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Modern Monetary Theory could cause one big problem for financial markets

Modern Monetary Theory could cause one big problem for financial markets
Jacquelyn Martin/AP



Modern Monetary Theory has come back into the spotlight in recent months.




Opponents argue it could spark hyperinflation and disrupt financial markets.




For markets, it could have negative effects on long-term rates and credit spreads.




You can probably guess how markets would react if the government suddenly decided to just print money to fund its projects.
Modern Monetary Theory seems to say countries that control their own currency don't need to rely on taxes or borrowing in order to spend. The main concern among opponents, however, is that too much money in an economy causes hyperinflation.
For financial markets, that could mean serious consequences for long-term rates and credit spreads. If there are concerns about the value of a currency, investors ditch bonds. And this would eventually pull dollars out of risky assets, according to Torsten Sløk, chief international economist at Deutsche Bank.
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