MMT Answers

Yves here. We haven’t featured a post on MMT principles for a while. So I hope this piece is useful both to clear up some misconceptions among those who may have heard oversimpifications about MMT, as well as something that can be forwarded to friends and colleagues who may similarly have received a misleadingly incomplete description of MMT.

By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK

I got an email overnight that I could reply to as a private mail, or I could hide the identity of the person who sent it and reply here, sending them the link. I have chosen the second option as I suspect the questions are not uncommon.

My correspondent began by saying:

I have been reading a bit about Modern Monetary Theory, including your joint paper with Andrew Baker. I think it’s a really interesting and in many ways appealing proposition, but there are a couple of things I can’t quite get past. I was wondering if you might be able to quickly address them for me please?

This was the first question:

I don’t understand how it wouldn’t just lead to massive inflation. Or would this be solved by high levels of taxation, thereby transferring spending power from private individuals to the state without having much, if any, inflationary net effect on demand?

I admit I always find this type of question perplexing, most especially if anyone has read a paper like the one I wrote with Andrew Baker, which is about the role of tax in MMT. But the real reason why it is perplexing is that there is nothing in MMT that says that:

  • Money can be created without limit;
  • There are no inflationary consequences of money creation;
  • Additional money, compared to existing budgets, must be created.

People who do not understand MMT, or have not read it, or who seek to undermine it might suggest it says such things, but the reality is that it does not.

MMT explains how money works. It says that government spending is in a modern economy with its own central bank is always funded by central bank money creation in the first instance. This is as true of right wing as it is true of left wing governments. There is no policy prescription here.

Then it notes that money cannot be created without limit. In fact it makes explicitly clear that such money would be worthless. That is because MMT says a government must tax to reclaim the money it has created, and by demanding that the tax in question be paid using the currency that it has created it both gives that currency value and requires that it be used for transactions in its own economy, providing it with macroeconomic control. Tax is in that case as much a part of MMT as money creation is.

What is not essential in MMT is government borrowing. This is optional, with a government overdraft with the central bank being the alternative. MMT makes clear money markets need not be involved in funding government. It’s a choice to permit them to be so, but then only on terms the government dictates.

But let’s be clear: MMT obsesses about the control of inflation and provides a clear explanation (money withdrawal) on how this can be managed. The impression that a description of how money works is inflationary in itself is just wrong.

The second question was as follows:

Much of the literature on MMT from the late 2010s seems to take the low interest rates/inflation of the time as a given. Now that this is no longer the case, does this significantly change the argument for MMT? And if not, why not?

MMT thinks low inflation is good. Low interest rates must follow unless the economy is to be crushed by real transfers of wealth to those already wealthy. Low interest rates are a consequence of low inflation. We had both for more than a decade.

And let’s be clear that the UK Office for Budget Responsibility is forecasting much lower rates of inflation soon and deflation in 2024 and 2025. We have had disruption of markets caused by Covid and war, but not by momentary conditions. It is highly likely low rates of inflation will return. The great worry is that low interest rates might not. If so we will have recession, businesses collapsing, households bankrupt, house repossessions and a banking crisis. Why wouldn’t you want low interest rates back as MMT suggests desirable?

MMT makes it clear what the linkages are that can create high interest rates. It also explains why they are so destructive now (as they already are) but the way the money system works, which is what MMT describes, does not change with higher interest rates. MMT does however explain the consequence of high rates, and they are grim. By braking the link between government spending and money markets MMT also makes clear interest rates need not be set to appease markets.

Finally, my correspondent asked:

We’ve seen recently in the UK that negative market reactions to changes in government policy can render them totally impracticable. Do you think MMT could withstand this?

That is an interesting claim. Markets reacted adversely to a budget that was issued without support information, that appeared economically incoherent and without any supporting theory to explain what was planned. In the absence of information the markets priced in risk. That was fair enough.

MMT is a coherent theory of money. It makes clear exactly what role each party has in government financing. It makes clear who (the government) is in charge. It makes clear that markets are given the favour of being able to save with government and that the government is not dependent on them. It also makes clear how good economic policy can be maintained. It does, therefore, deliver everything Kwarteng and Truss did not.

Of course MMT can withstand market pressure. For a start, it makes clear what’s going on. Second, it makes clear that if markets want to be silly they can be, but government can just cut them out if the equation. I suggest no economics could be better equipped to withstand market pressure.

I hope these explanations help.

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  1. Adrian D.

    Another great MMT explainer from Richard – someone who I hold in very great esteem. This is why I’m rather sorry to say that I’m blocked from commenting on Richard’s blog (which, like NC, I’ve been reading for over a decade and a half). I asked him to consider the proposition that the economic effects of the Ukraine war were almost entirely mediated by the West’s political reaction to the invasion. This was back in the summer when Bozo Johnson and then Liz Truss (remember her) were happy to blame everything on “Putin’s War” – and Richard seemed to accept this framing – assuming that our Governments had no alternatives other than to proceed as they did with massive sanctions and confiscation of assets.

    I suggested that we really needed a proper analysis of whether or not this sanctions regime was going to be effective on it’s own terms and what the potential costs & benefits may have been – economically and politically (I think I may have used the phrase “circular firing squad” at some point).

    It’s fair enough – he can choose to interact, dismiss or block whoever he likes for whatever reason he chooses – and I’ll still read him most days – but IMHO this is a blind-spot of his. Has anyone here at NC interacted with him on this? I’d love to see him correspond with you or the likes of Michael Hudson (who I think I raised in my final comment to him).

  2. B.F.Finlayson

    ‘MMT thinks low inflation is good. Low interest rates must follow unless the economy is to be crushed by real transfers of wealth to those already wealthy. Low interest rates are a consequence of low inflation. We had both for more than a decade’

    The statement that ‘low interest rates are a consequence of low inflation’ is a tad disingenuous, unless by ‘low inflation’ what Mr Murphy really means is ‘recession’. ‘Inflation’ is a catch all approximate pound shop thermometer of economic temperature, which is then seen to be controlled by the equivalent blunt but financially convenient tool of interest rates (acting like those generic cheapo home illness remedies available in another aisle). The unthinking application of racking up interest rates to control ‘inflation’, without understanding the underlying causes of that inflation, leads only to the boom and bust cycle; perhaps like painkiller addiction all because of a common cold that would have passed anyway in a couple of days?

    The simplest division of the underlying inflation types onto ‘cost push’ or ‘demand pull’ reveals that what might work for one does not necessarily work for the other. Indeed higher interest rates when applied to imported ‘cost push’ inflation (such the current western economic sanctions inflation) will only serve to make it worse. Instead of accepting there’s nothing one country can do about price rises outside of its central bank’s sphere of influence, and to simply let these rises take their course and work through the 12 month inflation measurement cycle. To overreact with knee jerk interest rate hikes (especially after a long period of relative stability) effectively imports (exceptional) cost-pushed price rises into being endemic home made inflation, as everyone (justifiably) then wants more money to pay increases in mortgages, food, bills etc that their frugal spending habits leading up to 2022 did not give rise to (look instead at Covid money printing and political sanctions)!

    But at some point what has gone up MUST come down – and one hopes just as quickly. Perhaps by December 2023 we will be back to 2% or less interest rates, when the worst of the imported rises work their way out of the 12 month inflation measurement period. Whether this is before or after mass unemployment (the real determinant of inflation/recession) has kicked in on the back of high interest rates is the head scratcher. The suffering of ordinary folk over the intervening period by these unnecessary high rates is not of course an economic indicator, or at least until they lose their jobs.

  3. rob

    MMT is too young to have this many “that’s not really what I mean” moments.
    The problem with MMT is that it is “too many things to too many people”

    If one was to talk about the money creation ability by fiat, and how that is a realistic dynamic…as MMT does, that is fine. And it should be .
    After all MMt’ers just seem to be late to the party. The debabte/competition of ideas has been around for a long time.
    Ben franklin in his many observations on money, was aware of the ability to create money by law/fiat. The continentals were an early version of this.
    abraham lincoln also had enough people around him to support the creation of money , by law, debt free… to create the greenbacks of his day.
    too bad, these public money versions were attacked and besieged on all sides from competitors/banks who wanted to create money…and they did.
    and by 1913, when the JP morgan syndicate got their “law” passed, that banks would be allowed to create money, AS DEBT…. and the government could BORROW it from them…. ad infinitum… and pay the debts, and create the new markets, and opportunities ,and dynamics,for which they could always profit from… from whatever schemes they could conjure…like witches at black masses…. the fact that money can be created by law, still is a kernel of truth in these diabolical outcomes… but that doesn’t mean it is good.
    the last century in the US has shown that money can be created, amid all sorts of divergent dynamics….
    But unless people take into account WHO, this system is working for… you can’t call it “GOOD”
    MMT, ought to be a useful point for the argument for monetary reform. In that money CAN and is made by law…. but the law as it is now… also includes all the devils that come with it… the national security state that is washing over the world towards fascist domination, with environmental destruction in its wake… all to control ALL the people ALL the time…
    And WHEN MMT’ers all say “the system is fine, it’s working… blah blah blah..” How can a person take them seriously?
    There are no actual compartments in nature… we are all connected… and money creation too.. does not happen in a vacuum.

    1. Adam Eran

      I’d suggest the “that’s not really what I mean” moments are rooted in the ruling elite’s well-funded mendacity supporting their unwillingness to fully fund things like housing for the homeless, or a job guarantee. Both of these are cheaper than what we do now (massive policing), but would revoke “labor discipline.” Labor discipline the message that you had better take whatever crappy job is on offer or suffer the indignities of poverty, perhaps even homelessness or starvation…and if you’re extra ornery we’ll put you in a cage.

      Not having the finances for social programs that support the population is the excuse (“We’re out of money….eek!”). But we are never out of money or resources when it comes to larger prisons or imperial wars. Those exercises in domination are independent of the workings of money. Disclosing that money (and resources) are available to do something other than attack the poor, or the socialists, etc… just undermines that labor discipline mindset. It opens the door to another possible policy. That said, the door can be open, but people need to walk through it.

  4. eg

    Most of the time when I encounter use of the label “MMT” it is either as an epithet or in such a way as to demonstrate that the utterer is not conversant with the relevant literature — which is to say either unseriousness or outright bad faith.

    It’s almost always some variant of “they did MMT and look what happened!” If I bother to respond beyond an observation that they are macroeconomic ignoramuses, it’s usually to point out that if we had “done MMT” (itself mostly a category error since it’s primarily descriptive) that would mean the implementation of what I understand to be its sole policy prescription — the job guarantee. As there is no evidence of a job guarantee anywhere that I’m aware of, nobody has yet “done MMT.”

    1. Adam Eran

      “Doing MMT” would mean retiring the debt ceiling, fully funding effective public policy (without the usual hand wringing about being “out of money”), and, as you mention, the job guarantee.

      That said, job guarantees have been done in Austria, India and Argentina…mostly successfully. But you must understand “labor discipline” (see my reply above) requires dismissing such success as less-than-optimum.

      See Pavlina Tcherneva’s book about the topic for much more info.

      1. rob

        Really, “doing MMT” wouldn’t “retire” the debt ceiling. It would just be re-framing the definition from a specific dollar amount to what would be “reasonable”. After all, isn’t the gist of this whole MMT “clarification” that yes there is indeed “prudent” spending and more than that is unwise and at certain levels lead to undesirable outcomes.
        So, really.. there will always be a “debt ceiling”…
        .maybe just less grand-standing…… nah..that will never happen

  5. IM

    I feel like the core policy prescription of MMT is what Richard Murphy describes…put markets in their place. “The economy” and “the taxpayers dollar” and “the bond market” are the bogeymen that limit public investment, scary and symbolically potent enough that underinvestment to absurd degrees, ZB the point where ambulance services don’t work, seems inevitable. “We must put up with it because of the economy!” Without such constraints a wider sphere of public investment (including a jobs guarantee, or god forbid a working health care system) becomes possible.

  6. Tomfoolery

    From my limited understanding, MMT seems pretty clearly to be a good descriptor of reality, but I worry about its utility as a policy tool. The key concern I have is less with MMT per se, and more our lack of understanding of “inflation”. (I’m not saying that I have this understanding, but that it’s a tricky thing to understand). E.g., almost all economists (including Professor Murphy here) see the 2010’s as a period of low inflation – which for CPI is obviously true, yet it was a period of tremendous asset inflation, which seems to get missed. Also, we hear often on this site (rightly it seems to me), that current inflation is not from excess demand but insufficient supply. But what all of this tells me is that “inflation” isn’t just one thing, and if so, we really don’t understand inflation well enough to use it as an input to MMT policy decisions.

    Thanks for all the good material here.

    1. digi_owl

      MMT effectively assumes a self-sufficient national economy. Meaning it makes and consumes all it needs internally.

      The problem is that few nations are in such a position, and it is in the balance of trade domain that things so often go awry. UK for example got into the opium smuggling business in order to balance their trade with china, thanks to having developed a taste for Chinese tea…

      1. Jim Whitman

        GOTCHA! HA! No, you haven’t.

        So that people don’t get lead off up a gum tree checking for confirmation of this stuff, I’d recommend instead that people just continue reading the broad base of MMT writing as it emerges from reading blogs like @billy_blog and you’ll soon forget this very misleading comment. And for another source of questions about the Global South (that’s part of the external sectors of many Global North economies), read some @FadhelKaboub. I’ve just given two names – there are many more (look for the MMT Podcast from the UK for a different way of finding out more about MMT, it’s great the way my general economic knowledge has grown these last years.)

    2. Adam Eran

      The Republicans understand MMT perfectly and have weaponized it. “Reagan proved deficits don’t matter” – Dick Cheney.

      Jude Wanniski formulated the “Two Santa Clauses” tactic: When out of power, complain as bitterly as possible about national debt; when in power maximize it.

      As for inflation, imagine Treasury made 100 trillion-dollar coins, then deposited them in a Fed account. No spending, no bidding up prices, just a deposit. Would there be inflation? Nope. But (net) national ‘debt’ would be zeroed-out, and then some.

      Similarly, Japan’s “debt” is 240% of GDP, but their inflation is pretty modest. They are a country of savers. No bidding wars, just fat bank accounts.

      IMHO, it’s impossible to anticipate inflation exactly because it depends on the spending habits of the population with the money.

      1. rob

        It is un realistic speculation to assume in your scenario, that if the treasury created 100 trillion dollar coins, there would be no inflation.
        If the power structure of the current world was still in control ,as per your scenario.. Why would anyone assume they wouldn’t “charge” more money for everything. After all, I see “inflation”(the higher prices companies charge); charged ,because there is an ability to do it . Because the “market” will bear it. Because “we”, the “suckers” are stuck. not something that “HAD” to happen. We pay more to exist in their monopoly ridden landscape ,just because they are greedy.
        That would also cause the value of money to decrease.

      2. Fred

        The assumption is wrong. Debt needs to be paid to get settled so the deposit needs to be put in circulation to form circulating capital – no matter whether in its money form or additional debt – and thus it is inflationary.

  7. TimD

    When we look at the past decade or so we observe low inflation, slow economic growth, stagnant real wages for the average person, the shifting of production to low-wage countries, growing inequality, technological changes that can increase productivity and profit margins and growing asset inflation. We have also seen growing government debt and deficits. In the US this has meant debt moving from $5.6 trillion or $19,000 per citizen to $31.4 trillion or $94,000 per citizen; with deficits averaging more than 5% of GDP. I have had MMT people tell me that the debt doesn’t matter and governments with sovereign currencies can spend what they want. I never bought that belief/argument because it does not address the economic structures and historical conditions that have generated these observed outcomes. I am glad to hear that some proponents of MMT now say that money cannot be created without limit and that governments have to tax to reclaim the money created. I am also curious of how that makes MMT different from Keynesianism?

    1. Adam Eran

      You misunderstand the direction of obligation in the national “debt” discussion. If you have a bank account, that’s your asset, but to the bank, it’s a “debt.” You are the bank’s creditor. MMT (accurately) characterizes national “debt” as an obligation of the Fed, not as an obligation of taxpayers to some anonymous bond holders or Chinese exporters. It’s like bank debt, not household debt. We are the creditors; the Fed is the debtor.

      And MMT (again, accurately) points out that taxpayers need the monopoly provider of non-counterfeit dollars (government) to spend the dollars first, before collecting any revenue. Otherwise no one has dollars with which they can pay those taxes.

      So it’s not “tax & spend,” that’s backward and impossible. It’s “spend first, then retrieve some dollars in taxes.” The taxes create the demand for dollars, they do not–and because for currency creators they follow spending cannot–provision government programs.

      What do we call the dollars spent, but not retrieved in taxes? Answer #1: the dollar financial assets of the population. (people’s savings) Answer #2: National ‘debt’ … Both describe exactly the same thing–like your bank account (an asset to you, a debt to the bank).

      You can divide that “debt” by the population all you want, but the Fed owes the debt, not the taxpayers. What does the Fed owe you for a dollar? Answer: A dollar’s worth of relief from taxes. What happens when we impair people’s savings by reducing that “debt”? Answer: a wave of asset forfeitures and foreclosures follows–a Great Depression–every single time. (See

      If you doubt the dollars are IOUs (essentially checks made out to “cash”), take a look at what’s printed on them. “Federal Reserve Note” A “note” is a legal term for an IOU. California is not a mortgage state, it’s a note-and-deed-of-trust state. The note states the terms of the obligation (and the note holder is the creditor) and the deed of trust states what secures the note.

      If you get the direction of obligation correct, you’ll start to get some perspective about that “debt”…

      1. TimD

        When a government spends more than it takes in, it incurs debt. When it prints money to pay that debt then it is paying debt with IOUs. There is no discharge of the debt. It is easier to understand if you think of a transaction with a foreign country, America owes China say $1 trillion and they give the Chinese $1 trillion US. China still has a claim for that amount on the US economy. It could buy American manufactured goods, but only if they are competitive. It could also buy American assets like businesses and real estate to settle the debt. When the debt is paid, American net assets are reduced and Chinese increase.

        If the American government mints 31 trillion dollar coins and puts them in the bank, the assets grow but the debt isn’t paid until the debt holders receive the coins, as they are still IOUs. Also it does not change the fact that the American economy which is still growing at less than 2%, not generating enough revenue to pay its bills, has stagnant real wages and all the other problems I mentioned above.

        How does MMT explain that the developed economies used to have real GDP growth of over 4% and had a national debt that was declining as a percent of GDP and now their growth has slowed so much that the annual deficits are more than twice the size of GDP?

        How does MMT help countries whose currencies fall in value to the rest of the world when they change their tax rates?

        1. Basil Pesto

          When a government spends more than it takes in, it incurs debt

          To whom is the USG indebted when it creates money to spend?

          1. TimD

            When the money is spent, the entity who sells the good or service now has a claim on the US economy with that money. It is like me buying something from you with an IOU. I have the good and you have the debt instrument. The US prints money, buys from China and now China holds a claim on the US economy.

        2. Adam Eran

          “When a government spends more than it takes in, it incurs debt.” … but you leave out the important part: and it provides dollar financial assets to the private sector. Debt and assets are precisely equal. The dollar financial assets *are* the “debt” just as your bank account is your asset, and the bank’s debt. The money **IS** IOUs.

          When the Chinese buy American assets, they got the money to do that by shipping Chinese assets to American consumers. If the government doesn’t want a foreign country to buy an asset, it can forbid it. The panic about indebtedness to China is misguided. They have dollars (and bonds) but are constrained by those being valueless in China (they don’t pay taxes in dollars in China) and by U.S. government restrictions on what the Chinese can spend those dollars on in the U.S.

          Remember when the Arabs wanted to buy the Port of New Orleans, but the government said “no”? No it was, too. The Chinese are the ones at risk, not the U.S.

          The “debt holders” are the people with dollars. The “debt” is an obligation to honor dollars as payment of inevitable liabilities (taxes). There is no obligation equivalent to household debt for currency creators. Currency creators can **NEVER** be involuntarily insolvent. There are no unpayable bills for currency creators.

          Here’s something no one said ever: “The Japanese just attacked Pearl Harbor, but we are low on cash so we won’t respond.”

          MMT’s explanation of growth isn’t relevant for this conversation. Although (IMHO) the real explanation is that 1971 was peak oil for the U.S. and the Arab oil embargo (1973) triggered an inflation and a need to economize on energy consumption that reduced U.S. productivity and growth. Growth at that higher rate (4%) resembles cancer, so is not always to be desired.

          I won’t get into MMT’s explanation of inflation because Stephanie Kelton says there is no comprehensive theory about it.

          1. eg

            While not precisely the same thing as a theory of inflation, I have heard Warren Mosler discuss the origins of the price level as being what the currency monopolist is willing to pay for its goods and services.

          2. TimD

            The financial assets you talk about are debt instruments held as assets by whoever the printed money is exchanged with. The people, who the government represents, now have debt and the receiver has assets. Sure the numbers balance a la – assets = liabilities, but there has been a transfer of wealth.

            China is not stripping their assets, they are building wealth. Look at the size and growth of their economy! A rule of capitalism that MMT doesn’t understand is that in normal capitalistic production supply is greater than demand. Export-led growth leads to faster growth for economies in the short-medium term because they can export their surplus instead of trying to sell it domestically. This allows for increased production and scale of production. Go take a look at the industrial revolution in England and how cotton exports helped the British economy grow. Take a look at the US real GDP growth with their 5% trade deficit – which is growing fast the economy or the debt?

            Yes people like the Arabs are frustrated with the US government not allowing their investments. That just shows how the market is failing because the US cannot produce enough in exchange to keep balanced trade. As trading partners get tired of the US saying no, then they will stop buying American assets and that will cause problems for the US dollar and eventually lead to inflation.

            When you talk about foreigners taking risk and making like America is somehow coming out on top you forget that the country has all that debt, slow economic growth, increasing inequality, weakening infrastructure, a declining birthrate, decreasing life expectancy and increasing political polarization. All that is more important than some idea that taxes don’t fund government and debt doesn’t matter. In America’s case the debt is a symptom of a bigger problem.

            I can see that MMT can’t answer the more important questions that I posed. To me it seems like more of a belief system based on a somewhat logical extension of a few propositions and in that way is very similar to neoclassical economics.

      2. rob

        you are saying the “national debt” is owed by the fed, not the tax payer’s?
        you mean the national debt of the united states, isn’t “owed” by the constitutional system of the three branches of the United states ;collectively?
        has someone told the congress? they keep making interest payments….
        and I guess all those imaginary bond holders are just a fiction
        very curious indeed.

        1. Adam Eran

          That’s right. The government owes the population. Its IOUs (dollars) are the only acceptable means to pay the population’s liability called “taxes.” The dollars *say* they are IOUs (“Federal Reserve Notes”). What is owed for a dollar? Answer: a dollar’s worth of relief from an inevitable liability: taxes.

          MMT has told congress, but an enormous propaganda apparatus refuses to publish this fact….although one congressman (budget chair John Yarmuth) acknowledges it’s true.

          Look at what you’re advocating: dollars grow on billionaires. If it weren’t so silly, and obviously untrue, you might have a little credibility here.

          And dollars are non-interest-bearing debt while bonds pay interest. Your bank has non-interest-bearing accounts (checking) and interest-bearing accounts (savings). It’s the same thing. These can be your assets, but if you have them, the bank owes you the money.

          I know this is hard to accept, but so was the heliocentric solar system, and the existence of quanta. Max Planck tried (in vain) to convince his very intelligent physics professor colleagues of the truth of quanta–the basis of quantum mechanics, and the solution of lots of problems with Newtonian physics. He famously said “The truth never triumphs, its opponents simply die out. Science advances one funeral at a time.”

          I certainly don’t wish you ill, but lots of people would rather die than admit the truth. I’ve told you the truth. What you do with it will be up to you.

          Your biggest problem appears to be your insistence that the federal government is a currency user (and dollars grow on billionaires). It’s not. it’s a currency creator, and that makes all the difference. it doesn’t need to collect interest payments or anything else in taxes. Taxes function to create the demand for dollars; they do not provision federal programs or the interest on the debt.

          1. rob

            It seems you are the one conflating physics and answers to entirely other questions to the one your not answering.

            The fed is a collection of private banks. each regional fed IS owned by it’s member banks.
            The US dollar is what we are talking about.
            the federal reserve note.. says that BECAUSE it is the property of the private federal reserve system.
            The public aspect of “the government” and the private aspect of “the federal reserve”… only co-exist. They are not the same thing.
            Trying to make things that are relatively simple, seem much more complex than they really are.. again is obfuscation.
            The banks, both of the fed…. and all the rest of the private banks that operate by being licensed by our government… create money. (most of it anyway).
            All the book keeping that happens in between to keep the system running, is not magical. It is a creation of people. And the federal reserve act, is the law that allows the current system to be “legal”. All the auxiliary financial services that exist because of these relationships, do not translate to universal truths.. it is just the way business is done.
            I believe you have been sold a bill of goods, that has flaws.

            1. Adam Eran

              The idea that people can’t come to grips with seriously changed narratives (which is what MMT is) is extremely old. I’ve encountered your objections numerous times. They are the result of a massive propaganda effort that continues even now.

              If you have a better analogy to explain the stubborn insistence on pleasant myths rather than scientifically-validated proofs, I’m all ears. If you can’t understand the metaphor…well, my sincere sympathy.

              Meanwhile, just so you know: Copernicus wisely published the astronomy that contradicted the geocentric astronomy of his time after he died. Galileo spent time under house arrest…because he told the pope the heliocentric truth. This pattern is a story as old as the human race. It’s all-too-human to obsess about a pleasant myth rather than change your thinking to the cold, hard truth. MMT economists call what they espouse a “Copernican revolution” in economics, too.

              All the ownership conversation about the fed is a waste of breath that simply validates Brandolini’s law (it takes orders of magnitude more energy to debunk the BS than to create it in the first place).

              The Fed does what congress wants, period. And it follows its enabling legislation as it did in 2007-9 when it allowed overdrafts in its accounts to ensure “orderly” markets.

              And yes, I’ve read Greider’s history of the Fed (Secrets of the Temple) so I know way more about the Fed than I want to.

              Speaking of expertise, have you read Kelton’s The Deficit Myth? Or how about Keen’s Debunking Economics, or the MMT text: Macroeconomics by Watt, Wray and Mitchell?)

              Federal reserve notes are banknotes (i.e. claims on the bank). They are the property of the people who have them in their wallets. The idea that they’re the Fed’s property is beyond bizarre.

              The bill of goods you’ve been sold is that dollars grow on billionaires. This is patently absurd and leads to all the misunderstandings you parrot about how the national debt is like household debt (trumpeted from every media outlet…confirming that we swim in a cesspool of propaganda).

              National debt is like bank debt. The bank owes you the money in your non-interest-bearing accounts (Checking, like dollars) and in your interest-bearing accounts (Savings, like bonds).

              If this is not convincing, then feel free to believe the earth is flat, and phlogiston is what actually burns in wood. You have lots and lots of company

              Heck, the people who send me email to “preserve” Social Security believe what you believe. It’s a very common misunderstanding.

              Hey, I’ve been wrong before too…ask my wife…;-)

              1. rob

                ?how have I ever said “dollars grow on billionaires” I don’t even know what that means.
                I also would NEVER say the national budget is like a household budget. never have ,never will.
                too many attempts to strawman some response I’ve never made.
                but aside, going with the how to explain people holding on to pleasant myths…. can’t really say. That is a bane of my existence… people holding these silly ideas as fact.
                as far as the church(which I consider ALL deified religions as superstitions.) the jesuits,and ignatious loyola were very much in the business of using” learning against learning”. This is the art of using knowledge to keep people from understanding the truth. Giving them something else to fixate on.
                A better point would be the fairly recent attempt by MMT enthusiasts to influence the “greening the dollar” platform of the US Green party.
                The monetary reform effort , which is what in my opinion, the actual way to realize all the things you think MMT will offer you, was lagely spearheaded by people at the american monetary institute, which had formed the 2012 NEED act, which was proposed as a bill in the house of congress.
                Now, the MMT contingent had attempted to insert these MMT principles into the language of the party. There was a convention for over a month, when both sides were allowed to present any and all evidence they had, and any speakers they wanted to bring.
                The result, was that MMT, could never prove its points. Out of a panel of @100 judges, over 80 decided MMT did not offer a convincing argument, and chose to keep the greening of the dollar platform as it is.
                Now, I am a no one , as well. and can be wrong… my wife will also concede said point.. but a friend of mine has been in contact with all these people you mention , for years: steve keen, stephanie kelton, warren mosler,bill mitchell, randy wray,etc. which is to say, I have heard these talking points before,I am not a neophyte and I am not swayed.

                As far as the private nature of the fed… that is the crux of it… who is wall street working for? who has wall street helped? Why should I believe in some fairytale that because these systems of payments can be used for good, they will be? When we have 100 years evidence to the contrary?

                1. Yves Smith Post author

                  Sorry, inability to persuade people in the artificial medium of a debate back in 2012 when MMT had gotten no mainstream air time is not valid.

                  You need to work with double entry bookkeeping entries to see how it works and to be shown the alternate story is false.

                  Even the Bank of England, Greenspan, and Bernanke have conceded MMT principles, that central banks do not need to tax to spend, that they create money out of thin air..

                  MMT has always said tax is necessary to validate currency and drain excess demand. MMT says the limit on government spending is excess demand relative to real economy capacity.

                  Your arguments v. MMT are all straw manning so your response reads like projection.

                  1. rob

                    thank you for the space on your soap box, to offer my low grade opinion. I am only a lowly enthusiast, not an expert of anything.
                    I am not saying MMT descriptive framework is “all wrong”. I did start by saying, there are useful aspects to the depiction of how money works, as has been “used” for a long time ,historically.
                    I am not quibbling with those points you make, except that the “debate” was an actual allowance of both sides to bring any experts of facts they could. It wasn’t “someone’s home turf” which then was allowed to exclude voices/points of “the other side”. It was an honest exploration of validity. Many other venue’s don’t offer that kind of honest brokering of ideas.
                    I do offer up Micheal Hudson’s depiction of our central bank as the vehicle of private interests, which he always uses as a foil to contrast how the chinese are not allowing private money creation to rule over every other aspect of business and society.

  8. Mark

    But we are in living in a time when banks, not just government, are in effect creating money. Monopolistic corporations largely control our government levers that do create our money, and miraculously, the majority of the money being created is being used to offset the lack of taxation on the richest. Massive deficits to enrich the already richest have been the true economic goal for the US economy since Reagan. MMT seems to be a fine theory, and might have worked well in a Samuelson era, but not in our current system of the Fed serving, overwhelmingly, the wealthy, and our elected officials owned by Wall Street. MMT in theory provides a cogent model of where we should like for our economy to be. But that will require change.

    1. Adam Eran

      In my view MMT debunks the big “Eeek! we’re out of money” excuse. Everything you say is accurate, though.

    2. Jim Whitman

      Adam Eran has done some marvelous work here in the discussion. Can I suggest you read Stephanie Kelton on the heirarchy of money that establishes order in the social relations of money, and say between government and its licensed private banks. Recently I really enjoyed this podcast from the crew at MMT Podcast, Episode 137 – Eric Tymoigne: What Makes Something Money?

      Jim @economicsnz

  9. 10leggedshadow

    I am not an economist, but since the Fed threw most of this newly created money at rich people, the answer is to tax it back and not just focus on interest rates. Apparently the Feds rule is we can only give money to rich people, not take it away.

  10. Px

    Why is it called MMT? It is a theory that in no way involves money. Money involves no counter-party risk. If it did, it wouldn’t be money. It would better be labeled as MCT (Modern Credit Theory).

    Now, as a matter of course MCT is a good description of the payment system in a modern Republic. For example, everyone in the US works for the US and all the corporations are US persons. Therefore, it is appropriate to use such a internal credit system for a Republic, or Commonwealth for that matter. All the credit stays within the system and the system functions fine as long as external transfers (trade balance) remain balance with imports.

    My main problem with MCT is their incessant and mistaken belief that interest rates are a tool for the elite to capture value. I was dismayed when i heard Varofakis spouting such drivel and had to rethink what I assumed might be good judgment.

    Credit can’t be free without great distortions to society. Lower interest rates and people will speculate on housing and just about everything else. Credit must come at a cost to purge speculation. I barely need to mention how absurdly oversold all of the stock markets are. When you lower interest rates you force the working class (who would love to hold on to their purchasing power in a savings account for retirement) to rush into risky investments like WallStreet, crypyo, etc.

    There is a reason WallStreet loves MCT, there is a reason why Soros has been funding the propagation of it.

    1. Adam Eran

      First of all, I’d like a little backing for your statement that Soros is funding propagation of MMT. That statement itself sounds suspect. Soros is a capitalist’s capitalist. If he’s a lefty, I’ll eat my hat. Of course he’s to the left of the Kochs, but so is Atilla the Hun. Your statement sounds like an (unconvincing) attempt to tar MMT as left-leaning.

      As for whether credit can be free… The speculation on housing got its biggest boost from lower land taxes (cf. California’s prop 13) far more than lower interest rates. If you say margin debt to buy stock stokes the speculation, I’m much more likely to believe that. In any case, poor people are more likely to be debtors, so inflation favors them when they can repay with cheaper money.

      Incidentally the “MMT” moniker came from its opponents. It’s not that modern–Chartalism said very much the same thing in the early 20th century, and the Chinese are reported to have something like it around 200 CE. It’s not that theoretical, either. It’s an accurate description of how money works for currency creators.

      Does money involve counter-party risk? Let’s ask some holders of Confederate dollars, shall we? They’re not valuable because the issuer can’t tax any more.

      Anyway, you’re misguided on several counts here.

      1. Wukchumni

        Does money involve counter-party risk? Let’s ask some holders of Confederate dollars, shall we? They’re not valuable because the issuer can’t tax any more.

        One thing about the Union during the Civil War, they issue around 20 million ounces of monetized gold coins, while the CSA issued exactly zero. An interesting way to look at things is early on when the Confederates were winning, the CSA $ was nearly on par with the Union $, and then we things start going south it takes more and more CSA $ to equal a Union $ before becoming worthless after Appomattox.

        CSA banknotes had interesting terms, the worth was all based on them beating the Union.

        Most Confederate currency carried the phrase across the top of the bill: “SIX MONTHS AFTER THE RATIFICATION OF A TREATY OF PEACE BETWEEN THE CONFEDERATE STATES AND THE UNITED STATES” then across the middle, the “CONFEDERATE STATES OF AMERICA WILL PAY [amount of bill] TO BEARER” (or “…WILL PAY TO BEARER [amount of bill]” or “…WILL PAY TO BEARER ON DEMAND [amount of bill]”). (Wiki)

        When I was a kid you could buy brand new 1864 $20 CSA notes for $2, how many thousands would you like?

        But the south did rise again though, every lower denomination CSA banknote ($1, $2, $5, $10 & $20) is worth more than face value to collectors now.

  11. Isla W

    Off The Cuff (and some have their cuffs brushed for them Q? Num/Denom)

    Soros is often singled out as a ‘Progressive’.
    And here is why he is.

    While Free(d) Market ‘Leveraged’ Banking has run to plateau.
    (as was predicted pre 1978)
    Due to plateauing expansion of export markets & waste shelving.
    And the global (relative) technologic advantage gap is narrowing.
    Hence advanced centre/region wage rise to built property loan(s)
    to private bank balance sheets ~ are not releasing monetary ply;
    to the same degree as (N. Atlantic/) Advanced Centres (AC) had
    become used to (including ‘tax’ spending largess).
    Plus, the inefficiencies of living environments,
    built for short-term profit (embodying the ‘calories’
    metabolized by an organismal culture seeking to escape
    the natural bounds of their earthly berths) is coming back to bite… ,
    for the lack of harmonic (‘electron’-field ‘quantum’ probability) co-existence.

    There are deeper concerns.

    There (above) appears true enough for some to consider that
    application to the IMF, by over-leveraged AC, is not inconceivable.
    (Consider this as ‘Civil Continuity’ Loans, with riders to limit… things.)
    ((These may be necessary to ensure safe control of technologies))
    (((At This Cusp In Human Technologic History)))
    (((Where Gods Were Said To Dream)))
    (((Humans Now Begin To Tread)))

    Do some consider that ‘Global Nations’ can perhaps not afford
    the ignominy re home politics. And better to conceive a national
    money printing solution, to that of the IMF Bolt-On Instruments.
    Quite possibly. Which worries… me anyway.
    For all the reasons mentioned in the under-sights above (apols).

    I will likely not have time to revisit this thread.
    But the problem mostly lays in the Over-Valuation of Land.
    (To The Ground, Fell Trickle-Down)

    The ‘battle’ (war of the words) lays here:
    IMF Working Papers WP/15/219:
    Emerging Powers and Global Governance: Whither the IMF?
    By Rakesh Mohan and Muneesh Kapur

    The current monetary model ‘off-ramp’ lays here:
    (2/3rds good proofs, 1/3rd well meaning relatable (excusable considering))
    (Just buy the second article. The latter proofs are worth £3)

    Good Luck to us all. Sleep well… coz I haven’t the time.
    re Sculptural Civil Infrastructure re Energy Orientation & % Autonomy
    re Warming Winters Waters – Which also relates to what I’ve dubbed
    ‘The Norman Plateau’ (- context – (organismal /) cultural legacy peaks)

    Yves et al. You are right as to ‘bank has debt obligation to an account holder’:)
    But to explain some of the balancing act (and act is also – a partial – truth) see:

    “The Scope For Foreign Exchange Market Interventions, by Peter Bowfingure
    UNCTAD Discussion Paper No. 204 (UNCTAD/OSG/DP/2011/4) 01 Oct 2011

    … as (non-fossil) resources (critical especially) are ‘re-emparitising’,
    c. DRC/Ukraine (c. Syria re Bosphorus – Russo fly-over)
    At This Cusp…

    Take Care With These.

  12. Isla W

    With regard to my previous comment.
    And my era proclamation of ‘The Norman Plateau’.
    Please see:
    The [Norman / Southern English] Origins of Capitalism – A Longer View,
    Ellen Meiksins Wood 2002 [pp98-103]

    re ‘cultural’ / gene-pool spillovers,
    that are now omni-financial.

    I should explain, that these are from an article I released April 2021,
    as a limited receivership ‘shot across the bows’,
    to high circles, ignorant of fundamentals.
    (re Aaron Benanav re export market plateaus.)
    (Plus everything they do know, but have been short-cycle dis-enabled from redress of.)
    (Hence – Be careful the ‘rules’ of MMT/CMT that might be ignored, by populist harridan soothsayers.)
    (see E.M. Wood pp98-103 re labor value; re ‘labor discipline’ (above), into built ‘exo-shell’ indenture re ‘CMT’ leverage.)
    Apols. My article is not available publicly / online.

    The ‘MMT’ Cat may be Out Of The Bag. But the (Global) ‘GMT’, of debt ‘plateauing’ supports,
    covering up for (Current) ‘CMT’ ‘off-ramping’, mat require good concerned folks as yourselves,
    to be aware of long-term political pressures, such as hydrologic-cycle induced migration.
    In order to assist the promulgation of ‘Global (trade-block) Monetary (debt/credit disbursement) Treaties’.
    That are capable of stabilizing current earthly dis-harmonies.
    re adolescent (technologic / agri-ocean) cultures, seeking (over-spill) escape, from earthly bounds (see previous).

    As A.Boris Johnson (c. UK PM) took from my article; (oh the ignominy)
    “Humanity is but young yet. But there’s a long way to go while avoiding the mistakes of a juvenile technologic species.”
    … into his pre COP26 UNGA speech; (of all the sui-blind… (pre Ukraine))
    “Humanities adolescence is coming to an end.”
    We can assume there are maneuvers afoot re global money printing capabilities (GMPC?).
    But considering what some people think about ‘9/11’, the ‘plausible deniability’ of CoVid,
    and the need for the N, Atlantic Trade Zone to transition away from fossil fuels
    (anthropogenic global atmospheric forcings are real though).
    Taiwanese chips vs sino territorial sanctity aside.
    Et al et al.
    An arbiter is required.
    And while finance can be a tool of that arbitration.
    The institution(s) in need of an (M/C/)GMT,
    that might become the germ of
    A Global Governance Association,
    should not be (dangerously) rushed (into).

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