The Global Financial System Is Insane So Let’s Just Print Money

Money printing will make a cold winter warm…

I recently read a book about Modern Monetary Theory. I want to have an understanding as to what the current fashion is in financial policy, given that it does affect our wallets and our lives.

The author was at pains to emphasise that MMT is not money printing – it is creating money electronically by computer keystroke at a central bank (eg the Federal Reserve or the RBA).

Somehow, this does not reassure me.

What it did do was to leave me convinced that the post-Keynesian economic consensus since the mid 1970s is over. Those countries with a strong sovereign currency can issue, through their central banks, as much money as they like, until people no longer believe that the sovereign currency is all that strong anymore.

To a layperson like me, Economics appears to be part mathematics, part politics, and part psychology. It is a social science, and social sciences have never been particularly accurate at making predictions.

Last year I firmly believed that the share market recovery was founded on absurdities, and that there would be a long bear run. Today, I am not so sure.

What we have seen, despite the destruction of large parts of both the domestic and global economies through lockdowns and restrictions since the Covid started, is record share prices and housing prices. This makes me glad that FOMO made me pour my bank account back into my share portfolio over the past 13 months (mostly by last February).

My expectations now have changed. I believe that the financial policy makers, whether or not they actually are acolytes of MMT or other theories, will not allow a share market or housing market crash to occur on their watch. Policies will continue which will increase the money supply at least sufficiently to prevent such a crash from occurring. Such policies include the setting of low interest rates and putting more government bonds out into the market (which incidentally will result in more government spending).

Weeks like this one, where I have taken a 5% hit in my share portfolio, will be minor speed bumps. The access to the ability to borrow and spend more money will keep asset prices rising over the long term, rather than resulting in a crash.

Similarly, whilst I feel it absurd that my brick veneer dump in Avondale Heights is now valued at a million dollars (aka 11 or 12 times the average wage, as compared to the 5 or 6 times the average wage it was valued when I bought it 19 years ago), I do not see that house prices will be dropping to a more affordable level anytime soon.

For people making important life decisions like buying a family home, there is little room for error. If a median house is (optimistically) worth 9 or 10 times your annual salary, and you have a deposit saved of 20%, the risk to your financial security of a shift in interest rates could be severe. It is because of that risk that I get the feeling that interest rates are not going to be rising anytime soon.

Published by Ernest Zanatta

Narrow minded Italian Catholic Conservative Peasant from Footscray.

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