If you’re not familiar with Modern Monetary Theory, or MMT, please read this first.
I am more convinced every day that MMT is coming to the U.S. And that the Federal Reserve will soon be funding our government deficits.
I’m not the only one who sees this coming. Bloomberg recently published an article titled “Economists Worry That MMT Is Winning the Argument in Washington.”
As I pointed out last week, the choices politicians have for paying off our debt are pretty simple…
- Raise taxes dramatically.
- Cut government spending 40% to 50%.
- Print money.
I believe they will choose to print money as the primary solution. And strangely enough, I think MMT will work for a while – possibly for as long as five years or so. Because there’s so much demand for dollars from overseas, we can probably print a lot of money without causing major inflation.
The problem is that MMT will eventually cause the dollar to lose value – and possibly even its status as the world’s reserve currency. Currently the dollar is used for the majority of all international transactions. You can really buy oil only with dollars, for example.
But if we start printing dollars to pay our bills, it should inevitably cause the dollar to lose value. Many other countries will likely follow suit. And the real currency wars will begin.
This is the world bitcoin was created for. It’s meant to be an alternative financial system in places where inflation is high due to irresponsible spending and money printing.
Of course, bitcoin is much more speculative and risky than precious metals (gold and silver), which should also do very well. But bitcoin has a lot more upside. The entire bitcoin market today is worth around $167 billion. Gold is worth around $8 trillion.
So I believe most investors should have exposure to both precious metals and bitcoin. Since bitcoin is so much riskier, your bitcoin portfolio allocation should be significantly smaller than your precious metals allocation.
Altcoins, at this point, are even more speculative and shouldn’t necessarily be seen as a hedge against inflation. Altcoins do, however, have incredible potential for appreciation. Eventually something will come along to challenge bitcoin, but there’s no telling when it will happen.