A Currency-Issuing Government Must Spend Before Non-Government Can Meet Its Net Financial Liabilities

In reaction to MMT statements that government spending must occur before taxes can be paid, it is sometimes noted that a household could pay taxes by borrowing from a bank that subsequently obtains reserves from the central bank. Whether this is true from inception of a modern money system will depend on the terms set down by the central bank in advancing reserves to banks. But supposing the terms are permissive, would it change anything of macroeconomic significance? Let’s take a brief look.

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