Edward Quince's Wisdom Bites: No Free Lunches

 

Modern Monetary Theory (MMT) offers a seductive idea: sovereign governments that issue their own currency cannot run out of money. Deficits don’t matter—until inflation does.

This is not entirely wrong. It is dangerously incomplete.

The Missing Constraint

MMT focuses on financial constraints while downplaying real constraints. Governments can print currency, but they cannot print labor, energy, or productive capacity. When spending outpaces those resources, inflation is the balancing mechanism.

You don’t get something for nothing. You get redistribution—usually from savers to debtors.

Fiscal Dominance

As deficits grow, fiscal policy begins to dominate monetary policy. Central banks lose freedom. Inflation becomes politically inconvenient, but austerity becomes impossible.

This is the environment investors must navigate.

The Lesson

You cannot print wealth—only claims on it. When claims grow faster than goods, currencies weaken. Investors should pay attention not just to central banks, but to legislatures.

XTOD

“Deficits are like putting a rock in a garden hose. The water (inflation) has to go somewhere eventually.”