Modern Monetary Madness

The “experts” say you shouldn’t worry about the 157 trillion dollars in U.S. debt and unfunded liabilities … what I’ve been calling “the ticking time bomb of national doom.”

“No sweat,” says the Federal Reserve. “We’ll just print more money!”

This hare-brained idea is called Modern Monetary Theory (MMT).

Sounds impressive, right?

Like something cooked up in the ivory towers of academia by economists with PhDs who’ve written important scholarly papers …

… but who never learned how to tie their shoes.

So, what exactly does this theory say?

That government spending doesn’t have to be backed by anything. At all.

Not by gold. Not by taxes. Not even by borrowing money with government bonds.

Governments can just keep spending … and spending … and spending. And nothing bad will ever happen!

Modern Monetary Theory isn’t just worse than a wild experiment by a mad scientist …

It has escaped from the lab and is spreading around the world like a virus.

At first, most people thought it was a joke.

Anybody with an ounce of common sense knew that Modern Monetary Theory was absurd.

Nevertheless, MMT began to gain traction.

At the European Central Bank. The International Monetary Fund. Even in the halls of Congress.

David Stockman, Budget Director under former President Ronald Reagan, explains it this way: “We don’t often hear monetary authorities talking up the theory in public, but it is clearly the de-facto policy most central banks are putting into practice.”

Indeed, MMT has changed the ballgame when it comes to government spending.

For example, during the Great Recession of 2008, the Fed was uneasy about how much money they were printing to save the nation’s banks and rescue the economy.

They said it was an emergency measure. One time only. Never again.

But under the cover of MMT, the government no longer needs to make excuses for their reckless extravagance.

They just keep printing more money with no end in sight.

Because deficits don’t matter!

But history has taught us — for nearly 5,000 years — that deficits do matter.

For example, many people think the Roman Empire fell because it was sacked by barbarians.

But the main reason the barbarians were able to succeed is because the Romans had already destroyed their own society from within.

Mostly thanks to emperors spending money they didn’t have.

Which, in turn, caused rampant inflation and devaluation of Roman money.

Under Caesar Augustus, a “denarius” was made of 99.5% real silver.

But 300 years later, during the reign of Claudius the Second, the amount of silver in this coin was down to just 0.02%.

By the end of the Empire, many formerly wealthy senators and citizens were forced to eke out a living as subsistence farmers in the countryside.

This is one of the forces that ended the powerful Roman Empire and ushered in the nasty, poor and brutish era we call “The Dark Ages.”

Of course, the governments and central banks of both Europe and the United States will do everything they can to stay in power and prop up their economies.

But most of the usual steps have already been taken … and failed to work.

They tried spending like drunken sailors. But it wasn’t enough.

Then, they tried lowering interest rates to zero … and even below zero. That wasn’t enough either.

They also tried monetizing the debt by purchasing their own governments’ bonds.

But this policy — with the fancy name of quantitative easing (QE) — also failed to achieve the desired results.

So, what’s next?

You might be shocked by the answer.

And, ironically, it will cause certain assets to soar.

I keep on top of all these things in my monthly letter, Wealth Megatrends.

All the best,

Sean

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