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Matthew Lynn – Europe’s radical monetary experiment

Summary:
As the eurozone’s economy sinks, the European Central Bank is thinking big. That’s worrying, says Matthew Lynn. Europe is in a pickle and has run out of ideas, so it might be tempted to give MMT a try, but some European countries are not happy that Germany will be the main benefactor again. Will MMT go mainstream? The ECB can’t cut interest rates any more and it has already bought up almost all the bonds it is allowed to. If it wants to go any further then it needs to come up with something different. The outgoing president of the ECB, Mario Draghi, last week spoke approvingly of “modern monetary theory”, the economic theory that the government can take on almost unlimited debt financed by the central bank so long as inflation isn’t a problem, then use that money to finance its

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As the eurozone’s economy sinks, the European Central Bank is thinking big. That’s worrying, says Matthew Lynn.


Europe is in a pickle and has run out of ideas, so it might be tempted to give MMT a try, but some European countries are not happy that Germany will be the main benefactor again.

Will MMT go mainstream?

The ECB can’t cut interest rates any more and it has already bought up almost all the bonds it is allowed to. If it wants to go any further then it needs to come up with something different. The outgoing president of the ECB, Mario Draghi, last week spoke approvingly of “modern monetary theory”, the economic theory that the government can take on almost unlimited debt financed by the central bank so long as inflation isn’t a problem, then use that money to finance its spending.

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Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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