BlackRock CEO Larry Fink Says Modern Monetary Theory Is ‘Garbage’

(Bloomberg) -- BlackRock Chief Executive Officer Larry Fink said he's not a proponent of modern monetary theory.

“That's garbage,” Fink said in an interview with Erik Schatzker on Bloomberg Television Thursday. “I'm a big believer that deficits do matter. I'm a big believer that deficits are going to be driving interest rates much higher and it could drive them to an unsustainable level. ”

MMT economists argue that because the U.S. borrows in its own currency, it can print dollars to cover its obligations, and can't go broke. The theory has won converts among freshman Democrats like Alexandria Ocasio-Cortez as a way to finance such social policies as the Green New Deal and Medicare For All.

The U.S. deficit is on course to top $1 trillion in the coming years, according to the Congressional Budget Office. Last week, Federal Reserve Chair Jerome Powell described that school of thought as “wrong,” while economists like Larry Summers and Paul Krugman have also denounced it.

But not everyone is so dismissive: Paul McCulley, former chief economist at Pacific Investment Management Co., says that he has a lot of sympathy for the doctrine although he's “not a card-carrying MMTer.”

Read more about McCulley's view on MMT here.

Fink said, “the theory is that until we see deficits harm that will tell us deficits are too high. To me, as a parent, that's like watching your children have bad behavior and you just watch and watch and watch until that behavior becomes monumental. I think that's not a good approach.”

On Europe

In Europe, structural issues are rising to the top again, he said.

“We don't have an organized European response and so the only game in town again is still the central bank,” said Fink. “I believe we need a crisis in Europe to really fix Europe.”

Part of the public response should be Germany doing more fiscal spending, said Fink, who runs the world's largest asset manager. He recommended German policy makers take advantage of the coming electrification of the nation's car industry to increase fiscal spending on their cities and roads.

“This is an ideal time for fiscal spending in Germany,” he said.

Other comments from Fink in the interview include:

• We're in a “Goldilocks moment” for global economies. It's not so bad or so good.
• If there's a comprehensive trade agreement with China, that may reduce China's need to buy Treasuries. "This is going to be a big issue," he said.
• Rising populism continues to be a concern and there's a need to create more "inclusive capitalism."

To contact the reporter on this story: Margaret Collins in New York at mcollins45@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Alan Mirabella, Shelley Robinson

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