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Joseph Polito's avatar

Comments - Better Understanding Modern Monetary Theory (substack.com)

​Another excellent column. But I have a few quibbles.

1. MMT is not new. It is essentially Keynes. I assume you have read a lot of Steve Keen who says he is Keynesian and promotes that thinking and decries neoclassical economics. Nonetheless, MMT makes many good points and wants to improve the lives of everyone. I do think it has some eccentric ways of putting positions that Keynesians and Keen would not disagree with.

2. I disagree with MMT' choice of saying governments create money by spending it into the economy. It is true that with taxes (let us just talk provinces here so as to avoid MMT version of tax collection), we slow the economy and the taxes need to be spent to restore demand. But the way our money system now works, almost all the money creation is through the banks as you have noted with this link

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

Furthermore as the link says, central bank money other than banknotes, can't be spent into the economy. So MMTers are stuck with a QE system which pays interest to banks for their settlement balances. "Reserves can only be lent between banks, since consumers do not have access to reserves accounts at the Bank of England.(2)"

3. MMT seems to be incorrect about its 'issuer' position. Canadian academic and Fed VP David Andolfatto says something that sounds MMTish - "When the interest comes due, it can be paid in legal tender—that is, by printing additional U.S. or Federal Reserve Notes. It follows that a technical default can only occur if the government permits it." But he includes what could make the MMT position true. The Fed would have to provide all the money in banknotes, because reserves are only useable by the banks.

https://www.stlouisfed.org/publications/regional-economist/fourth-quarter-2020/does-national-debt-matter

4. Andolfatto elaborates here -

"All the money we use today consists of bank liabilities, either private or central. Let me label this private bank digital currency (PBDC). I’ve also mentioned that CBDC exists in the form of reserves held in accounts with the central bank. Reserves are counted as a liability of the Federal Reserve. The third type of money takes the form of small‐denomination paper bills issued by the Federal Reserve. Let me label this central bank paper currency (CBPC). These too are counted as liabilities of the Fed.

The way things presently stand, everyone in the world is permitted access to CBPC, the paper component of the Fed’s balance sheet. However, only banks (and a few other agencies) are permitted access to CBDC, the digital component of the Fed’s balance sheet. Why is this the case?"

https://www.cato.org/cato-journal/spring/summer-2021/some-thoughts-central-bank-digital-currency

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Ajay Vee's avatar

Good article, echoing what Prof Steve Keen ( The New Economics - a Manifestos) and Stephanie Kelton (The Deficit Myth) have been saying for a few years now.

I am suspicious of your graph; it is too much an exact mirror image to be credible as being constructed from real data sets.

On reducing the housing debt; Keen advocates a debt jubilee in the form of a direct payment to mortgagees or, if the home is already owned free and clear, a payment that must be invested.

He also advocates a parallel carbon currency that would be paid to everyone but has the advantage of encouraging redistribution of wealth from rich (high carbon emitters) to poor ( low carbon emitters).

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