Will We Get Quantitative Easing for the Banks or for the People?
Last week’s “Behind the Markets” podcast focused on hot topics among economists with guests Samuel Rines, chief economist at Avalon Advisors, and Danielle DiMartino Booth, CEO of Quill Intelligence, an economic consulting firm that produces daily economic commentary and longer-form strategy pieces.
I attended Camp Kotok in Maine with Rines and DiMartino Booth, and many conversations there focused on how permanent the current low bond yields are and whether the answer to our economic woes will be a form of modern monetary theory (MMT), also affectionately known as “government spending from the magic money tree.”
Rines’s world view is that MMT is inevitable, and not because all economists agree this is a wonderful policy but because the outcomes of MMT are politically expedient. Rines believes the Trump wing of the Republican party can get behind MMT as well as Elizabeth Warren and her supporters in the Democratic party.
MMT means ramping up government spending, whether for eliminating student debt, putting health care for all in place or spending on science and innovation with a space trip to Mars. The early debates for the 2020 presidential election showcase this type of expansion of spending programs.
MMT starts with the premise that the treasury and central Bank are a single entity that funds the government, and the government can fund various projects by setting interest rate and issuing as much debt as it can without sparking inflation. If inflation rises, the government can raise taxes to curtail spending and offset it.
Many of the global central banks are likely to ramp up stimulus in the coming weeks. The latest reports from European Central Bank (ECB) officials are that this will unleash “bazooka-like” measures to surpass market expectations at the upcoming ECB meeting.
DiMartino Booth expects President Trump not just to tweet asking for further interest rate cuts from the Federal Reserve (Fed) but that we must also restart quantitative easing (QE) in the U.S. as well.
DiMartino Booth sees calls for more QE as kryptonite for the Fed, as that will be the moment when proponents of MMT will begin to say, “the Fed wants to bail out the banking industry with more QE. We don’t need QE for the banks; we need QE for the people.”
This was just a small sample of the great conversations we had with DiMartino Booth and Rines. To hear more about what MMT discussions are all about and how they might come to the U.S., please listen below.
Jeremy Schwartz has served as our Global Chief Investment Officer since November 2021 and leads WisdomTree’s investment strategy team in the construction of WisdomTree’s equity Indexes, quantitative active strategies and multi-asset Model Portfolios. Jeremy joined WisdomTree in May 2005 as a Senior Analyst, adding Deputy Director of Research to his responsibilities in February 2007. He served as Director of Research from October 2008 to October 2018 and as Global Head of Research from November 2018 to November 2021. Before joining WisdomTree, he was a head research assistant for Professor Jeremy Siegel and, in 2022, became his co-author on the sixth edition of the book Stocks for the Long Run. Jeremy is also co-author of the Financial Analysts Journal paper “What Happened to the Original Stocks in the S&P 500?” He received his B.S. in economics from The Wharton School of the University of Pennsylvania and hosts the Wharton Business Radio program Behind the Markets on SiriusXM 132. Jeremy is a member of the CFA Society of Philadelphia.