Chino City, Japan, March 10—The modern monetary theory – That outlandishly sounding thinking that traditional monetary theory entrenched pros label as ignominious and unrealistic March 9 became a virtual reality with Jerome Powell’s Fed’s announcement of a $2.3 trillion loan facilities, the program that almost amounts to unlimited printing of money as a means of rescuing businesses and secure jobs.
Even before the Fed announcement, which helped lift the stock market visibly, the United States was preparing to inject trillion of dollars to both Wall Street and Main Street. Trump announced a $2.2 billion fiscal program on top of other multi-billion dollar facilities.
The European Union has yet to dip into its coffers or take additional monetary stimulus in a coordinated move because of Germany’s reluctance for measures that would lead to inflation, while Japan is gearing for a multi-billion-dollar fiscal stimulus. Ultimately, finance and monetary authorities in those countries, who are concerned about inflation even in depression times, are likely to follow the Fed’s lead as the world economy decompresses under the coronavirus pandemic impact.
Nothing is more accurately reflecting the portends of eventually inflationary pressure than the price of gold, which soared 3.34 percent to a record $1,740.60 per ounce on NY Comex March 9. Silver registered an even sharper rise of 4.67 percent to $15.915 per ounce. Crude oil plummeted 7.57 percent to $23.19 per barrel despite the agreement of the Organization of Petroleum Exporting Countries plus Russia to cut output by 10 percent.
What’s most ominous is a creeping rise of base metals like copper, grain and other soft commodity futures and the closing of U.S. meat packing plants in response to the coronavirus infections of workers. Meat price futures do not move in lockstep with soft commodities because of different production cycles.
That those base metal and soft commodity prices have been inching up over the past month illustrates that countries around the world are being forced to pump money into their respective economies with short-term disregards for fiscal austerity. Effectively, they are mobilizing the modern monetary theory, which Bernie Sanders’ economist supporter, Stephanie Kelton of Stony Brook University, espouses vigorously.
MMT means in theory that governments spend freely since they can always print money to pay off debts in their respective currencies and stop printing when they see inflation on the horizon. And government spending won’t lead to inflation, according to the theory, inasmuch as the economy is running below capacity and unemployment is high, as is expected to be the case over the coming months.
If governments around the world step on the gas pedal deeper, then that would confirm that they have adopted MMT for certainty – and inflation will be rekindled over the horizon.
–Toshio Aritake