Modern Monetary Theory (MMT): How Fiat Money Works

[imagep]

I'm sorry, I do not buy it.

MMT still has too much warranted criticism to be accepted as "policy prescriptions" from a "description of how a fiat currency system works." There is still a function of investment in a nation's currency that subscribers of MMT tend to diminish and assume it has no consequence.

but MMT makes no policy prescriptions, although some MMTers may make policy prescriptions on their own.

 

[imagep]

Why wouldn't we? if we could just print money without consequences?

No MMTer ever claimed that we could print money wtihout consequences. You obviously have not bothered to learn anything about MMT yet.

 

[imagep]

I said clearly what MMT diminishes.

MMT reduces the role of investment in a nation's currency, perhaps said a better way MMT does not place any weight on investment (via bonds) to a nation's monetary policy.

While there may be a literal truth that a government with its own currency and in total control over their own monetary policy cannot go bankrupt, what a government can do is destroy the valuation of that currency if fiscal credibility is lost from poor decisions. MMT cannot get around this, no matter how much MMT tries to reduce the impact of fiscal credibility by a government in charge of their own currency.

MMT doesn't try to get around with that. MMT actually points that out. MMT points that the way our monetary policy is operated, monetary policy isn't able to destroy fiscal credibility, we would have change our monetary policy (maybe by allowing the fed to helcopter money or to spend money into existence) to destroy fiscal credibility.

Think about this, the fed has been around for over a hundred years now, and it's had all sorts of Bozos running it, and we still haven't destroyed fiscal credibility. the fed alone doesn't have the tools to do so.

One of the things that MMT points out is that monetary policy isn't all that effective without being coordinated with fiscal policy. During the recovery from the Great Recession, we did almost nothing with fiscal policy to help our economy, and the fed tried as hard as it could to help the economy, trying to pump money into our system with the expectation that this money would cause growth, but all we ended up with is painfully slow growth.

 

[joG]

What is their to be convinced of? MMT simply defines our monetary system, and how it relates to our fiscal system. MMT does not support any particular policy or prescriptions to run an economy, it simply explains the way it actually works. Now that's not to say that MMTers don't independently support particular polcies based upon their knowledge of MMT, many of them certainly do.

Are you saying that you don't understand how our monetary or fiscal systems work?

What i am saying is rather that there is nothing in it to make printing infinite amounts of money a rational policy like some economic illiterates here maintain.

 

[joG]

No MMTer ever claimed that we could print money wtihout consequences. You obviously have not bothered to learn anything about MMT yet.

I am afraid your statement is not strictly sensible. I believe I might understand, what you wanted to say, but am not really sure. But it is certainly wrong that mmt has not been used here to attempt justification of rather silly policy ideas.

 

[James972]

No MMTer ever claimed that we could print money wtihout consequences. You obviously have not bothered to learn anything about MMT yet.

its a secret, liberals are in fact really responsible about printing money they just wont tell us how much they want to print or why they won't let each of us print as much as we'd like.

 

[imagep]

its a secret, liberals are in fact really responsible about printing money they just wont tell us how much they want to print or why they won't let each of us print as much as we'd like.

I'm pretty sure that the federal reserve reports it's financials to congress, and the federal reserve is also constantly audited.

 

[James972]

I'm pretty sure that the federal reserve reports it's financials to congress, and the federal reserve is also constantly audited.

care to tell what on earth your point is if you have any idea?????????

 

[imagep]

What i am saying is rather that there is nothing in it to make printing infinite amounts of money a rational policy like some economic illiterates here maintain.

Can you tell me which post or who claimed that we can create infinite amounts of money? I've never seen anyone make that claim, although people are constantly telling me such.

 

[imagep]

I am afraid your statement is not strictly sensible. I believe I might understand, what you wanted to say, but am not really sure. But it is certainly wrong that mmt has not been used here to attempt justification of rather silly policy ideas.

sorry, I haven't seen it used to justify any silly policies, although I have seen it used to justify policies that would improve our economy.

Can you point to any posts where an MMTer has suggested that the government give everyone a million dollars, or that it can print an unlimited amount of money without causing economic harm?

 

[James972]

Can you tell me which post or who claimed that we can create infinite amounts of money? I've never seen anyone make that claim, although people are constantly telling me such.

Actually liberals don't say what MMT is other than lots of easy money because they lack the ability to defend what they parrot from other places

 

[imagep]

Actually liberals don't say what MMT is other than lots of easy money because they lack the ability to defend what they parrot from other places

Well I dunno about "liberals", but lots of people define MMT pretty well, including many posters on this forum.

Maybe we could have better discussions about these issues if we didn't try to label people.

 

[joG]

Can you tell me which post or who claimed that we can create infinite amounts of money? I've never seen anyone make that claim, although people are constantly telling me such.

I am not going through the mmt stuff in the forum for that. But, if you've been reading it, you must have seen it.

 

[Econ4every1]

MMT doesn't try to get around with that. MMT actually points that out. MMT points that the way our monetary policy is operated, monetary policy isn't able to destroy fiscal credibility, we would have change our monetary policy (maybe by allowing the fed to helcopter money or to spend money into existence) to destroy fiscal credibility.

Think about this, the fed has been around for over a hundred years now, and it's had all sorts of Bozos running it, and we still haven't destroyed fiscal credibility. the fed alone doesn't have the tools to do so.

One of the things that MMT points out is that monetary policy isn't all that effective without being coordinated with fiscal policy. During the recovery from the Great Recession, we did almost nothing with fiscal policy to help our economy, and the fed tried as hard as it could to help the economy, trying to pump money into our system with the expectation that this money would cause growth, but all we ended up with is painfully slow growth.

I want to add to your point because I think you are right on....

I think it's important to remember that the Government spends, the Fed lends.

Yes the Fed can buy assets from other banks, but it can't spend directly into the private sector the way government can. So it's crucial to coordinate.

 

[Econ4every1]

I am not going through the mmt stuff in the forum for that. But, if you've been reading it, you must have seen it.

I'm going to take a guess as to what the problem night be.....

I think it's easy to misconstrue the sentence....

"The government can never, ever, ever go broke (unless it chooses)."

and misunderstand that sentence to mean;

"The government can spend all it wants, no problem"

MMT'ers realize that the first sentence is, in fact true, but anyone that I know understands MMT realizes that even though a government can pay it's debt, does not mean the the economy couldn't be functionally destroyed. Because a sovereign nation with a fiat currency has debts that are denominated in currency it creates, it can't ever be unable to pay debt, because, as long as government exists, it will be able to create money. The money might be worthless for anything but paying debt, but whether the debt is 1 billion, or 4 quadrillion, these are just numbers and if you can type them into a keyboard then government can pay it.

So when MMT'er say the government will always be able to pay it's debts, is true, but all the MMT'ers I know realize that that does not mean you can spend all you want without consequences.


Amiclose?

 

[imagep]

care to tell what on earth your point is if you have any idea?????????

It appeared to me that you were implying that the amount of money produced by the federal reserve is a secret.

 

[joG]

I'm going to take a guess as to what the problem night be.....

I think it's easy to misconstrue the sentence....

"The government can never, ever, ever go broke (unless it chooses)."

and misunderstand that sentence to mean;

"The government can spend all it wants, no problem"

MMT'ers realize that the first sentence is, in fact true, but anyone that I know understands MMT realizes that even though a government can pay it's debt, does not mean the the economy couldn't be functionally destroyed. Because a sovereign nation with a fiat currency has debts that are denominated in currency it creates, it can't ever be unable to pay debt, because, as long as government exists, it will be able to create money. The money might be worthless for anything but paying debt, but whether the debt is 1 billion, or 4 quadrillion, these are just numbers and if you can type them into a keyboard then government can pay it.

So when MMT'er say the government will always be able to pay it's debts, is true, but all the MMT'ers I know realize that that does not mean you can spend all you want without consequences.


Amiclose?

That is, what i thought also. Until i pointed it out more or less the way you did and was told i didn't understand mmt. The thing is also, that it is rather odd to point out that, if you have a printing press, paper and ink, you can print cash and pay any bills that come without mentioning that this is absolutely true till the cartridge producer won't accept your printed paper. The only interesting thing about that is that the conclusion is not mentioned.

 

[imagep]

I am not going through the mmt stuff in the forum for that. But, if you've been reading it, you must have seen it.

I never have.

I honestly believe it is a figment of your imagination. You just want to believe that MMTers are all crazy, so you imagine them saying all sorts of crazy things, but you can't actually quote any particular MMTer as saying anything crazy.

 

[imagep]

That is, what i thought also. Until i pointed it out more or less the way you did and was told i didn't understand mmt. The thing is also, that it is rather odd to point out that, if you have a printing press, paper and ink, you can print cash and pay any bills that come without mentioning that this is absolutely true till the cartridge producer won't accept your printed paper. The only interesting thing about that is that the conclusion is not mentioned.

I suspect that part of the disconnect is that some people believe that our government already spends to much (even though we still have millions of unemployed people) and that they believe that it already creates too much money (although we haven't had an inflation problem in many years).

For someone who believes like that, then the suggestion that the government could spend (anything) more to eliminate unemployment, or that it can spend without an equal amount of tax revenue sounds absolutely ludicrous. I suppose it just depends on where we are coming from.

From my viewpoint, as long as we have unemployment over three percent and inflation less than three percent and as long as there are potholes or children who aren't getting a great education, then we have enough slack and need in the economy for the government to create more money and to spend more money.

 

[Econ4every1]

That is, what i thought also. Until i pointed it out more or less the way you did and was told i didn't understand mmt. The thing is also, that it is rather odd to point out that, if you have a printing press, paper and ink, you can print cash and pay any bills that come without mentioning that this is absolutely true till the cartridge producer won't accept your printed paper. The only interesting thing about that is that the conclusion is not mentioned.

Well, I think Imagep and I would like to help you get to the bottom of this mystery, but your going to have to find these statements so we can address them, otherwise, I 'm left to conclude that you probably misunderstood.

 

[joG]

I suspect that part of the disconnect is that some people believe that our government already spends to much (even though we still have millions of unemployed people) and that they believe that it already creates too much money (although we haven't had an inflation problem in many years).

For someone who believes like that, then the suggestion that the government could spend (anything) more to eliminate unemployment, or that it can spend without an equal amount of tax revenue sounds absolutely ludicrous. I suppose it just depends on where we are coming from.

From my viewpoint, as long as we have unemployment over three percent and inflation less than three percent and as long as there are potholes or children who aren't getting a great education, then we have enough slack and need in the economy for the government to create more money and to spend more money.

Sounds like a quest for the neo-Phillips-Curve-wonder.

 

[imagep]

Sounds like a quest for the neo-Phillips-Curve-wonder.

Not entirely, but sort of.

I did oversimplify, obviously not all inflation is caused by government spending. For that matter, the root of all inflation is actually scarcity of goods. If goods weren't scarce, there wouldn't be a need for inflation. But even that is undersimplification, because one of those goods is human labor, and the rising cost of labor may be a cost push inflationary factor (although the root is still scarcity - scarcity of labor in this case).

It's complicated, right?

 

[austrianecon]

The first few paragraphs say just about everything you need to know and it does not appear to support your conclusions...
-Emphasis mine

Read the first part.. of that paragraph..

Antilock brake systems (ABS) have close to a zero net effect on fatal crash involvements. Runoff-road
crashes significantly increase, offset by significant reductions in collisions with
pedestrians and collisions with other vehicles on wet roads.

Which is all I have been saying. There is not net positive when you include all things.

 

[joG]

Not entirely, but sort of.

I did oversimplify, obviously not all inflation is caused by government spending. For that matter, the root of all inflation is actually scarcity of goods. If goods weren't scarce, there wouldn't be a need for inflation. But even that is undersimplification, because one of those goods is human labor, and the rising cost of labor may be a cost push inflationary factor (although the root is still scarcity - scarcity of labor in this case).

It's complicated, right?

I don't know that it is more complicated than complex. It is this complexity that makes anecdotal approaches so difficult let alone the problem of definition. Take inflation. Real inflation seems more a question of relative prices, while nominal inflation looks more at measured absolutes. Where we would have to go here would be to the differences in assumptions between mmt and its alternatives.

 

[joG]

Well, I think Imagep and I would like to help you get to the bottom of this mystery, but your going to have to find these statements so we can address them, otherwise, I 'm left to conclude that you probably misunderstood.

A good point to start would be with the formal differences between mmt and its alternatives.