On Friday, the Dow sneezed and ended the day down 603 points. This morning, Bloomberg has the update:

China’s central bank will inject more than $21 billion of liquidity in seeking to avert a potential sell-off from the coronavirus outbreak, and the U.S. is ready to redirect flights with passengers from China.

“Liquidity” is another word for “inflation.” We have our eyes on it, because more of it is headed our way…

Beautiful Jackassery

A revolution needs its thinkers as well as its executioners. They identify enemies. They justify more intervention. They reassure the mob. After all, they know what they’re doing!

People need explanations for the strange phenomena fake money brings. They need bogus “solutions” to the problems it causes.

Cutting off the fake money is not an option… so they invent theories that permit them to do even stranger and more harmful things.

Cometh economist Stephanie Kelton. She advises Bernie Sanders.

Watching a beautiful woman is a pleasure, even when she is talking nonsense. But her line of talk is so nonsensical we couldn’t watch her very long, even if she were stark naked.

“We’ve increased spending and now we have $1 trillion budget deficits,” she pointed out on TV last week. “But we’ve seen none of the bad things that traditional economists expected. No crowding out. No spike in interest rates. No inflation.”

Nothing bad has happened yet, she believes. And from this she extrapolates that nothing bad is likely to happen…

Lost Highway

As we saw last week, Rudolf von Havenstein might have said the same thing in 1920… or Arthur Burns in 1970… or Hugo Chavez in 2001. No one rings a bell at the end of a bull market… or at the beginning of an inflationary disaster.

And once you’re on that lost highway… why not put on some speed?

Ms. Kelton says the politicians could add another $500 billion to the deficit, no problem. And she could be right. You never know when the problems will appear.

She’s right about one thing, though. MMT — Modern Monetary Theory — is sure to be a hit. In an interview with The Globe Post, Ms. Kelton explained it:

…a country like the U.S. doesn’t need to tax or borrow in order to get the currency in order to spend. So, it’s never about whether you can afford a program in financial terms. You always can. It’s about whether spending to fund your program will cause an inflation problem.

That can happen if you’re trying to do big ambitious stuff and the economy doesn’t have the people and the machines, the factories or the concrete and the steel to absorb that spending. Then you could trigger an inflation problem and MMT recognizes that it’s our real resources that are constrained not our financial resources.

A pity she doesn’t connect the dots. It is the real resources that impose the limits. Money merely represents them…

Distorted Picture

Markets use money — prices — to tell us when real things are cheap or when they’re dear. That information signals when we should speed up — buying, investing, hiring — or slow down.

Printing more “money” just distorts the picture. It tricks people into thinking that they have more time and resources to work with.

But Ms. Kelton doesn’t worry about it. Just add “liquidity,” load up the wagon with debt… and race along until the wheels fall off:

The government can always pay its bills and spend more on other things at the same time. Remember, it can’t run out of money.

We should balance the economy not the budget. And right now we have a myriad of imbalances in our economy. We have an infrastructure deficit. We have a deficit in healthcare, massive income and wealth disparity, I could go on and on.

No need to go on and on for us. We already have the picture. And it’s a familiar one…

Tinted Glasses

Ms. Kelton thinks she knows what people need. They shouldn’t be allowed to decide for themselves, by spending their own money in their own way. Instead, the feds should cover the “deficits,” as she sees them. How? By printing money.

And what about inflation? As long as the economy is operating below “capacity,” she believes consumer prices won’t rise. As long as there are empty seats at the Jack-in-the-Box, in other words, the feds should try to fill them by printing money.

Ms. Kelton thinks of government spending — even of the fake money it prints — as a form of output. As the government prints more and more, she believes, the Jack-in-the-Box fills up. When it is full, diners are then competing for seats… prices rise… and then the feds should back off.

“We need new lenses (to view economic matters),” she claimed. “And I could give those lenses to a Republican or to a Democrat. They should work for them both.”

And get this: Ms. Kelton says that when the feds “invest” in education, roads, and infrastructure, they might be able to spend almost an infinite amount of money, because the spending increases the “carrying capacity” of the economy.

The feds spend, the carrying capacity grows, and they can spend more! Whee!

Yes, inflation is always and everywhere a rip-off. And both Republicans and Democrats are looking for ways to do more of it. MMT gives them the tinted glasses they need.



• This article was originally published by Bonner & Partners. You can learn more about Bill and Bill Bonner’s Diary right here.