There’s a wonderful scene in Stanley Kubrick’s 1964 masterpiece, Dr. Strangelove or: How
Modern Monetary Theory or: How I Learned to Stop Worrying and Love the National Debt
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This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results. Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
Back in 2013, people were in two camps regarding QE, “eventually deflation, default, great depression”, or “eventually 10 thousand dollar gold”. You guys were saying either outcome could be true but most likely we will be “muddling through” under the policies of Omnipotence Central Banks.
Now, 5 years later, the “zeitgeist” has changed. Are you guys calling 10 thousand dollar gold now?
The thing is. I AM the middle class raising families and this MMT is designed to kill me. I am losing sleeps now.
“This point of agreement sets both Austrians and MMTers outside of mainstream economics in precisely the same way. They appreciate that the modern monetary system is very, very different from older, commodity based monetary systems—in a way that many mainstream economists do not.”
MMT’S AND AUSTRIANS (Libertarians) are both a combative crowd…I see the good in both compared to the status quo. BL don’t drink the “Coo-Laid.” No difference than blaming the “Fed” for all of our problems…the problem is looking back at you in the mirror! LMFAO, I am still amazed at how many citizens think you can run a government like a business…Pure Comedy…you don’t have your own sovereign currency! The common denominator is people’s anger with the economic models that leave them scrambling to make do, all the while seeing their lives being taken away from them bit by bit while whoever’s in power keeps bankers and the elite contented.
The Long Night is coming and its not off the coast of Africa its off Europe and heading our way! No one has a silver bullet, but maybe we can pull this off, but getting more skeptical by the day! Between the Fed/Government, not sure who gets the most blame…too funny, its all about accountability and responsibility and no one in this modern age understands that concept, especially our current DC leadership! What a shit show!
All have a great MLK weekend! Thanks Ben…Please just do not drink anyone’s Coo-laid!
“But what is government itself, but the greatest of all reflections on human nature?” –James Madison, Federalist 51
War & Conflict and the Political Conversations
The fact that we have not had another WW in over 3/4 of a century is unprecedented in human history. The big political economy conversation are not just the debate over socialism and libertarianism, that problem is too normative…people are talking more about “what things should be,” we should be having the conversation on “What good states are possible” then “What good states are sustainable” …this way of thinking is very poorly understood!
—Conversation between Tyler Cohen and John Nye Podcast
Great article Ben, thank you. I’ve been struggling with positioning for inflation vs deflation for 20+ years now. I’ve come to believe that its a timing issue rather than a “who’s right” issue. The timing looks to me like a small to medium sized deflation event happens, and that triggers a massively inflationary reaction. Ultimately we all know that policy ends in tears, but these politicians don’t care about what happens down the road they only have a “need to do something now!” I’ve been trying to play this game with a strategy of increasingly “hedging my hedges” ad infinitum. That yields mixed results obviously. Its a strategy of minimizing maximum regret. It’s worked well to a point, but it sure as hell doesn’t feed the dopamine receptors.
I know it didn’t get a lot of traffic, but the debate around MMT did heat up quite a bit in 2010, some time just after QE1 got started. The post-hoc theory is “modern” only in the sense of a post Bretton Woods world. And more than a theory, I think of it as a description of how our fiat money system works. And it’s enlightening really. At that time, there were so many voices adding to the narrative with screams of money-printing = inflationary spiral. But it didn’t work that way did it?
The real fly in the ointment for MMT proponents is the government jobs guarantee component. It’s in the Mosler writings, but it hasn’t been tried yet in “modern” times. I don’t know if you can still find them, but there were some excellent blog spats during that year between Mosler and Roche (Monetary Realism proponent) If you want to dig in:
https://orcamgroup.com/understanding-money/
I appreciate MMT’s understanding of the Fed and Gov Inputs/Outputs/Debt and not because of Bernie/Ocasio but simply because it describes how things really are…too bad Ben does not. They have a lot to offer so do Libertarians but neither have all of the answers…the same peeps that choose not to understand,how many of them have had a conversation with Warren Mosler, Stephany Kelton, Bill Mitchell or Steve Keen…none of them but they know everything. Every person is the smartest person in the room. Still screaming inflation too…Pure comedy!
So many things are poorly understood because people believe everything they see/hear versus having a conversation with people. That was a short-form hit piece without putting very much into overall context and application. But what do I know…about two cents worth!
Reminds me of tale once…The story of the Fukawi Indian Tribe

Our tribe has rich and long-standing history. Long time ago, our tribe wander the wilderness. For many years, we wander looking for land to call our own. Our chief led our people through mountains, valleys, seashores and plains.
People were born wandering. People died wandering. After an entire generation of wanderers were born and died, our chief, then very old, led us to top of great mountain. He stood atop mountain summit and faced his people. He looked around. He looked far and wide. He then shouted to the gods,
“We’re the Fukawi! We’re the Fukawi! WHERE THE FUCK ARE WE?!”
I am all for conversations/debates on all social issues and science problems. Conversation about THEORY OF MONEY? I think it is waste of time and energy. Money is Caesar’s, it is NOT up to anybody else to debate. Caesar can choose to have sound money. Sound money is sound because nobody can do anything to it. Because there is nothing anybody can do to it, there is NO theory about it.
Caesar can also choose to have unsound money and create all kinds of theories. We can all have our conversations/debates, and in the end, Caesar is going to put out his sword and tell you which theory is right.
No matter which way Caesar chose, there is nothing the team-sheeple can do.
I am 100% sure there are aspects of MMT that will help somebody at some time frame and be considered good. But the point is that the power of money, like all power, corrupts human. You can say, “without power, there is nothing I can do!”. Also true. Power corrupts and power helps. It is up to Caesar to decide whether the power of manipulating money should exist. We all know what Caesar does. It is NOT modern and it is NOT a theory.
To me, the power of money should be left to God and no human should be able to come up with any theory to use that power. What do I know?
Leave the money and money theory to Caesar, we, the sheeple, can still have conversations about what the theory of money will do to us. Although there is NOTHING we can do to stop it, we can figure out how to minimize the damage.
There will be a day when the last round of QE or Bailout will trigger yellow vest occupying central banks. Old Caesar gone, new Caesar rises with the new theory of money.
Some simple data. As of Q2 2018 combined Federal, State and Local decficits were in excess of $1.2 trillion. The deficit as a % of Nominal GDP (this is what the population experiences is north of 6% during a boom. This does not include Social Security where contributions are treated as general revenue and the liabilities are unrecognized. Quite simply the United States cannot afford a recession.
In every tightening cycle in the post Volker period a hiking cycle that coincides with a collapsing ISM Manufacturing has spooked the Fed into pausing then easing. Fed Fund effective rate is 2.4%, Fed Fund Futures for September 2.44% and the 2 year has been falling. In my view the Fed is in the process of blinking.
Fun to see references to the Plantagenets. They were suburb in helping bad money chase out good. Thankfully we no longer have to bite our coins to test for base metals.
Gold bugs should take a look at the UK booms and busts in the 19th century. Post Napoleanic wars a run on the Bank of England’s gold reserves; busted the central bank.
Thanks to Mike S for the link (in we’re all ETists now), I downloaded and read Warren Mosler’s ‘Soft Currency Economics II’. I will have to reread it. From my first reading, I think I learned that fiat currency issuers with central banks cannot go bankrupt and that deficit spending is necessary to increase the money supply in the US. After that, there seems to be paradoxical relationships between savings, investment, taxes, wages and so forth, and so the need to reread. I wish the author had been more explicit. MMT is certainly very seductive as DrB has indicated. I wonder if it will be like Special Relativity was in physics.
Missionaries think they know MMT, but they choose to see something else because it goes against what they were taught or because of some other dogma in there head. MMT is not about endless debt or you can print money forever…but those make nice bulletized soundbites!
It simply states what money is and how it works in our current system and gives another path. Great thread below on all things money ran by William Hummel who in my opinion knows more about what money is and all things Fed then anyone in the country. (http://wfhummel.net/)
https://groups.google.com/forum/#!searchin/understandingmoney/What$20is$20MMT|sort:date/understandingmoney/sOjSCZL7dy8/G5UkXLfJAgAJ
***Until we somehow we end the corrupt system of buying legislation in Congress, I don’t see how any set of rules can solve the problems that nearly sank the US financial system in 2008. Wealth begets political power and more wealth as things stand, and the Supreme Court seems oblivious to the economic implications!