Economist: This Alexandria Ocasio-Cortez backed theory can become a 'major problem'
Former Chase Chief Economist Anthony Chan on the pitfalls of Modern Monetary Theory, the state of the economy and how investors should handle this market environment.
Modern Monetary Theory (MMT) may be popular in Europe, but one economist hopes it never makes its way to the U.S.
“You look at Italy with over 130% debt to GDP. You look at Lebanon 150% -- even us -- we're at about 103% and in fact academic studies show that whenever that debt to GDP ratio is over 90% -- guess what? It slows down economic growth,” former JPMorgan economist Anthony Chan told FOX Business’ Stuart Varney on Tuesday.
The economic line of thinking argues that debt doesn’t matter and a country that prints its own money can never go bankrupt. However, Chan had a very different explanation.
“Their argument is it doesn't matter as long as the interest rate is below the inflation rate. But over time what happens when that debt to GDP ratio just gets out of control-- over 90%, over 120%, 130% -- it becomes a major problem and then you can't do anything about it but just accept reality,” he explained.
The concept has also been gaining support among some high-profile Democrats.
New York Congresswoman Alexandria Ocasio Cortez, earlier this year, told Business Insider that the theory “absolutely” needs to be “a larger part of our conversation.”
And one of its leading proponents, Prof. Stephanie Kelton who wrote "The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy," also advised Sen. Bernie Sanders' 2016 campaign.