Summary of Market Macro Myths

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Notable “sound finance” proponents such as Warren Buffett, Angela Merkel and Barack Obama argue that a balanced government budget and economic health go hand-in-hand. Adherents to a philosophy known as “functional finance,” on the other hand, believe that governments should tailor policy to foster price stabilization and full employment. With that latter viewpoint in mind, investment expert James Montier deconstructs and demolishes some well-worn “myths” about fiscal policy in this engaging, thought-provoking article. getAbstract recommends his paper to anyone interested in a nontraditional view of fiscal and economic policy.

About the Author

James Montier is on GMO’s asset allocation team and has written several books on investing.



“Functional finance” advocates for government policy that enables full employment and price stability in an economy. It debunks “five fiscal fallacies” that balanced-budgets supporters hold:

  • “Myth 1: Governments are like households” – The accumulation of excessive debt in the private sector is unsound because asset bubbles can occur. But the same is not true of government debt. “Monetarily sovereign” countries such as the United States, the United Kingdom and Japan “issue their own currencies, have floating exchange rates and issue debt in their own currency.” Thus, members of the euro zone are...

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