Pimco Sees MMT Rise Signaling ‘Paradigm Shift’ to Fiscal Policy

(Bloomberg) -- The rise of Modern Monetary Theory signals the increasing popularity of using government fiscal tools to stimulate growth, according to Pacific Investment Management Co.

“The recent prominence of MMT in the public debate is symptomatic of a broader paradigm shift away from discussions of fiscal austerity to a new mainstream view that fiscal policy should become a more active tool to stimulate growth, counter the global savings glut and address rising income and wealth inequality,” Joachim Fels and Andrew Balls wrote in an economic outlook released Thursday.

Pimco acknowledged that critics of the controversial theory say it’s “neither Modern, nor Monetary nor a Theory.” One participant at the latest quarterly forum of Pimco’s money managers and global advisory board quipped, “What is correct in this doctrine is not new, and what is new in it is not correct,” Fels and Balls wrote.

Finance executives who have criticized MMT include DoubleLine Capital’s Jeffrey Gundlach and BlackRock Inc.’s Larry Fink.

Previously: How Modern Monetary Theory Lets Politicians Think Big

The firm also said:

• Favored assets include mortgage-backed securities, inflation-protected securities and high-yielding emerging-market currencies
• Investors should be cautious on corporate credit and sovereign bonds from Italy and the U.K.
• The Fed is unlikely to raise or lower rates this year as inflation remains tame and economic growth appears to be cooling

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