Dear Hedgeye Nation,
We just hosted 10 of the sharpest investing minds on HedgeyeTV for a 3-day bonanza of world-class interviews. During the second day of our semiannual Hedgeye Investing Summit, Hedgeye CEO Keith McCullough was joined by economist Daniel Lacalle.
Below we have transcribed key excerpts from their conversation.
You can access the entire hour-long interview, as well as the 8 other financial market webcasts, here.
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McCullough: You are familiar with my four Quadrant model. #Quad2 is the good kind of inflation and growth because you have inflation accelerating, but you have real growth.
I think what you say (and I want to simplify the complex) is that what #MMT does, is that it perpetuates #Quad3 or economic stagflation.
Lacalle: Yes, absolutely! That’s the best summary out there. MMT is the most aggressive and abrupt means of expropriating the real wealth of a country in favor of political spending. That says it all.
You basically are consistently and constantly eroding the purchasing power of real wages and salaries. And at the same time, as an long term investor, you are being expropriated in the short term and long term from any profit you might generate out of an investment via fiscal policy through high taxes and monetary policy through inflation.
You’re absolutely right. The problem with MMT is that it is not modern and its not a theory. It has been implemented for centuries since Nero decided to tweak the amounts of silver in the coins to pay his armies with.
The point is the following: When you are constantly forgetting the first and most important thing about money creation, you forget that money creation is never neutral.
It disproportionately benefits the first recipient of money like government and the indebted sectors, and it obviously disproportionately negatively affects real wages and salaries.
Therefore when you break the transmission mechanism of monetary policy that allows consumers and savers to reduce the inflationary pressure, and you simply pass all of the money creation directly to government spending; the perverse incentive to mal-invest and bloat the sectors that don’t need it at the expense of ones who are actually producing is enormous.
And It has been implemented numerous times with always the same result; stagflation and a constant erosion of the long-term investment in the economy.