“REALITY: Unlike a household, the federal government issues the currency it spends.”
- Stephanie Kelton
Ain’t that the truth. In fact, that has to be the most trivial of truths “revealed” by Kelton in her new MMT book, The Deficit Myth.
Everyone on Wall Street knows the Fed has the unelected/unaccountable CTRL+Print power that enriches their portfolios through Dollar Devaluation. How else would we get so bloody rich vs. the poor people who have to pay for it in real cost of living terms?
To her point though, not all of The People quite get this, yet. So she and her Modern Monetary Theory (MMT) friends need to explain this in Sesame Street terms to political people who want to PRINT & SPEND to infinity, and beyond.
Back to the Global Macro Grind…
While Kelton does an excellent job explaining MMT, in her book she does a very poor one in discussing the other side of the trade. US Dollar Devaluation dynamics are critical to understanding the non-linear risks of inflation.
But why is that any different than how Bernanke talked about Devaluing the Purchasing Power of The American People in 2008 or 2011? *Reminder: he didn’t. PE Powell has no self-interest in labelling himself a currency manipulator either.
As for what I think about it? Who cares? REALITY: unlike in prior elections, both political parties want MMT. It’s in motion.
You’ll probably get a preview of printing & spending (for votes) during tonight’s US Presidential debate. But the US Dollar has been proactively telling you this story since the US government moved to MMT in Q2 of 2020 (i.e. its been going down).
“I’m the government and I’m here to help.” What could possibly go wrong?
As with all great government plans, I can’t imagine that everyone from Kelton to Brainard (next head of the Fed?) and all the way back to Bernanke (again) haven’t thought of ALL non-linear risks that will arise from trying to bend and smooth economic gravity…
But heh, again, who cares? Wall Street needs to get paid. And, unless the Fed swaps their Junk Bond buying spree into buying poor people food and shelter, everyone should know how this story ends.
On that Widening Inequality Gap, today we’ll be reviewing our Q4 Macro Themes LIVE @HedgeyeTV at 11AM EDT. #TuneIn
What you’ll find with this data-driven presentation aren’t political ideologies or economic policy “ideas” designed to save us all from economic gravity. Instead you’ll see what all of these government people should be showing you before telling you stories:
A) Long-term Time Series of economic data in ROC (rate of change) terms
B) Intermediate-term TREND Cycle Data within the lens of the ROC of GROWTH & INFLATION
C) Probabilities of future economic outcomes based on real-time data and economic Quads
All of these Quad maps, charts, and ROC numbers put this particular point of The Cycle in both local (USA) and global context. That’s another major problem with US style MMT and/or QE – it arrogantly assumes The ROW’s (rest of the world) actions cease to exist.
Not one of these famous US econs has challenged the premise of either The Quads or my multi-duration, multi-factor, Quantitative Signals. I guess I’d have to go waste my time and money at school getting a PhD to get that dialogue going. Ha
In the meantime, we’re going to keep helping The People on both Main Street and Wall Street understand why we’ve found a much better way to A) preserve & protect the capital they have and B) compound returns from that hard earned capital base:
A) What tends to Work/Not Work in each Quad Regime?
B) A/B Testing #Process: what’s the market signaling vs. the next probable Quad?
C) Quantifying Investor Consensus & Positioning – does it matter? #BigTime
D) Instead of staring at the surface area of market prices, what is The Volatility of Volatility saying?
E) What are our real-time Nowcasts for both Real GDP Growth and Inflation?
F) Since the Quads are Global, what country #divergences are emerging (and when)?
As Kelton herself reminded us in The Deficit Myth, “Copernicus and the scientists who followed him changed our understanding of the cosmos, showing that the earth revolves around the sun and not the other way around.”
And I’m here to humbly remind her of the same. Well after Copernicus came Einstein and Mandelbrot, who taught us that time and space are both relative and non-linear. Economic cycles revolve around gravitational rates of change, not big government policy.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.63-0.69% (bearish)
SPX 3 (bearish)
RUT 1 (bearish)
NASDAQ 10,551-11,189 (bearish)
Utilities (XLU) 56.64-59.98 (bullish)
Financials (XLF) 22.62-24.28 (bearish)
Shanghai Comp 3190-3350 (bullish)
DAX 12211-12998 (bearish)
VIX 24.76-29.96 (bullish)
USD 92.49-95.12 (bearish)
EUR/USD 1.16-1.19 (bullish)
USD/YEN 104.24-105.91 (bearish)
USD/CHF 0.90-0.93 (bearish)
Oil (WTI) 38.25-41.40 (neutral)
Gold 1 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
