World’s Biggest Hedge Fund Manager says MMT is “Inevitable,” Hyperinflation is Coming
Hedge fund king Ray Dalio says the idea of Modern Monetary Theory that is backed by presidential candidate Bernie Sanders and Rep. Alexandria Ocasio-Cortez is “inevitable”. However, critics say zero interest rates to finance the government spending could result in hyperinflation.
Bridgewater Associates founder, Ray Dalio said the US will end up adopting the economic philosophy that uses zero interest rates to finance the big government spending for more growth.
The central idea of Modern Monetary Theory (MMT) is that government can and should print as much money as they need to spend. Traditional approach says that would lead to debt ballooning and skyrocketing of inflation. But according to MMT, large government debt doesn’t lead to collapse as countries like the US can sustain much greater deficit without any concern.
According to Dalio’s LinkedIn post, MMT implementation is only a matter of time,
“To me the most important engineering puzzle policy makers around the world have to solve for the years ahead is how to get the economic machine to produce economic well-being for most people when monetary policy does not work.”
MMT has some high-profile supporters in the form of Democratic presidential candidate Bernie Sanders and New York Rep. Alexandria Ocasio-Cortez. Among its detractors is Paul Krugman who says injecting cheap money into the economy could create hyperinflation.
MMT is Inevitable: Hedge Fund King
“It is inevitable that this shift will happen because it is inevitable that central bankers will want to ease when interest rates are pinned at 0% and when quantitative easing will be ineffective in achieving the goal,”
Quantitative easing is a process where central banks buy financial assets from big institutions to increase domestic supply and push money in stocks and corporate bonds. Before and following the 2008 financial crisis, QE has been widely used by central banks.
By employing this program, the Fed pumped $3.8 trillion into the economy that led to the longest bull market in the history of Wall Street but its benefits are not even. Wealth disparity surged in the US as QE flowed to the higher end of the income spectrum.
“QE and interest rate cuts help the top earners more than the bottom (because they help drive up asset prices, helping those who already own a lot of assets),” Dalio wrote. “And those levers don’t target the money to the things that would be good investments like education, infrastructure, and R&D.”
Dalio has joined other powerful figures who say capitalism has been inefficient at addressing the income gap in the US. While backing the basic philosophy behind MMT, he acknowledges its weaknesses as well.
“The big risk of this approach arises from the risks of putting the power to create and allocate money, credit, and spending in the hands of politically elected policymakers,”
“In my opinion, for these MP3 [Monetary Policy 3] policies to work well, the system would have to be engineered in a way that decision making would be in the hands of wise, not politically motivated, and highly skilled people. It’s difficult to imagine how the system will be built to achieve that. At the same time it is inevitable that we are headed in this direction.”