Markets

Jeffrey Gundlach says the theory of unlimited deficit spending is a 'crackpot idea'

Key Points
  • The founder and CEO of Doubleline Capital said the increasingly economic popular theory backed by progressives is a "crackpot idea" and 'complete nonsense."
  • The notion behind Modern Monetary Theory is that as long as the Federal Reserve can keep interest rates low without sparking inflation, the national debt and budget deficit won't be an issue.
Jeffrey Gundlach
Adam Jeffery | CNBC

The so-called bond king Jeffrey Gundlach is not shy when it come to rebuking the increasingly popular theory backed by progressives — the Modern Monetary Theory.

"MMT is a crackpot idea... sounds good for a first grader," the founder and chief executive officer of Doubleline Capital said in an investor webcast on Tuesday. He said the theory is "complete nonsense" being used to justify a socialist program.

The notion behind MMT is that as long as the Federal Reserve can keep interest rates low without sparking inflation, the national debt and budget deficit won't be an issue. MMT has been espoused by politicians including Rep. Alexandria Ocasio-Cortez, D-N.Y., and Democratic presidential candidate Sen. Bernie Sanders of Vermont.

Gundlach added that the "ridiculous" MMT is a way of monetizing and could lead to "a significant boycott of long-term bonds"

Fed Chairman Jerome Powell recently said the economic theory is unworkable.

"The idea that deficits don't matter for countries that can borrow in their own currency I think is just wrong," Powell said during congressional testimony in the Senate.

Modern Monetary Theory explained by Stephanie Kelton
VIDEO9:1009:10
Modern Monetary Theory explained by Stephanie Kelton