MT-2 - Flow of Funds

The second in the planned series on Macro Trading MMT (MT for short.)

Sectoral Balances for Trading

Alan Longbon wrote an interesting article on SeekingAlpha which outlined his investment strategy, which is pretty simple and highly MMT informed.

“My investment approach is very simple. I find countries with the highest and strongest macro-fiscal flows and low levels of private debt and invest in them using country ETFs and contract for difference (CFDs)I use functional finance and sectoral flow analysis of the national accounts of the nations I invest in.”

He obviously doesn’t publish his returns, but you can easily imagine he could be often ahead of the market or the mythical 7%.

At MMT Macro Trader Douglas is going to get around to putting up a similar model on the Patreon page (or whatever platform he later migrates to permanently, to escape the Patreon.com hosting fees).

Proving MMT

My own interest is in building a model for Longbon’s CFD trades retrospectively, so not to make investments, but to track what one would have gained historically if one had been using the MMT informed strategy.

As I’ve written about elsewhere, this is not “proof of MMT” — but it is Bayesian style evidence in favour of the MMT principles:

1. Governments operating fiat currencies and floating exchange rates have no fiscal constraints (other than self-imposed).
2. They have real resource constraints.
3. Sectoral balances sum to zero (otherwise an accountant made a mistake).

What Alan’s strategy amounts to really is finding the governments who have the fewer self-imposed constraints, then estimating the relative strengths of the currencies. The CDF’s (contracts for difference) and ETFs (exchange traded funds) — some explainers here or here — are these days open for small retail investors. So there one has an opportunity to either make some decent investments for retirement, or provide empirical evidence in favour of MMT hypotheses as opposed to the Null Hypotheses like: “loanable funds is the operational reality.”

Again, let me repeat, as I’ve written elsewhere , you’re a bit dull if you think such evidence is needed to “prove MMT”, because MMT makes no claim on how funds markets will move, all you need to “prove MMT” is a look at the law of the land. Unfortunately that means reading legal Acts of parliaments, not time series charts.

How funds markets move can be deduced from the MMT principles, but only with a whole bunch of other assumptions. The “test” of MMT in this case is more convoluted, since those additional assumptions then also ned to be tested. Just curve fitting to data can be done with any old nonsense model (DSGE) provided with enough free parameters (order up your Ptolemaic epicycles).

The Case for New Zealand

I am also motivated to build the charts analogous to Longbon’s for New Zealand. Stay tuned. However, I’m not getting paid to do this, so don’t hold your breath. Instead, consider subscribing via KoFi subscription or at the MMT Macro Trader , where we’ll be posting updates on the research.

((We already know, from the Banking Acts and Public Finance Acts that New Zealand is an MMT monetary economy.))