The Death Spiral of the Modern Monetary System: Inefficient Debt

What is Modern Monetary Theory? In short, unlimited injection of credit currency into the market. That is to say, the so-called "printing money", although it is not printed and distributed for free, but on a macro level, it is only for keeping accounts and distributing money.

Since the global epidemic and economic crisis continued to ferment at the beginning of this year, economists' discussions on the advantages and disadvantages of modern monetary theory have entered a state of intense "century debate". Discussions in the crisis have a serious atmosphere of life and death, the most important of which is One of the biggest concerns is that inflation will sweep across the world's major economies under the continuous loose monetary policy, seriously threatening normal economic and market activities.

However, the global monetary easing policy has been implemented for several years, and the world's major economies have not yet seen obvious inflation measured by ordinary CPI, at least on paper. In response to this hot economic issue, Austin Rogers, a columnist on the famous investment analysis website seekingalpha.com, has written several articles to clarify his theory of "currency death spiral". "No inflation, and "non-inflation" or even "light deflation" is the real threat of a market crash. The reason is simple: real economic growth from increased lending has been increasingly sluggish, as Hoisington Investment Management's Quarterly Investment Analysis chart of macroeconomic data from the Bank for International Settlements (BIS) shows, as of the end of 2019, the world's major economies The GDP increase brought about by each dollar of credit release is already far less than $0.5:

From this, we can roughly think that the wealth created by new debts in an economic system will not be able to satisfy debt repayments in the short to medium term (within 1 to 2 years), and the modern monetary system stimulated by credit will inevitably fall into a quagmire and cannot extricate itself . The real reason why credit release cannot effectively stimulate economic growth is a more complex social problem. The mainstream economic circles are generally worried that central banks of various countries will continue to use cheap credit to support enterprises (or business models) that have failed in simple economic considerations due to political considerations. Cause zombie enterprises (only able to repay loan interest) to prevail:

Cheap credit has created a plethora of zombie firms: zombified but not dead. This means that the "money death spiral" will continue to envelop the current low interest rate and low inflation market, and trouble the real economy, but at the same time, this phenomenon has a negative effect on the market's "asset inflation" (low CPI, but higher prices of specific investment products). The concept provides a new perspective and deserves extensive attention from investors.

Chart sourced fromBusiness Insider, based on BIS data