, or MMT for short.
As defined by online investing dictionary Investopedia, MMT is a: “heterodox macroeconomic framework that says monetarily sovereign countries like the U.S., U.K., Japan, and Canada, which spend, tax, and borrow in a fiat currency they fully control, are not operationally constrained by revenues when it comes to federal government spending.” In other words, deficits no longer matter because financially powerful, developed countries can create, i.e. print enough money to cover expenditures and can continuously refinance the debt in their own currency.
Why would they want to do that? The assumption behind MMT is that massive government spending helps the economy grow to its full potential, including full employment and also finance major programs like universal healthcare, free college tuition and green energy initiatives. Sound familiar?
Here's how a form of MMT is currently being put into practice. According to a recent report from top rated Wall Street economist Ed Hyman:
“In just one year, we’ll have $5.1t in fiscal stimulus. That’s $2.3t last year, $0.9t in Dec. and $1.9t here in Mar. That $5.1t compares to $0.8t back in 2009. There could be another $2t spread over ten years. This is on top of Unprecedented Monetary Stimulus including QE and rates. And all of this is on top of reopening.“ What about the burgeoning federal debt? Not an issue according to Federal Reserve Chairman Jerome Powell. In an interview on National Public Radio this week Powell said: “Given the low level of interest rates, there’s no issue about the United States being able to service its debt at this time or in the foreseeable future.” As "The Wall Street Journal” reported in its coverage of the interview: “government budget deficits are expected to push the federal debt to 102.3% of gross domestic product by the end of the current fiscal year, up from 79.2% at the end of 2019, according to the Congressional Budget Office. The CBO forecasts the debt will grow to 107% of GDP by 2031.” Enter today’s guest, Paul McCulley, who wrote an academic paper back in 2013 titled: “Helicopter Money, Or How I Stopped Worrying and Love Fiscal-Monetary Cooperation.”
McCulley is currently an adjunct professor at Georgetown business school where he teaches a very timely multi-disciplinary course combining law, economics, monetary policy, global finance and behavioral finance.
He made his reputation as a great investor and financial thought leader at bond giant, PIMCO, where until 2010 he was Senior Partner, Founding Member of its Investment Policy Committee, author of the influential monthly Global Central Bank Focus and manager of its huge short-term trading desk, overseeing an estimated $400 billion dollars in assets
I asked McCulley to explain why he believes helicopter money and the unprecedented fiscal and monetary cooperation we are seeing today is so essential, and not an issue. Also in this week’s EXTRA feature, McCulley shares what’s at the top of his post pandemic wish list. If you miss the show on public television, you can watch it on our website over the weekend. You can also find the WEALTHTRACK podcast on Stitcher and SoundCloud as well as iTunes and Spotify. Thank you for watching, have a Happy Passover and make the week ahead a healthy, profitable and productive one. Best regards, Consuelo | 
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