An MMT View of “Twin Deficits”: Budget and Current Account Deficits

Originally published at New Economic Perspectives

Invited Presentation by L. Randall Wray at the UBS European Conference, London, Tuesday 13 November 2018

Q: These questions about deficits are usually cast as problems to be solved. You come from a different way of framing the issue, often referred to as MMT, which—at the risk of oversimplifying—says that we worry far too much about debt issuance. Can you help us understand where fears may be misplaced?

Wray: First let me say that I think the twin deficits argument is based on flawed logic.

It runs something like this: the government decides to spend too much, causing a budget deficit that competes with private borrowers, driving interest rates up. That appreciates the currency and causes a trade deficit.

The budget and trade deficits are unsustainable as both the private sector and the government sector rely on the supply of dollars lent by foreigners. At some point the Chinese and others will demand payment and/or sell out of dollars causing US rates to rise and the dollar to crash.

While that’s a simplified summary, I think it captures the main arguments.

Here’s the way I see it:

  1. Overnight rates are set by the central bank; deficits raise them only if the central bank reacts to deficits by raising them.
  2. Budget deficits result in net credits to bank reserves and hence put downward (not upward) pressure on overnight rates that is relieved by bond sales by the Fed and Treasury—or by paying interest on reserves. In other words, there’s no crowding out effect on rates. (Inaction lets rates fall.)
  3. Budget deficits result from the nongovernment sector’s desire to net save government liabilities. So long as the nongovernment sector wants to net save government debt, the deficit is sustainable.
  4. Current account deficits result from the ROW’s desire to net save US dollar assets. So long as the ROW wants to accumulate dollars, the US trade deficit is sustainable. So there is a symmetry to the two deficits, but not the one usually supposed.
  5. The US government does not borrow dollars from China. China’s net exports lead to accumulation of dollar reserves that are exchanged for higher earning Treasuries. If China did not run current account surpluses, she would not accumulate many Treasuries. All the dollars China has came from the US.
  6. If the US did not run current account deficits, the Chinese and other foreigners would not accumulate many Treasuries. This shows that accumulation of Treasuries abroad has more to do with the trade deficit than with Uncle Sam’s borrowing. (Compare the US with Japan—where virtually all the treasuries are held domestically.)
  7. A sovereign government cannot run out of its own liabilities. All modern governments make and receive payments through their central banks. Government spending takes the form of a credit by the central bank to a private bank’s reserves, and a credit by the receiving bank to the account of the recipient. You cannot run out of balance sheet entries.
  8. Affordability is not the question. The problem with too much government spending is that it diverts too many of the nation’s resources to the public sector—which causes inflation and leaves the private sector with too few resources.
  9. So, no, I don’t worry about sovereign government debt if it is issued in domestic currency—although I do worry about inflation and as well about excessive private sector debt as well as nonsovereign government debt.
  10. To conclude: We’ve reversed the twin deficit logic and emphasized quantity adjustments. The twin deficits are the residuals that accommodate the desired net saving of the domestic private sector and the ROW, respectively.
  11. Usually the domestic non-government sectors want to accumulate dollars so the only sector left to inject dollars is the US government. This means Uncle Sam runs a deficit because others want to accumulate dollars. The government also accommodates the portfolio desires of the non- government by swapping dollar reserves and bonds on demand.
  12. Finally if the ROW does not want dollars anymore, it can buy goods and services in the US. That will reduce the external deficit, stimulate domestic demand, and thereby reduce the fiscal deficit.
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  1. The Rev Kev

    “12. Finally if the ROW does not want dollars anymore, it can buy goods and services in the US.”

    I think that I am missing something here. If the ROW wanted to buy goods and services in the US, wouldn’t they need to accumulate dollars to pay for it first?

    1. jsn

      Yes, that is correct and the ROW has already accumulated those dollars, we call The process of its accumulation “the trade deficit”.

      That “deficit” exists as foreign Govt assets on the Feds balance sheet. Foreign Govts continue to by US Treasury debt in order to keep the dollar strong enough to sustain demand for their exports.

      Should they choose to purchase real goods and services from US instead, that would draw down their reserve account at the Fed and organically “reduce the trade deficit” and the accumulatied “debt” of the USGovt, making the dollar weaker in foreign exchange and eliminate substantial US demand for imported goods.

  2. DavidEG

    The wikipedia article on sectoral balances is a good read as well.

    This means Uncle Sam runs a deficit because others want to accumulate dollars.

    I don’t like the way this is phrased, because it gives the idea that the US gov has no agency in this and merely bends to the will of others (citizens and/or foreign traders). But of course, it’s the US gov/congress that approve the budget with the according deficit/surplus – only then the effect is reflected in the private sector balance.

  3. greg kaiser

    Private sector money lent is that which should have been taxed and spent by communities defending our lives against the parasites: the financial elite banksters and billionaires.

  4. johnnygl

    For all readers out there who are still learning and trying to understand MMT, keep in mind that external constraints are real and the USA gets a lot more freedom to run deficits because 1) it issues debt only in USD and 2) because USD is reserve currency, other countries are inclined to want to accumulate USD assets, mostly treasuries, to protect themselves against a crisis like was seen in E. Asia in 1998 3) US has a very large economy and imports as a % of GDP are on the low side, plus it has a lot of options for alternate sources of key imports, giving USA a lot of pricing power to contain inflation.

    When we talk about sovereignty, it’s really a matter of degrees. USA is the MOST sovereign economy, probably in the history of the world. The EU and Japan are close behind, but don’t want to run CA deficits required to make their currencies more widely used as reserve currencies. China is gaining more control, and India is behind it, along with Brazil and Indonesia. The latter 3 have issues controlling inflation and aren’t as developed and don’t issue bonds solely in domestic currency.

    When you see countries like Argentina and Mexico issuing bonds in USD, you should see their elites handing over future sovereignty and policy flexibility for some short term gains.

    For all the criticisms of the prior govt in Argentina under the Kirchners, they carved out a lot of space for sovereignty and had little debt in foreign currency. The problems with inflation are partly illustrative of the limits to what they achieved with their project.

    1. Thuto

      I’m one of those readers who are still learning about MMT (specifically for smaller economies like my country South Africa) and I did pose a question on last week’s article about what the possibilities and constraints are for said smaller economies which was answered by a member of the commentariat, and you’ve further expanded on the helpful answer received last week.

      That said, i’d like to understand how a lack of USD assets makes a country susceptible to the fate suffered by the Asian tigers in the late 90s, as you seem to be contending?

      1. Sacrilicious

        It’s not a lack of USD assets, it’s debt denominated in a foreign currency that “makes a country susceptible to the fate suffered by the Asian tigers in the late 90s”.

      2. jsn

        The Asian tigers, if I recall correctly, had substantial US dollar debts when their economies stalled. The stall triggered local currency collapse which made the dollar debts only serviceable to the extent the local central bank had adequate dollar reserves to backstop the public and private debts denominated in dollars.

        Once your national economy is yolked into the neoliberal thought collective with free flow of financial capital (but preferably authoritarianism for everything else), hot money from around the world sloshes in and out according to the momentary whims of the neoliberal market. Once enough sloshing is done and everything not nailed down has been stripped by global finance, debts run up in the hot money induced boom, most often priced in dollars, suddenly come due while the ability to service them is in the process of sloshing out of the country.

        The lesson in Asia was that having huge dollar reserves was a small economies only protection against western predatory capital. This lesson has been a big driver of the US “national debt”: debt thuggery/austerity imposed by IMF and World Bank on countries without adequate dollar reserves told national leaders, “if you want to keep control of your economy, hoard US treasuries”.

        1. Thuto

          This is why global capital, through its local echo chambers in our “free” press, and the political demagogues they covertly sponsor to carry water for their cause, is attacking our capital controls regime on multiple fronts, spewing the usual arguments about how making capital repatriation onerous “scares away investors”. Hot money must traverse the globe unimpeded it seems, sloshing in out of economies at will, never mind that sometimes it leaves economic carcasses in its wake…

          1. JohnnyGL

            It’s not like capital controls are all that strong in SA, either.

            The kind of money that’s being kept out of SA because of capital controls (if it even exists) is not the kind of money you want, if you’re looking to better the lives of the vast majority of S. Africans.

      3. JohnnyGL

        Honestly, I don’t have any good Asian Crisis links on hand, I read up on the topic during a class in college, but if you’re curious, there’s lots on the topic out on the web. Actually, Paul Krugman’s writing at the time wasn’t bad. He first made a name for himself criticizing East Asia’s development, pointing out that productivity wasn’t increasing as a fast enough rate considering the high level of investment in a lot of the so-called Tiger economies. He was correct to some degree, a lot of money was being spent on debt-fueled, vanity real estate projects (a book called Asian Godfathers by Joe Studwell gives lots of detail on the big players in their countries).

        S. Africa’s problem is certainly a common one to a lot of commodity exporters. Too much capital flowing in during the good times, and too little in the bad times (or even massive outflows). The method by which a lot of countries have tried to cushion against this is by building up a large stock of foreign currency reserves to protect against future downturns in commodity prices.

        Even the IMF came around to the idea that having open capital markets was a dangerous thing. That’s why China doesn’t allow capital to flow quite so freely. Capital controls can be very helpful if set up and applied properly, as seen in Malaysia (not so much in Venezuela).

        To address your question, specifically, what happened to E. Asia was that capital flowed out rapidly in countries with USD pegs. That means FX reserves get drained quickly. If you can’t maintain your currency peg, you have to float your currency, which means it falls against other currencies. That causes inflation in imports, leading to falling incomes. If your central bank raises rates to defend the currency, that squeezes borrowers, causing them to reign in spending and causing a recession. If your government, or large corporations have debts denominated in non-domestic currency, thsoe debts then get inflated. That means they can go bankrupt. To avoid that, the government often has to go to the IMF to get a loan.

        This old post from Ian Welsh is somewhat related. It helps lay out the power dynamics around free trade and free capital flows.

        1. Thuto

          Reading your response, it seems to me that part of the problem lies in the way our (not just in SA but all over the world) financial press, politicians, economists etc do reporting on economic growth, specifically the level of granularity with which such growth data is reported. It seems during boom times, the celebratory fervor dampens the will to decouple the level of growth from the underlying debt that may be fuelling it, and the prudent need to warn against bingeing on even more debt, especially foreign currency denominated debt. When the good times come to a halt and a possible Minsky moment ensues, all hell breaks loose. Over-inDebtedness, as is often the case, will then appear in the coroner’s report of the recently “deceased” boom cycle, I.e. when hindsight analyses of “what went wrong” are being conducted, when in fact over-leverage alerts should be woven into the fabric of financial/economic reporting even boom times, especially during boom times.

    2. Chauncey Gardiner

      Thanks for your insightful comment, johnnygl. Have been reading and watching interviews about Kuroda’s BOJ on Bloomberg this morning featuring analysts from several primary dealers. Wondering if there are any limits besides inflation to MMT under current institutional structures, including possible private sector spin-off effects in the form of financial institutions stretching too far for yield, asset bubbles, zombie companies, and declining productivity, but if those issues aren’t a matter of central bank ZIRP policies more than an MMT issue. The BOJ’s total assets now exceed Japan’s annual GDP. Also interesting that the BOJ is partly privately owned and, like the Swiss central bank, their stock trades OTC there.

    3. eg

      While the US exercises “exorbitant privilege” all fiat issuing sovereigns can take advantage of the policy space created by an understanding of MMT, provided they do not issue debt in foreign currencies and institute the necessary capital controls to prevent all the “hot money” shenanigans we’ve seen where such precautions aren’t taken.

  5. Chris Herbert

    I like this explanation, made by a reader of Bill Mitchell, Australian economist and MMT expert:

    Nicholas Haines says:
    Thursday, October 25, 2018 at 21:24

    Anyone who uses the term “budget repair” or “fiscal deterioration” disqualifies themselves from talking sensibly about federal fiscal capacity.

    The federal government’s fiscal statement of expenditures and receipts cannot break down or get sick. It is simply a record of dollars spent into existence and dollars taxed out of existence.

    Unemployment hurts people. Inadequate public infrastructure and public services hurts people. An inadequate material standard of living hurts people. Trashing the environment hurts people. Social exclusion hurts people. High levels of stress caused by unemployment or precarious employment hurt people.

    In other words, it is the functional purposes served by fiscal policy that matter. Not the fiscal statement (fiscal statement is the technically correct term because the word “budget” brings up household connotations that are completely irrelevant to a currency-issuer with a floating exchange rate).

    It is impossible for a government to borrow its own currency. When the central bank sells Commonwealth Government Securities in exchange for reserves, it is merely swapping one non-government sector asset for another. Reserves get converted into bonds of equivalent value. Bond issuance is a portfolio reshuffle for the non-government sector. It does not net add financial wealth to the non-government sector.

    A related point is that it is impossible for a government to stockpile its own currency. A federal government surplus is not something that the government holds or that adds to the federal government’s capacities. It just names an amount of non-government financial wealth that has been deleted by taxation.

  6. MM

    Great discussion and glad that mainstream finance is starting to take notice.
    Descriptions of MMT are helpful in general, but it requires examples of Accounting Journal Entries to make it credible.

    I have yet to see the flow of actual Debits and Credits and for which Accounts at the Government, Central Bank, and Commercial Banks for the transactions/processes described above.
    Without concrete Journal Entries, MMT will remain nebulous and unconvincing to technical observers who care about mechanics.

    1. Foy

      “Without concrete Journal Entries, MMT will remain nebulous and unconvincing to technical observers who care about mechanics.”

      MM, if you want all the accounting journal entries, T account ledger style (ie debits on the left credits on the right), they are all in this book. It takes each step, transaction by transaction and puts them in the T accounts.

      It is not nebulous. I care about mechanics and I’m a Australian chartered accountant. Please buy the book if you need convincing on the mechanics from an accounting, journal entry perspective. It’s all there.

  7. Susan the other

    So it is always a question of “quantity”. How much money is going over there and is it happening too fast to be absorbed into society. But our capitalist institutions, that our brain dead politicians are slaves to, do not readily respond to imbalances of quantity. In fact, the way we practice cut-throat capitalism, competition dictates imbalances everywhere you look. Quantities are out of whack. I keep wondering how our sovereign money, created by us, gets transmogrified into this dysfunctional monster of a “market”. The usual suspects are the big banks, the little banks, the big “private” corporations; associations of private industries; lobbies of every ilk; democratic representation and legislation which is so corrupted and stupid it can’t even —-; agencies working for the highest bidder; this list is making me sick. And the Fed is a tad worried about leveraged debt when the entire planet is going south – that’s really a good one. The quick answer is that politics has deprived us of social spending. We could spend the next 50 years catching up. And it’s like an abstract discussion among the banksters at some big doofus conference? It’s so simple it might not ever really dawn on these guys what Wray is telling them.

  8. MM

    No, not macro studies like these – these are too generic.

    Some MMT articles should show the actual Accounting Journal Entries (i.e., T-Accounts, Debits, Credits, Accruals, Balances, Contra-Accounts, etc.).
    Claims about flows and transactions must be demonstrated with Journal Entries in accounting.
    If such basic info cannot be provided, then that fundamentally undercuts credibility of claims for people who follow this at a technical level.

    It’ll be interesting to see how F/GASB and IFRS incorporate MMT once it becomes broadly accepted.

  9. Mael Colium

    Deficits 101 well and truly explained..

    Can the doomsayers now take a chill pill and stop wailing about the US losing reserve currency status? The Swift system determining what currency achieves reserve status is like asking the cart to pull the horse. And before you utter the word Euro, think first. The single market has been failing for a decade or more and financial markets are well aware it could all collapse very quickly. The City already has their Brexit plan in train, which is causing the ECB significant heart burn – not the reverse, although the No Brexit champions would have us believe otherwise.

    Which reminds me. Ignore the sabre rattling from China. They are not as strong a global power as commentators are lead to believe by the self interested financial cabals. Once China loses developing nation status, the weakness inherent in the China trade surplus will be exposed and a much needed correction will quickly sort out their Silk Road aspirations. Consider how quickly China departed the APEC forum as soon as that little pearler was mentioned post the PNG/Australia/US naval base announcement by Pence. The game is on and the Chinese leaders know it so an interesting observation will be how they manipulate their domestic WeChat propaganda to keep the middle class millions under control.

    Trump might be a babbling half wit, but he’s only the front guy holding the mic. The real pressure comes from Washington. China are now aware their much vaunted global aspirations could be quickly snuffed. Roll out the popcorn while Russia dances in from the wings.

  10. john c. halasz

    MMT has been heavily promoted for years now at NC. But it’s well past time for some push back on its obvious flaws. Note that the operational description of the entwinement between CBs and Treasury Dept.s is largely correct, given a sovereign fiat currency. But that’s not exactly new. Abba Lerner’s functional finance, Winn Godley’s inter-sectoral stock/flow consistent interpretation of GDP accounting, and Hyman Minsky’s financial (in)stability hypothesis are antecedents, (with MMTers being largely students of the latter). (It’s also a curiosity that the primary exponents of the doctrine are USAins or Aussie, both runners of chronic current account deficits, though with different profiles and for different reasons).

    Steve Keen was posted once here in criticism and his point was entirely correct IMHO. Chronic CA deficits are not an advantage to a domestic economy but have debilitating effects. They involve a continuing loss of the productive basis of the domestic economy due not just to the loss of domestic aggregate demand and corresponding employment, but to the hollowing out of the underlying productive “infrastructure” or “ecology” or embedded systems knowledge, which is more than the loss of individual skills, but involves the loss of aggregate learning-by-doing curves, given that various businesses produce for each other and provide a network of “positive externalities” long before final consumption demand. Hence were trade and current account imbalances to be reversed somehow, the domestic capacities have been lost and wouldn’t be easily replaced, except on a limited “high tech” basis. with limited domestic spillovers into employment and demand. In the meantime, domestic investment, if it occurs at all, is directed toward financialization and a rent-seeking asset-stripping of the non-tradeable domestic economy via privatization and quasi-monopolization. In this respect at least, MMTers seem to be in complicity with the odd neo-classical doctrine of “consumer sovereignty”, implying that lower prices could compensate for the loss of sustainable production incomes and the institutional arrangements that would sustain them and maintain their possibility, whatever their ostensible intentions. All they offer is an ex post add on via macro-economic abstraction without accounting for the underlying processes.

    But the problems with MMT are still worse than just those points. At the level of macro-economic abstraction that they highlight, the corrected accounting could just as well be used for increased military budgets and plutocratic tax cuts as for any other goodies that they might prefer. IOW they offer no intrinsic specification of desirable social ends or “goods”, nor their institutional bases beyond a crude functional analysis aimed at “full employment” as the sole “good”. But why should the projectively constructed ends of political-economic policy choices and mixes be restricted to such narrow terms? The inversion of means over ends and the endless accumulation of means without end that Marx (following Aristotle) complained about still prevails.

    But what distinguishes MMT from its antecedents is the proposal for a gov. guarantied jobs program as a buffer stock to maintain “full employment” and macro-economic stabilization ad infinitum. Note that there is no institutional specification as to how this would work, or who is to decide, or whether the jobs are “productive” or not. If it’s left to state or local governments, there’s no guarantee that the process wouldn’t be readily corrupted or skewed by standard political “interests”. A certain amount of “waste” might be ok, given the general level of such waste anyway, but just increasing the amount of waste, without regard to social and environmental efficiencies, via macro-economic abstraction, hardly seems desirable.

    But then there’s their whole take on international political economy and the role that CA imbalances and floating FX rates play in it, to which they seems oblivious, while taking such arrangements for granted. There is no “equality” between currencies resulting in any “rational” equilibrium based on trade flows (which are dominated by MNCs anyway), but a endemic skew in favor of first world vs. third world currencies. And top international macro-economists, such as Maurice Obstfeld, currently IMF chief economist, have basically thrown up their hands at the issue, since the gross flows completely swamp the net and thus the net is declared meaningless, in terms of any explanatory theory of long-run equilibrium based on trade or other factors. Yet MMT theorists tend to embrace floating FX rates, (in contrast to Keynes’ original ICU/Bancor proposal, which would have limited CA and trade imbalances, based on capital controls). Yet all “sovereign” currencies are not created alike and their theory would have limited if any application to weaker currencies from smaller nations/economies. (In fact, the accumulation of FX reserves by such nations has at once lowered global aggregate demand and led to mis-directed investment in the 1st world.) In the meanwhile, the real levels of unemployment in the 3rd world and the persistent levels of capital export from there to the 1st world belie any “full employment” equilibrium assumptions.

    But most of all, why should “full employment” as conventionally defined be regarded as a unique and pre-eminent social good, without regard to the distribution of incomes or the institutional factors that might determine the actual distribution of goods and valued projects and activities? Aren’t MMTers just trying to construct a perpetual motion machine of endless economic growth without regard to environmental limits and sustainable communities, which anyone with two brain cells to rub together should know is an essential long-run (and increasingly short-run) impossibility? The basic constraints, MMTers love to say, are inflation (which is not such a problem, especially in a debt-choked world) and the deployment of “real resources”, as defined in entirely abstract monetary terms, though apparently not endemic CA imbalances and actual resource limits. But given that we will eventually sooner or later, and mostly sooner, have to cut down on wasteful employment, excessive consumption demand, and speculative/fictitious financial asset investment/inflation, do MMTers have any actually effective policy advice to offer, given their lack of institutional “sociological imagination”?

    1. eg

      A thoughtful post, with much to consider. For a start, it is important to draw a distinction between the policy space available to sovereigns that only the correct understanding of fiat operations allows from the priorities undertaken by the sovereign. Yes, fiat operations can be employed to terribly destructive ends; it does not follow that terrible ends must be chosen.

      The value of MMT is exposing the neoliberal emperor’s nakedness — there ARE alternatives.

      What follows is the burden of choice and the return of political consequence. I embrace them all.

    2. Mark

      Thank you for this post, it reflects many of the concerns I have as well.
      I would like to add another point: the decentralisation of government in most modern nation states. Many government functions which are generally seen as useful like schools, police, hospitals, public housing, utilities etc. are undertaken not by the federal government but by state or even local levels. It follows that either a mechanism has to exist to transfer any amount of money required from federal to lower levels without control flowing in return, or the very much needed state and local goverments face again a real budget constraint. Alternatively traditional competencies of the local or state goverments have to be transferred to federal level, something which is going to be neither popular nor constitutional in many countries. If anyone knows about such mechanism I would love to hear about it.

    3. skippy

      John you should know better because they do painstakingly unpack the whole thing, yet don’t get bogged down in the whole neoclassical and AET ideological quagmire. Furthermore MMT does not provide any ridged administration due to social democracy administration, I mean its not like the Chicago school approach.

      Whilst were talking about Keen lets be frank and note the differences between the Currency theory camp that got us in this mess in the first place and the Banking school, Keen seems to have embraced the former under the energy aspect.

      As Ann Pettifor noted –

      ‘Linking all current and future activity to a fixed quantity of reserves (or bars of gold, or supplies of fossil fuel) limits the ability of the (public and private) banking system to generate sufficient and varied credit for society’s purposeful and hopefully expanding economic activity.’

      With this in mind am I to be informed your in the austerity camp under the proviso of full reserve and to that end, why, considering its effect everywhere its been instituted.

      1. john c. halasz

        Whaaa? I am not disputing the operational account of spending and deficits.of MMTers, which I agree with. But it’s not unique to them. Even the BoE now officially agrees! No loanable funds doctrine, Wicksellian “natural rate of interest”, NAIRU, tight inter-temporal public budget constraints, etc. And I even agree with their notion that fiscal, not monetary policy should be the prime locus of cyclical adjustment. But again, none of that is unique, nor original with MMT. How you then adduce that I’m some sort of goldbug or austerian is beyond me. I do suggest that MMT among the various strands or schools of Post-Keynesian thinking, does not actually challenge neo-classical thinking, such as partially going along with the “crowding out” hypothesis, relying on the labor “market”, (which is less a metaphorical market than an institutional system) as the prime economic regulator, (when for both technological and environmental reasons, employment as total work hours must and will decline and can’t be relied on for any equitable distribution of income or decent standard-of-living, which latter can’t be defined in purely monetary terms anyway), fetishizing growth solely in terms of GDP figures, which as a measure of monetary incomes is a flow measure, not a measure of wealth, which is a stock measure, though not to be confused with financial asset prices, since a sustainable climate, environmental damages, and natural resource depletion are stocks, indeed common-pool resources, not included in monetary measures.

        It’s true that Keen is a circuitist not a chartelist like the MMTers. (There is a moment of truth in both views historically and operationally speaking without either view being the whole story). I’m not sure when Minsky to who both claim allegiance would have come down, though I’ll remark that he partly came to his view by serving on the board of a St. Louis bank, observing credit cycles first-hand. I am not aware that Ann Pettifor is at all a MMTer and her advocacy of a “green New Deal”, while a branding the is popularly legible, might increase employment and growth in the short to medium term, the end state once the work is completed would be a much more energy and resource efficient, i.e. sustainable, economy with lower levels of employment, consumption demand and nominal incomes.

        SO yes, there needs to be push-back against the rather simplistic and facile promotion of MMT here at NC, ignoring its blind-spots, lacunae, lack of institutional specifications or even meso-economic “foundations”. Just spare me your condescension, skippy, and GROW UP!

      2. skippy

        Are you OK John, because the grow up in caps quip indicates some emotional state on your part that I can’t find reason for in my comment.

        I also note you did not answer my question, but went on a diatribe instead, so could you clarify so no assumptions are made – where do you currently position yourself in the currency debate and why.

        1. john c. halasz

          What “currency debate”? You haven’t remotely laid out any parameters of what you’re referring to or talking about. And yes, you did lazily misread what I had written and engaged in straw-manning, attributing positions to me that I don’t hold and provided no basis for any such attribution. Which is a sign of your immaturity, not my mental health. Nor was my response a “diatribe”, which is just skewed, a sign of dishonesty on your part. But I won’t further sully these comment sections by engaging in gratuitous polemics with such an obviously unreliable interlocutor.

        2. skippy

          Well then I submit bad faith argumentation with a side of playing the man and not the topic. I don’t assume your position, its why in my original comment I did not slander you, but disagreed on your rhetoric and its rather disembodied underpinnings resembling some spray and pray methodology, something it seems your quite comfortable with in lieu of.

          I will also call into question your high emotional state wrt to the topic and how that seems to manifest in dialogue. You are aware of the methodology by which one can identify groups by their shared dialectal style are you not.

          Now we can all put this to rest if you only identify which group you identify with and why, so the readers can do their own homework, and not just leave it up to your seemingly self awarded superiority on the topic at hand as a substitute. I mean you would not want to engage in Agnotology and remove or camouflage information so people can make up their own mind – right?

          “But I won’t further sully these comment sections by engaging in gratuitous polemics with such an obviously unreliable interlocutor.”

          Now I could ask YS for permission to really lean in on such a hamfisted authoritarian rhetorical special plea which has zilch gravitas too it, save your own umbrage at being called into questioned. I’ve kinda back off that, but your personification and attempt to belittle myself rather than engage on an intellectual level is making my trigger finger itchy.

          I ask about what you thought and not whom you are[.]

          I remind you I have a body count on this blog, don’t play stoopid games with me. I detest such vulgar mannerisms and how it effects this blog and how it reflect on YS efforts.

          Food for thought… I was talking about atomistic individualism years ago, now search Lars blog. I just love polemics accusing others of being polemics to front run the rhetorical game theory dynamic and then consider themselves clever.

  11. Jim

    TLDR: MMT cannot repeal economic scarcity, yet the supporters act as if, via monetary manipulation, they can. Money analysis is divorced from goods analysis which conceals MMT’s promotion of inflationism. MMT deceptively denies inflationism, but removes impediments to it and creates a class of recipients that will advocate for it. This concealment makes the MMT policy appear valid and stable, of which it is neither.

    And if “debt doesn’t matter”, as MMTers assert, what if we are at 100,000,000% debt/GDP, say a debt of 20 quintillion ? Will it matter then? Loooooong before that, the public will be “voting itself continued and increasing money incomes via money/debt expansion” (because that’s a helluva lot easier than producing) and monetary collapse will occur. Even now, 1 trillion dollar deficits (5% of GDP) are now the norm in a time of (relative) peace and without a recession! Will our debt/GDP now double every 10-15 years (including high deficits in recessions, see

    Let’s look at a few summaries. We’ll neglect the rest, as once these examples are seen for what they are, there is no point in proceeding.

    Here’s the first, from item 2:

    “Budget deficits result in net credits to bank reserves and hence put downward (not upward) pressure on overnight rates that is relieved by bond sales by the Fed and Treasury—or by paying interest on reserves. In other words, there’s no crowding out effect on rates. (Inaction lets rates fall.)”

    Key phrase: “there’s no crowding out effect on rates.” — This is a horrible situation, not an advantage. There ** is ** crowding out of goods (they are consumed by the government, leaving less remaining). The idea that “First the political class confiscates people’s earnings by creating new money, then consumes the goods of the economy via government spending, and then the monetary authorities allow interest rates to remain low – fooling people into believing they have more real capital than they have” is just rank monetary fraud.

    Interest rates are ** supposed to ** indicate the capital available (freed by reduction of consumption, which doesn’t happen in government spending via this method, which should raise interest rates, all else held equal). Divorcing money rates from “real capital rates” is stupid and the cause of numerous boom-bust cycles where real capital is in much shorter supply than “debt money” which can be created effortlessly. This process is incredibly destructive to individuals via periodic depressions (and it’s almost as if MMTers are aware they promote these destructive effects: MMTers want a “jobs program” with a guaranteed income… besides getting a constituency that will continually advocate for more MMT/inflationism).

    Creation of new money (via political fiat) means “consumption without production”. The producers/workers/entrepreneurs put value in (producing goods for money), while the political authorities confiscate that value out via creating money (producing nothing for the money that they receive and spend). This political spending is a forced reduction in real wages of the productive class, who must operate without receiving the full benefit of their production. (Actually the political class is not just parasitical, it is actively destructive to individuals and freedom, screaming about victimization status as they confiscate increasing amounts from producers. It’s not the current harm that is the worst, it is the cumulative cultural effect on the next generation, losing the skills to produce, producing increased dependence).

    A second summary statement:

    “Budget deficits result from the nongovernment sector’s desire to net save government liabilities. So long as the nongovernment sector wants to net save government debt, the deficit is sustainable.”

    Key phrase: “nongovernment sector’s desire to net save government liabilities”. This is nonsense, which the engaged reader can partly discern from the arguments above. Here’s what happens: the NEW spending (eventually) creates NEW demand for government bonds as those reserves eventually become stable banking deposits (all else held equal). In other words, the government spending creates the demand for the issuance of its bonds. Did you voluntarily permit the government to take your income via money expansion and give it to political insiders? Did you get a phone call from the Federal Reserve?

    In other words, this so-called “desire” by the public to “save” is not willing at all, it is actually a FORCED transfer via monopolistic legislative fiat. The government appears self-funding — but only in the ** money ** sense, because goods cannot be created out of thin air. The spending power is gifted to governmental political cronies while the debt is renamed “savings” by the MMTers. That this is “desired savings by the public” is a ludicrous mischaracterization of theft. Notice that this form of financing is even less democratic than taxation.

    1. skippy

      Taxation by theft is a well worn ideological dog whistle and has nothing to do with democracy e.g. state and taxes is a historical fact.

    2. Paul O

      Opposition to MMT seems to have reached the ‘then they fight you’ stage. This is promising. However, I can’t make much sense of this one – the first paragraph seems to attribute to MMT the exact opposite of its actual position. The second paragraph then puts up a ridiculous straw man. At which point the will to go on reading is lost.

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