As most loyal EVA readers know, for the 15 years of this newsletter’s existence, I’ve been a believer in, and forecaster of, subdued inflation. In fact, I’ve often written that for nearly all of my 42-year career I’ve felt that inflation would stay low, despite some intermittent flare-ups late in economic expansions.
Nearly two years after the US launched an investigation into Chinese trade policies, it seems as if the battle for pole position of the global economy has reached an inflection point. Aside from the tariffs, the threats of tariffs and, yes, the threats of even more tariffs, that have continued back-and-forth between the two countries like a painfully long ping-pong match, the Trump administration upped the ante last Friday by blacklisting Huawei. As a result, US chipmakers, including Intel, Qualcomm, Xilinx and Broadcom, have suspended supplying Huawei with semiconductors – a devastating blow to the Chinese telco.
It’s hard to believe that as recently as February, when I first brought up the concept of a new economic model that was poised to radically alter the world we’re living in, MMT was as obscure as an extra in an old Cecil B. DeMille bible film. Yet, a mere two months later, you have to try extremely hard to ignore Modern Monetary Theory and its swelling number of disciples.
John Maynard Keynes, an English economist and author, has been held in high esteem for several decades thanks to his groundbreaking work in economics in the early 20th century. The theory he popularized in an attempt to better understand the Great Depression, aptly named Keynesian theory, revolutionized demand-side economic policy at the time.
Towards the tail-end of July, the Commerce Department reported that Gross Domestic Product (also known as GDP), or the total value of goods and services produced in the US, increased at an annual pace of 4.1% in this year’s second quarter. As expected, President Trump took a victory lap around these numbers, which were the highest GDP growth results since 2014. (However, lost in the fanfare was the fact that the first quarter GDP number was revised down from 2.9% to 2.3%.)