As widely noted the fiscal deficit is over $1 trillion for the first time since the financial crisis. The total debt is in excess of $22 trillion and the markets are suggesting that such amounts are not of any significance.

All are convinced of the Federal Reserve’s inflation fighting prowess as the 10 year is yielding around 1.80% down from about 3.25% last year.

Are the markets wrong believing exponentially growing debt levels do not pose any danger to the economy?

Several leading Democratic presidential candidates are advocating even greater spending to pay for progressive ideas such as the Green New Deal and Medicare For All under the dubious philosophy of Modern Monetary Theory (MMT).

MMT theorists believe governments can spend exponentially as long they are borrowing in their own currency. In other words the government can print money to pay for aggressive social legislation and such will not cause inflation or have any major negative economic effect.

MMTs are relying upon the direction of interest rates of the last 10 years to partially support their argument.

MMTs were largely disregarded and were in the far monetary fringe until nine months ago and the change of power in the House.  Today advocates have been invited to testify to Congress about MMT. In a pre-hearing report, the Democratic majority on the Committee stated “interest rates have steadily declined to record lows even as the debt has soared to record highs, thus suggesting further borrowings could be utilized to fund various programs without any ill effects.”

Wow! This is scary.

There are ample examples of the economic disasters of an over leveraged state [and businesses/industries].   Perhaps the most infamous example was the Weimar Republic which literally printed money to pay WWI reparations. As all know reparations was a primary cause of the rise of Hitler and WWII.

Changing topics, as noted above equity markets were quiet amid conflicting signals about the outlook for trade. Oil gained another 3% on supply concerns closing at a 2 month high. Treasuries were down about a point.

Last night the foreign markets were up.  London was up 1.18%, Paris up 0.33% and Frankfurt up 0.21% China was down 0.63%, Japan up 0.32% and Hang Sang up 0.48%.

The Dow should open nominally higher as trade is still dominating the headlines. The 10-year is up 5/32 ot yield 1.75%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.