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Jeffrey Gundlach: Modern Monetary Theory is a Crackpot Idea!

The popular Modern Monetary Theory supported by progressives has been called a crackpot idea by Jeffrey Gundlach, Chief Executive at DoubleLine Capital. Gundlach oversees over $123 billion and is also referred to as Wall Street’s Bond King. On a webcast program on Wednesday, Gundlach said that the Modern Monetary Theory is a way to justify a large socialist program and that it is complete nonsense.

Modern Monetary Theory supporters argue that government spending, and if required, deficits need to be used to meet the inflation and full employment mandates that are at present the U.S. Federal Reserve’s job. They believe that taxes are not required to support the spending as the government has that ability to create more money.

The Modern Monetary Theory has gained traction among several economists as well as Democratic Party politicians. However, it has also met with heavy criticism.

Stephanie Kelton, an economics professor at the State University of New York, is a leading supporter of the Modern Monetary Theory. She also advised U.S. Senator Bernie Sanders during his run for the Democratic presidential nomination in 2016.

During the webcast, Gundlach mentioned that the Modern Monetary theory is a ridiculous method to monetize debt and will cause a boycott of long term bonds. In case the United States enters a recession next year, before the next presidential election, there is a high chance the ideas could gain momentum.

With the liberals asking for a raise in taxes on the rich and an increase in spending more in order to encourage economic equality, many voters have been struck by populist discontent in the United States.

The emergence of the college bribery scandal has reinforced the populist narrative according to Gundlach. Dozens of people were arrested on Tuesday for their part in the $25 million scheme to help rich Americans get their kids into elite universities like Stanford and Yale. Several leading celebrities like Lori Loughlin and Felicity Huffman have also been charged with taking part in the scheme.

According to Gundlach, the recent college bribery scandal has brought down the reputation of the world of finance with people trying to turn the table in their favor.  He also said that the scandal helps the Elizabeth Warren crowd.

When talking about the run-up in the U.S. stock market, Gundlach mentioned that he considers the stocks to be in a bear market. He also predicted the stocks to go negative again in 2019.

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