Is a Big Jump in Federal Spending Now Inevitable? — Michael Rainey

Barry Ritholtz, a Bloomberg columnist who runs an eponymous wealth management firm in New York, published a piece in Bloomberg Businessweek Tuesday that describes the most recent session of “Camp Kotok,” an informal, wine-fueled gathering of bankers, analysts and investors that occurs each summer in Maine.

The focus of this year’s meeting was the Federal Reserve’s struggle to deal with a slowing economy against a background of low inflation, plunging interest rates, a burgeoning trade war and a president who has sought to undermine the bank’s independence, Ritholtz writes.

At a debate led by analyst Jim Bianco of Bianco Research, the group focused on a controversial but increasingly prominent approach to federal spending known as Modern Monetary Theory, or MMT, which holds that the government should spend as necessary to move the economy toward full employment without worrying about growing deficits, as long as inflation remains low.

Given the weak hand the Fed is currently playing, with little room to cut interest rates and a lack of policy tools to deal with trade conflict, the participants largely agreed that policymakers will at some point in the not too distance future pick up the tools recommended by supporters of Modern Monetary Theory:

“The surprising consensus was that whether it comes from the political Left or Right, MMT is inevitable,” Ritholtz writes. “Expect future infrastructure projects, Medicare for all, and/or tax cuts to be funded by bonds authorized by Congress, issued by the Treasury, and purchased by the Federal Reserve." ...

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The Fiscal Times
Is a Big Jump in Federal Spending Now Inevitable?

Michael Rainey