Top bond investor Jeffrey Gundlach, the CEO of $150 billion DoubleLine Capital, slammed Modern Monetary Theory (MMT), a hot topic as federal deficit spending climbs with no end in sight.
The trendy economic theory is centered around the idea that the federal government can effectively print money without regard for balancing spending and taxes, and has been embraced by populist politicians like U.S. Rep. Alexandria Ocasio-Cortez (D-NY).
Yet in a Yahoo Finance interview, Gundlach dismissed MMT as "ridiculous," "highly illogical," and "pretzel logic on steroids." Calling out its “false appeal,” the billionaire hit out at the idea of politicians who think the government can print money ad infinitem.
"It just says, 'Hey, if you're borrowing your own currency, you can just have infinite amounts of money,” Gundlach said in a recent wide-ranging conversation with Yahoo Finance.
"Basically, what they're doing is they're saying, 'As long as the interest rate is below the growth of the economy, then everything's fine. And, so it's OK to have basically tons of debt as long as the economic growth is there, and so on,'" the billionaire explained.
Gundlach isn’t the only one speaking out against MMT. Fellow billionaire investor Paul Tudor Jones has also criticized the theory, as have mainstream Democrats like former Treasury Secretary Larry Summers — who in a recent Washington Post Op-Ed called it “a recipe for disaster.”
‘It makes your brain hurt’
Gundlach, who has sounded the alarm on the debt bomb America is sitting on, pointed out that the idea behind MMT is flawed.
The idea that the government can borrow infinite amounts of money because gross domestic product (GDP) has been growing is "meaningless" — because no one knows what economic growth will look like in the future, he explained.
“When you issue all the bonds for 10 or 30 years, that's a fixed interest rate. So the fact that interest rate is lower than the growth of the economy — that sounds pretty good — but what happens if the growth of the economy turns negative?” he asked.
“Well, then MMT gets blown out of the water” once growth falters, he added.
Gundlach admitted to watching videos of folks who are big proponents of MMT, and he can see how people get sucked into the idea.
"[It] just makes your brain hurt to watch these videos, because they use these bizarre analogies that actually the government is not borrowing money, they're investing in the economy, is kind of the way they try to turn it,” the billionaire told Yahoo Finance.
“And when you watch it, you can actually get kind of sucked into the logic. And then you kind of suddenly get a big — a cold bucket of water drops on your head,” he added.
“And you go like, 'This is just pretzel logic taken to — pretzel logic on steroids really.' So MMT is just completely nonsensical,” Gundlach stated.
Julia La Roche is a Correspondent at Yahoo Finance. Follow her on Twitter.
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