Thoughts of the day

Capitalisn’t has Lord King as guest

Lord King is worried. It’s always worth listening to Luigi Zingales, ditto Mervyn King. When they are talking to each other, it’s a can’t-miss event. King is both a great economist, and a former central banker. He is a user of models, but someone who has thought deeply about their limitations. There is a lot to absorb, but one of his points is that the explosion of high powered money in the Global Financial Crisis of 2008 was not accompanied by an explosion in the broad money supply (roughly speaking, the money created by the actions of private banks lending). He points out that the explosion of high powered money now has been accompanied by an explosion in M4 etc. He is quite worried about central banks saying that we should not worry about inflation running above trend for a year or so because we can always tighten monetary policy and bring it down. As he points out, we’ve had a decade or two of failing to make inflation high enough using monetary policy, so it’s the height of arrogance to think that we can control it perfectly on the up side. As he says, by not anchoring expectations, and by an unwillingness of politicians to do anything short term that might create a recession, the most likely outcome is a much bigger depression further down the tracks.

For me, it’s not that King is expressing these fairly mainstream opinions (maybe ones not officially shared by in-post central bankers), it’s that he doesn’t think that the fears are unfounded. This has not shown up much in bond prices yet, but surely it will.

Wrap

The Ponzi sector is seeing some big falls:

• Yell Corp ($YELL) down 33%,
• $ETSY down 16.5%,
• $ROKU down 9.5%,
• $TWLO down 10%,
• $SNOW down 10%.

These are volatile stocks. $ARKK is only down 3%, but it’s looking vulnerable.

Otherwise, US equity markets were up, by about 0.8%.

Bonds were flat.

Currencies pretty flat (Euro up 0.5%).

MMT

Rohan Grey gave an interesting podcast interview that was relayed onto the MMT podcast. I know opinions vary a lot about MMT, but it’s interesting to hear him talk in almost Gramscian terms about having to infiltrate institutions, helping them put on events, producing materials for them to present as their own, in order to get MMT into the mainstream of economic thought. He was very interesting in his chat about the reaction to the mother of his ex-gf, who was a member of congress, to his statements about MMT. She said, allegedly “I can’t say that.” The point is that she reacted as a politician, and expressed the view that MMT ‘conclusions’ are simply unsayable by someone who wants to be treated as an electable politician. This is the famous ‘Overton Window’ being not yet over MMT. It’s odd, in that Democrat policies seem pretty much MMT, but with a pretence of being able to balance the budget eventually.

I’d like to write something about MMT, but this is not the place. It is an idea whose time is not yet come, but in time (like Monetarism) it may become an article of faith which divides the Right from the Left.