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Minsky Moment

Cullen-  Booms lead to busts.  The Fed (and credit-based monetary system) are supposed to help minimize the severity of the extremes.  This helps stability and productivity in the long run.

The severe bust in 2008-2009 was definitely a Minsky Moment. 11 years later, the economy still requires ultra low interest rates and excessive deficit spending in order to support consumer demand.   Take either of those two ingredients away, and the economy/markets will implode.

I think this shows us that since the Minsky Moment in 2008-2009, the only short term solution to avoid a depression and chaos was/is MMT (Ponzi Finance).   We have to continue down this road of low rates and perpetual government deficit spending because we have no other option.

Explicit government programs like welfare and the armed forces, that expand the social safety net are met with political resistance.   So the current MMT situation is a less publicized and implicit subsidy to companies/profits, which indirectly creates more employment opportunity.   Unfortunately, we have learned that it exacerbates wealth disparity.

The two potential long-term outcomes are:

1- An economical miracle takes place and allows the government to normalize policy at some point.

2- The public loses faith in the entire system and the value of money/debt. (Hyperinflation)

 

I think the Fed has been praying for #1 now for 11 years.   Let’s all continue to pray...

 

Hi Clarence,

I wouldn’t describe this environment as a “MMT” environment. MMT specifically advocates for a Job Guarantee as their primary policy tool so I don’t think we can say it’s an MMT regime until their main policy tool is in place.

That said, I largely agree with you that something bold needs to be done to solve inequality. Personally, I think a tax overhaul could achieve that. For instance, I am a big advocate of raising the cap gains and dividend rate to ordinary income. This would mostly hit the rich and there’s really no rationale for the favorable treatment anyhow.

We need some sort of fiscal policy overhaul and MMT has been very right about that. Monetary policy just doesn’t get the job done in the way it needs to be done.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

I guess this isn’t full out MMT that we are living through.   Not sure what the name is for a decade of zero interest rates and $1Trillion Annual Deficit Spending.   Can we call it “MMT Foreplay”?

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

Jim Grant calls it “Modern Monetary Methods”.   I like my name for it better.  As he puts it, if it was this easy, mankind would have discovered these methods a long time ago.

"Normalize policy" in what terms?  Nothing is abnormal right now other than the Fed is a bit under the modified Taylor Ryle.  It's not like monetary policy does squat as Roche has pointed out for 10 years.