A closer look Debt Dynamics and Modern Monetary Theory in a Post COVID-19 World

Jun 03, 2020
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In Brief

  • U.S. and other developed economy debt levels are elevated relative to history, sparking questions over the sustainability of the debt and governments’ ability to continue spending to combat the economic impact of the novel coronavirus.
  • The U.S. post-crisis experience has the potential to differ from that of Japan’s after the 1990s banking crisis as a result of markedly different banking systems.
  • A post World War II style deleveraging in the U.S. seems less likely given growth dynamics; current labor, capital, productivity, and spending trends are obstacles to such a swift deleveraging.
  • Unprecedented fiscal and monetary support in the wake of COVID-19 creates many questions about how governments can finance large spending programs over longer time horizons.
  • While the coordinated fiscal and monetary response to the crisis includes aspects of Modern Monetary Theory (MMT), a full implementation remains unlikely. However, a review of the theory can be instructive in thinking about these issues and possible policy responses.


About the Author

JP Coviello
Senior Investment Strategist
In this role, JP is responsible for performing in-depth macroeconomic research and financial market analysis as well as delivering customized asset allocation and investment recommendations to clients..

Peter Hayward
Assistant Portfolio Manager
In this role, Peter leverages the firm’s best thinking and works collaboratively with a team of highly experienced analysts to manage our taxable fixed income portfolios.