MMT has given politicians the intellectual cover they need to embrace print and spend. Where do you want to be investing when it happens?
Alright, wakey, wakey hands off snakey.
It is going down right now. The whole flipping financial landscape is being flipped on its head.
Rivers of cash are coming.
But governments in the developed world are going to start printing cash. They’re going to be throwing it away.
As I said, that sounds like economic heresy, but that’s what I mean. The tables are being turned on their heads. Up is down, left is right. Printing money is good for the economy.
Don’t believe where this is heading? Check out Trump’s two suggested picks for the US Fed. Stephen Moore, and former Godfather’s Pizza CEO Herman Cain. They used to be inflation hawks. Now, they’re all about the easy money. That’s what Trump wants to hear.
Why? Because that’s what sells. He knows that if he can give away free money, without consequences, he’ll be the most popular president, ever.
(He already thinks that, but we’ll be able to fact check it this time.)
And for a global population already angry that our economic bail out plans almost always start and end with pumping the financial sector full of cash, a system where cash is mainlined straight to mum and dads will be like a sweet revolution.
Both the left (e.g Bernie Sanders), and the right (Trump) are jostling to get on board.
They can’t afford not to.
So what does it mean? How are we going to make money out of this seismic shift?
Well, it does depends on how the government decides to do it.
It could print money and spend it on infrastructure projects – it’s not hard to come up with a list of stuff that needs doing.
In that case, owning stocks connected to infrastructure spending – road and transport companies, shipping, civil engineering, that sort of thing – that would be a winner.
The government could also give money straight to the people. This might be in the form of grants like the First Home Owners Grant, but would more likely come through tax cuts – probably temporary tax relief.
Given this would likely have a progressive element (lower income earners would receive more benefit) and that lower income earners have a higher propensity to consume, this could be good news for companies whose fortunes swing with the consumer – furniture, electronics, department stores etc.
Real estate is a clear winner here too. As disposable income goes up, so does serviceability. When that goes up, so do prices.
And in tight rental markets more cash-in-hand means higher rental prices. Higher rental prices means higher yields, which of course means higher property prices.
This is not likely to be a one-way street though. One of the advantages of MMT that its proponents point to is that it frees up interest rate policy to fight inflation.
So interest rates do a much better job of putting a brake on economic activity, than they do of speeding things up. “Pushing on a string” is the expression.
So we could see super-loose fiscal policy going hand in hand with tighter monetary policy (i.e higher interest rates).
Where that lands will be an interesting question, and the most likely outcome is that we see a mix of cash-handouts, government spending and interest rate tinkering.
But the point I would make is that consumer price inflation and asset inflation tend to go hand in hand.
When you flood the system with money – regardless of whether you’re doing it through a financial sector channel ala QE, or through the public sector and the consumer ala MMT – that money goes looking for a home.
And the home it is looking for is wherever it earns the most. So just as we saw a massive bid on financial assets during QE, we’re going to see another massive bid with MMT.
And remember, the massive property boom we’re just on the tail of now, between 2010 and 2017 – that was largely due to the flood of easy money QE unleashed on the world.
I’m not sure if that’s the received wisdom yet, but it seems pretty obvious to me.
And so another boom, exactly like the one we just saw, could easily be on the cards again. Another seven year boom, another tripling of prices.
In my mind, it could easily happen. Mark my words. It’s coming.