Modern Monetary Theory Breaking, Paper Currencies Might Follow

Modern Monetary Theory Breaking, Paper Currencies Might Follow. By Tyler Durden.

Deutsche Bank’s head of FX George Saravelos came the closest of any establishment banker to warn what we have been saying for years — the great MMT experiment is ending, and its unwind will begin in Japan, that “Guniea Pig” for all major central bank experiments (first ZIRP, first QE, first ZIRP, first central bank buying of ETFs, etc). …

He worries that “the currency and Japanese financial markets are in the process of losing any sort of fundamental-based valuation anchor” adding that “the more global inflation picks up, the more the BoJ prints. …”

BlueBay Asset Management — one of the world’s biggest hedge funds — [is gearing] up to become this generation’s George Soros caught in a crushing battle with the Bank of England Bank of Japan. As the BOJ escalates attempts to keep a lid on bond yields [at a very low 0.25%], BlueBay is betting that … the central bank will be forced to abandon a policy that’s increasingly out of sync with global peers.

At some point the BOJ will pull a BOE, or SNB, and will decide that waste billions more to defend a largely arbitrary level is not worth it, at which point Japanese yields will spike higher… only instead of stopping at the next barrier, they will continue rising higher and higher, as traders from around the globe pile on in what may be the biggest central bank failure of the 21st century.

Of course, it won’t be the last, because the inevitable loss by the BOJ will also be a loss for the idiotic economic theory behind much of modern economics, MMT. And when that too is discredited, all bets are off as the entire fiat financial system becomes unglued.

All this will happen … but not just yet.

For a bit over three centuries now, the finance system has been creating more and more debt and money out of thin air. The Tulip bubble was one of the first in the modern series. The banking system has to expand (got to pay back borrowed money with interest) or it dies. We are close to the banking crescendo now, where the game just cannot go on any longer. Pass the parcel is ending … and our generation has the parcel.