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Global bond rout deepens, Ukraine pressure rises, and cryptocurrencies rally.Selling A bad week for bonds, driven by surprisingly hawkish ce [View in browser]( [Bloomberg]( Global bond rout deepens, Ukraine pressure rises, and cryptocurrencies rally. Selling A bad week for bonds, driven by [surprisingly hawkish]( [central banks](, [strong U.S. data]( and continuing inflation fears, is showing little sign of turning around Monday. In Asia, Australian bonds dropped while the yield on Japan’s 10-year instrument hit the [highest level since early 2016](. European peripheral debt was the biggest loser in the region, particularly Greek and [Italian bonds](. Investors in the region will be keeping a close eye on European Central Bank President Christine Lagarde’s speech to the European Parliament later. With the U.S. 10-year yield closing in on 2%, it is Thursday’s CPI data for January that is likely to be the key figure as markets increasingly price in a 50 basis points Federal Reserve hike next month. Ukraine French President Emmanuel Macron is [heading to Moscow today]( for talks with Vladimir Putin in a bid to defuse tensions over Ukraine. The meeting comes as U.S. reinforcements arrive in Europe and Russian forces near the border with Ukraine [approach 130,000](.  German leader Olaf Scholz is in Washington today for [talks with President Joe Biden](, while European officials are also in the U.S. to try to [bolster gas supplies]( to the region in cash flow from the east is cut off. The Kremlin continues to deny it has [any plans to invade](, even as a U.S. intelligence assessment showed the country is [looking to manufacture an excuse]( to cross the border. Crypto After posting its [strongest gain in four months]( on Friday, Bitcoin is now around 30% above the [late-January lows](. The rise of as much as 3% this morning briefly put the largest cryptocurrency above [the 50-day moving average](, a key technical indicator, for the first time in two months. Ether and Solana also gained, but the biggest winners have been so-called memecoins, with Dogecoin rallying while Shiba Inu climbed more than 25%. Markets mixed While investor attention is firmly focused on the moves in the bond market, the signal from equities is a lot less clear. Overnight the MSCI Asia Pacific Index slipped 0.1% while Japan’s Topix index closed 0.2% lower. In Europe the Stoxx 600 Index was broadly unchanged at 5:50 a.m. Eastern Time with mining companies the best performers. S&P 500 futures pointed to a [small move lower at the open](, the 10-year Treasury yield was at 1.919%, oil slipped to [$91.17 a barrel]( and gold rose slightly. Coming up... It is a quiet start to the week on the economic data front with U.S. consumer credit numbers for December at 3:00 p.m. the only release of note. Christine Lagarde’s speech is at 10:45 a.m. In corporate news, Peloton Interactive Inc. is [soaring in premarket trading]( after reports that it’s exploring takeover options. Amgen Inc., Tyson Foods Inc., Take-Two Interactive Software Inc. and Hasbro Inc. are among the companies reporting results. What we've been reading Here's what caught our eye over the weekend. - Odd Lots: This is what happened to the [price of nails]( over the past 330 years. - How China’s communist officials became [venture capitalists](. - Critics of AstraZeneca vaccine “[probably killed hundreds of thousands](” Oxford scientist says. - Yellen says there is [too much unfinished business]( to think about leaving Treasury. - [Credit Suisse](, a coke-smuggling wrestler and stashes of cash. - Kim Jong Un’s [most hated rock](. - First ever [free-floating black hole]( found roaming through interstellar space. And finally, here’s what Joe’s interested in this morning This weekend, [Jeanna Smialek]( at the NYT [published a profile]( of the economist [Stephanie Kelton](, the foremost advocate of Modern Monetary Theory. The frame is that the pandemic policy response (aggressive fiscal expansion + low rates by the Fed) has been a vindication of MMT... except for, you know, the problem of 7% inflation. The question is really, is it fair to say that aggressive fiscal expansion has been successful, and that MMTers deserve theoretical credit, if we're now experiencing such high inflation? Anyway, the story is exploding across econ twitter, with folks like [Larry Summers aghast]( that the paper would even print any article on MMT, let alone one implying victory. In his tweet, he compared MMT to fad diets, quack cancer cures, and creationism. Other orthodox economists basically had the same reaction. MMT economist Jonathan Parker [likened MMT to flat-earth economics](. Anyway, here are some scattered thoughts: -- A big point of MMT is to change the public debate about government spending and fiscal sustainability. All the tropes about "how are we going to pay for it?" and "what if the bond vigilantes start pushing back?" or "what if China dumps our Treasuries?" are nonsense questions in the MMT view. Instead of thinking about traditional credit constraints on borrowers, MMT aims to focus on real resource constraints. -- In other words, the MMT view is that the U.S. could theoretically afford to buy everyone in the country a Tesla. The money is not the issue. The issue is that there's only so much Tesla manufacturing capacity. Or the U.S. could theoretically afford to give everyone another $2000 check. But a problem might arise if everyone spend that money on manufactured goods from China, and we ran into a shortage of port capacity. For years, prior to the pandemic, Kelton et. al. have been talking about [identifying specific bottlenecks that are constraining growth](. -- The pandemic has seen an extraordinary boom in government spending, meanwhile, interest rates have hardly gone anywhere. The 10-year yield is less than 2%. On the real side, [we've seen a historically fast labor market recovery]( that basically puts all other labor market recoveries in the dust. As such, MMT can claim vindication that the U.S. is capable of running gigantic deficits, without pushback from vigilantes or anything like that. And that fiscal expansion is incredibly powerful. -- Orthodox economists will argue (perhaps fairly) that all of their models say to spend a lot in a downturn too. So what's so special about MMT? Part of it is, again, that MMT's goal is to change the public language about spending. So that national debt clocks lose their valence. So that when the crisis hits, the "how will we pay for it?"-crowd isn't taken so seriously. After all, theory is nice, but what matters for stimulus is getting the votes. You need actual YES votes in Congress to enact spending, and the politics of deficits and debt changes over time. Post-GFC we got a very slow recovery, in part because of deficit fears, which resulted in a tiny stimulus by Obama, and the Tea Party wave, which brought us the sequester. -- As for the inflation that we've seen, a few things. For all the vindication of certain broad stroke MMT ideas, it's not as though the policies that were enacted were enacted by them specifically. MMTers haven't been part of the Trump or Biden White House. But even if they were more involved, it seems highly unlikely that any policy enacted during an emergency would get it just right, managing to nail the exact right amount of spending (directed in exactly the right way) such that it maintained employment, and restored private sector balance sheets, without leading to constraints and bottlenecks elsewhere. Furthermore, we're still in a pandemic, and there are still acute issues (notably related to chips etc.), which can't easily be tied to say an extra $1400 check or really any other demand-side policy. -- The story that a lot of people are telling right now is that "we tried MMT" got a lot of inflation, and so therefore it failed. But this is problematic on multiple levels. For one, it ignores the incredibly fast labor market recovery (or seems to imply that the labor market recovery was always inevitable, but that the inflation wasn't). But more importantly, a lot of the inflation we're seeing can be attributed to mediocre growth post-GFC. We're experiencing shortages for various parts of homes (garage doors, windows, lumber) in part because we let capacity for all of those things atrophy after the housing bust. A lot of lumber mills went bust after we let the economy collapse. The ideal MMT solution would be, in part, to never have had that horrible post-GFC growth in the first place, so that we didn't lose supply side capacity in those key areas. Now of course we can't go back in time to change policies. There's no time machine. But in some sense, we're now paying the price -- not for fiscal expansion in 2020 and 2021 -- but for fiscal timidity post-GFC that allowed the economy to be so languid for so long, such that we found ourselves with no capacity for a period of rapid growth. The lesson of the last two years is that fiscal firepower is extremely powerful. It can stop a recession in its tracks, revive growth, and boost employment. It's also clear that there's no financial constraint on the spending. There were no bond vigilantes or anything like that, despite the deficit and debt going to historical levels. Where the rubber has hit the road, a big chunk of the inflation can be attributed not to deficits, per se, but to specific constraints (a lot of which has to do with transportation, which affects everything). Some have criticized MMTers for being too blase about the current inflation, and not advocating tax hikes or spending cuts. However it's worth noting that the even the Federal Reserve (no bastion of heterodoxy) is basically of the view that the current inflation is related to the pandemic, which should normalize over time. MMTers could, perhaps, be forgiven for looking at multiple decades of mediocre labor markets, and a hollowing out of supply side capacity, and not wanting to slam the brakes after six months of elevated CPI in the face of an ongoing pandemic. Follow Bloomberg's Joe Weisenthal on Twitter [@TheStalwart]( Like Bloomberg's Five Things? [Subscribe for unlimited access]( to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. Follow Us Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. You received this message because you are subscribed to Bloomberg's Five Things - Americas newsletter. If a friend forwarded you this message, [sign up here]( to get it in your inbox. [Unsubscribe]( [Bloomberg.com]( [Contact Us]( Bloomberg L.P. 731 Lexington Avenue, New York, NY 10022 [Ads Powered By Liveintent]( [Ad Choices](