The last decade has been dominated by quantitative easing and unprecedented asset purchasing by central banks. Now the discussion has turned to the prospect of Modern Monetary Theory (MMT).
Proponents of MMT argue governments that control the printing presses for their own currency should take on as much debt as required to achieve policy objectives such as income redistribution, a universal basic income, full employment, or a national health service. Here, the argument is as long as inflation is contained, servicing an increased level of debt will not become a significant problem.
But in Newton’s view, the advent of MMT would have repercussions for growing deficits. Even at current spending levels, for example, the International Monetary Fund (IMF) expects the US’s total interest bill to rise over the next three years by around US$100bn if interest rates do not increase from their current level. This money has to be found from somewhere.
Paul Brain, investment leader of the fixed income team, Newton Investment Management.
The central idea of MMT is that governments with a fiat currency system can and should create or print as much money as they need to spend because they cannot go bankrupt or be insolvent unless they make a political decision to do so.
Bloomberg, IMF, December 2018.