Could the economy continue to grow even if we ran surpluses? The answer is yes. If the rich, say top 400 wealthiest Americans worth $2.5 Trillion decided to invest their money back onto the economy which could easily employ 5% of the population indefinitely! Labor force participation would be fixed almost overnight. Look at the impact the $1 trillion of oil Capex which stopped or postponed had on the Global economy. Now imagine the impact $2.5T would have in the US alone! Mind boggling. How likely is it that this would ever happen? Almost NIL!
The reason I am pointing this out, is because I want to clarify something as it pertains to MMT. I have said on many occasions that the budget deficit is too small for debt deflation era we live in to continue the growth. A lot of economic indicators reflect this view. BUT! Let me be very clear. I do not have a crystal ball to know precisely what the budget deficit is appropriate grow the economy and deficit or surplus level would shrink it. During the great credit expansion of the 80’s and 90’s we could run surpluses and the immediate affect to the economy was nonexistent. Historically less than -3.5% of GDP for any extended period of time have lead to recession. Will this time be different? I don’t know. I believe this time around due to the huge private debt bubble which is almost impossible to calculate and no Gov’t data is available (since they don’t even acknowledge it as a problem to begin with.) I have to assume a -3% deficit today, is the equivalent of a -1 or +1 surplus in the past when the private debt bubble was not an issue as it is today. I don’t know if I am correct or not. It is a bit like trying to locate a Quantum wave particle. Or looking for the presence of gravitational waves in the universe. I am trying to look for the bending of light to prove gravity is warping spacetime! Смайлик «tongue» or in MMT economic terms insufficient deficit, private money creation, investment spending to keep the growth going. Which assumes that the top 400 Americans will not ump their savings into the economy as a given.
Going through economic data one by one and see what the data tells me. Capacity utilization, Deficit to GDP, Deficit growth rate, Tax receipt growth rate etc.. as Biggies. Auto stabilizers which lag but growth rate changes may lead, like SNAP, Unemployment benefits needy families etc.. Chart patterns with all their faults, the inaccuracies greatly reduce the bigger the time frame you analyze. When I look at the S&P on a monthly chart I now see a 1,2,3,4,5 wave chart pattern, Instead of a 3 wave. Structures are either 3 or 5. (With certain moves as expansionary patterns such as the QQQ recently.) Which is why I have said recently we are in the final push higher in stocks. We are at wave 5 and not a 3 wave structure. does it have to get to the top of wave 5? No! in fact most wave 5 moves are the shortest and 3 are the longest.
In conclusion you should now have a clearer view into my mind as to why and how. How MMT applies, what are the economic data useful for, how charting applies. While it all may sound very confusing and overwhelming. It actually isn’t that bad, at least not to me. Смайлик «grin» There are very few tops in markets that most of us will see. It is important to try to better understand them by looking at repetitive patterns and allowing the data to tell you what is going on. Instead of guessing. X must equal Y otherwise it is useless!
Lastly I am not interested in reinventing MMT or examining the intricacy or rewriting the book on it. I am only concerned with what applies to investing.
Athor Jim Boukis