Icahn Rips MMT, Warns It Could Lead to an ‘Inflationary Spiral’

(Bloomberg) -- Billionaire Carl Icahn says inflation could revive and spin out of control if policy makers were to embrace modern monetary theory.

Icahn, a former special adviser to President Donald Trump, is the latest financial heavyweight to denounce the progressive economic doctrine that's drawn attention from Washington to Wall Street.

MMT argues that a country printing its own currency, such as the U.S., can't go broke and has room to run larger budget deficits so long as prices are subdued. The idea has backing among Democrats like Representative Alexandria Ocasio-Cortez, who's floated it as a way to pay for a Green New Deal.

“You can print money up to a point, but after that point, it could become very dangerous,” Icahn, 83, said in an interview. “We don't want to hit a wall that you can't recover from. Once you get into an inflationary spiral, it's very difficult to get out of it -- and therein lies the danger.”

Icahn told CNBC three years ago that obsession with the budget deficit was ridiculous, and that America's status as issuer of the global reserve currency helped alleviate some concerns over the shortfall.

His latest comments on MMT echo those of fellow investor Warren Buffett, who said this year he's not a fan of the doctrine because it could lead to spiraling inflation. Dozens of policy makers and financial leaders have criticized the previously obscure theory in recent months, including Federal Reserve Chairman Jerome Powell and International Monetary Fund chief Christine Lagarde.

At the same time, there's growing support among economists for the idea that reducing U.S. budget deficits isn't an urgent priority at a time of low inflation and interest rates. Olivier Blanchard, the former IMF chief economist, has suggested that the money could be spent on environmental measures. Legendary bond investor Bill Gross said the U.S. could easily double its deficit.

The budget gap has widened under the Trump Administration, which cut taxes and boosted military spending, while outlays on interest payments and social protections are also climbing. It's forecast to reach $1.1 trillion in 2022, according to the Congressional Budget Office. That's equivalent to 4.7 percent of gross domestic product, compared with an average of 2.9 percent over the past half-century.

--With assistance from Miles Weiss.

To contact the reporter on this story: Katia Dmitrieva in Washington at edmitrieva1@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Ben Holland, Margaret Collins

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