A “crackpot” idea

Jeffrey Gundlach is very concerned about the increasing debt in the US economy. During the “Highway to Hell” webcast, he also completely discounted MMT (Modern Monetary Theory), calling it a “crackpot” idea.

According to CNBC, Gundlach said, “MMT is a crackpot idea…sounds good for a first grader.”

Modern Monetary Theory Might Have Takers, but Gundlach Isn’t One

Central banks and MMT

MMT stipulates that as long as central banks can keep inflation in check, full employment can be achieved through government spending and even deficits. It argues that a government that issues its own currency cannot go bust and can keep on printing currency to cover its obligations. There are many proponents of the theory, including politicians such as Democratic presidential candidate Bernie Sanders. This theory started being openly discussed after it gained support from Democrat Alexandria Ocasio-Cortez.

US recession and MMT

However, there are many opponents of the theory as well, including Fed Chair Jerome Powell, who said, “The idea that deficits don’t matter for countries that can borrow in their own currency I think is just wrong.”

Gundlach said MMT is just a way of monetizing debt and could lead to a “significant boycott of long-term bonds” (BND) (AGG). The major argument supporting this view is that MMT would lead to inflation (TIP). Gundlach, however, is of the view that the idea could gain popularity if the United States (SPY) (DIA) enters a recession in 2020 ahead of the US (SPY) presidential election.

Read Gundlach: Could US Economic Indicators Be Signaling a Recession? for more on Gundlach’s views.

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