Fun and Informative MMT Video

Donna D’Souza (Trixie) has created another cool video, this one based on J.D. Alt’s excellent E-book of the same title. Enjoy.

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15 thoughts on “Fun and Informative MMT Video

  1. I thought “loans create deposits” and therefore money creation happened in the private sector, endogenous money etc . Could someone explain why this is not the case ?

  2. The template is already in place and easy to make changes to as long as you maintain similar number of words/diagrams. Gilts kinda freak me out.

    If you can easily communicate the changes you want, I’d be happy to make a second version. Peter has my email addy.

  3. Ciaran: “Money” is a notoriously ambiguous term. It has narrow and wide definitions. In the current context, “money” or “dollars” refer to reserves and currency, or perhaps reserves, currency and government securities. These financial assets of the non-government (and liabilities of the government) are issued by the (consolidated) government, not private sector. In broader definitions, “money” includes private bank deposits. And, yes, loans create deposits (“money”, in this broader sense), etc.

    A reason for the focus on government-issued money is that it adds to net financial assets of the non-government. The creation of bank money, in contrast, is always matched by a new (non-government) liability. The immediate impact of its creation on net financial assets is zero. Over time, the creation of bank money actually results in a reduction in net financial assets, other factors remaining constant. This is because, to the extent the bank money is spent, it adds to income and so tax revenue. The government moves somewhat towards surplus and the non-government towards deficit by the same amount.

    Government money issued through government spending also obviously adds to income and, over time, tax revenue, but the impact on tax revenue is smaller than the increase in government spending whenever the marginal propensity to tax out of income is less than 1.

  4. Banks can extend loans and create deposits in doing so by crediting and debiting accounts, Banks, like others, do this in the unit of account, the currency.

    The deposit is an obligation of the bank to deliver the unit of account in the amount of the deposit as the medium of exchange. The bank does not create the medium of exchange, i.e., the currency, which is issued by governments through their central banks as reserves that banks hold as either reserve balances at the central bank or as vault cash.

    For example, a depositor demanding cash at the windows requires the bank to get that cash from the central bank, which it does by exchanging reserve balances at the central bank and keeps an inventory on hand to meet widow demand.

    Non-cash transfers take place (after netting) through debiting and crediting reserve balances at the central bank. Those reserves balances are on the spreadsheet of the central bank as liabilities created only by the central bank.

    So banks have to get both cash and reserves balances for final settlement ultimately from the central bank, since they cannot create either cash or rb themselves.

  5. I am wondering why politicians seem so ignorant of the way money works. Even President Obama compares households to the federal government. Do economists not trust politicians with the truth? Or is it easier to tell them something they already believe?

  6. John: I wonder the same thing. My guess is that politicians and their financial backers prefer the public to remain ignorant. Some prominent economists seem to have taken the same view. (See the video of Paul Samuelson, linked to in a recent post, in which he explicitly stated his preference for public ignorance.) Behind closed doors, I suspect that economic advisers and the president cover all the relevant information, then strategize over what angle gives the most political and electoral mileage. In determining strategy, I doubt the truth, however it is perceived by them, has much bearing on anything. But that is just a guess.

  7. JT said: “I am wondering why politicians seem so ignorant of the way money works.”

    Hearing either politicians OR orthodox economists talking about money is like listening to a troop of ballerinas trying to talk about ballistics (everything EXCEPT working knowledge of the damn OPERATIONS!)

    It doesn’t have to be this difficult.

    In fact, it isn’t. (It’s worse!)

    Last spring I was at an off-the-record mtg of military staff and DC area defense contractors (all preaching to the choir about MORE defense spending).

    One of the key speakers was a retired Senator who’d served for decades supporting defense spending as a member of the Senate Appropriations Committee.

    In Q&A, someone asked the Honorable Senator how we were going to maintain National Security given our need to “balance” our budget & cut spending.

    That’s when I sat up to listen more carefully. The ex Senator actually said:

    “I think all this budget talk is a cop out. When the time comes, we’ll do what we’ve always done. We’ll decide what the country needs to do, and then just appropriate the money.”

    You could have heard a pin drop in the room. It went dead silent. After a long pause, they all went back to nat’l security concerns, and NO ONE SAID ANOTHER WORD ABOUT “BALANCING FIAT.”

    So, Sr. members of Congress really do know how our fiat currency operations actually work (and have, since 1933).

    It’s amazing that they let all the novice politicians so horribly misuse bullshit rhetoric about “money” in their first-election campaign speeches.

    Once a Congressperson is elected, and panders to the right lobbies … they don’t need to invent outrageous BS to attract attention. In fact, once promoted to important incumbent status, they’re [usually] not allowed to embarrass the very serious lobbies who are backing them. To get onto the serious Congressional committees they presumably have to trade in their bullshit rhetoric for some adult debate and negotiating skills.

    Politics in this country floors me. As does the way we prepare our electorate.

    Worst of all, some of the retired Congresspeople (Erskine & Bowles?) go BACK to peddling nonsense to the uninitiated!

    It’s all an incredible, unbelievable charade. If the MiddleClass knew how little respect they get from ANY Congressperson, they’d be deeply insulted. The MiddleClass ought to be mad as hell, at every politician and every lobby. It’s a total travesty.

    It’s not considered worth THEIR time to explain anything to you? How’s that make you feel?

    If we lie to our citizens long enough …. it’ll eventually come back to bite our country in the ass.

  8. Prem Rawat has made a beginning to his own personal website, if anyone is interested in the reciprocative role of peace:

    Prem Rawat

    My commitment is to peace. I want to see peace dancing in the heart of every human being. In my travels around the world, I’ve experienced a lot of things — the most baffling of which is people’s explanation of why there can’t be peace. People focus on the symptoms, but not the disease. My efforts are focused on eliminating the disease — which is, fundamentally, people not being in touch with themselves, not knowing who they are. If we don’t take care of the disease, the symptoms will never go away. And we all know what the symptoms look like: greed, war, selfishness, violence, and an increasing loss of trust. Peace is a real thing. Peace resides in the heart of every human being. Peace has to emanate from you.

  9. MMT could be summed up very simply. The government does not have to borrow anything (ie. bonds) when it can create sufficient money itself into the economy. Inflation is checked by raising taxation which ofcourse reduces the amount of money.

    However, MMT is to some extent unlike my futuristic project of Transfinancial Economics which offers a far more advanced picture of the economy, and money creation. Inflation could also be controlled directly in Real-Time, and electronically without seriously damage to the Free Market Price.

  10. Good work, Robert. My own vision is that a full-on information economy will develop over time that eliminates the social, political and economic structure as we know it. It will be a command economy run by AI in an environment of unlimited essentially free sustainable energy. There is no limitation on money creation, as we know. The limitation is real resources, and the chief limitation wrt real resources is energy. Overcoming that is on the horizon. Solar power is already freely available and unlimited, and the technology for harnessing it already surging forward. Fusion now seems to be a possibility, too. The problem then is heat-dissipation.

    As far as other resources go, Bucky Fuller addressed this many decades ago with is vision of design science, the foundation of which is doing more with less. He compared the development of land architecture > naval architecture > aircraft architecture > rocket ship architecture, for example.

    The question is getting from here to there and your proposal takes that into consideration. We need to start implementing the changes we can as it becomes possible and practically speaking, this likely involves a lot more gradualism than ideal owing to vested interests and the prevailing mindset, i.e., the level of collective consciousness.

    MMT is a just a baby-step in the direction of the economic potential of a globalized humanity. As we enter the digital age and the knowledge revolution the pace of change is picking up speed and promises to accelerate exponentially.

    Transfinancial Economics advances the debate considerably beyond where it is stuck now by proposing the outlines of a vision for future development and a path for actualizing it. We need to be thinking along these lines, which is just taking advantage of the potential that is already available instead of operating as if we lived in the 19th century, which is where neoclassical economics places us.

  11. BTW, the distinction between a free market economy and a command economy is pretty much a canard based on the (supposed) failure of communism owing to their adoption of command economies. As Keynes pointed out to Hayek in comments on The Road to Serfdom, planning is more efficient than letting nature takes its course. This was before the digital age had dawned. Hayek wrote is “The Uses of Knowledge in Society” around this time, too, basically claiming that free markets could perform economic calculation superior to human capabilities. Even if that claim were true at the time — it wasn’t, but that’s another story — conditions have changed dramatically since then and promise to change even more dramatically going forward.

    Humanity has not progressed by leaving its development to nature but rather has used human intelligence to shape its future. It’s worked pretty well for us in comparison to other species. Looking to nature to do our calculating for us is looking backward rather than forward, especially now that the means to calculate on a vaster scale have been developed and are still developing quickly with no end in sight. Development in the industrial age was slow and limited in comparison.

    Compare the development of digital technology to automobile engineering, for example. Cars have gotten a bit faster, a lot more reliable, and a somewhat more fuel efficient over the past century. I was just talking to s.o. today about advances in digital technology. She used to program an IBM mainframe in the Sixties. It’s core was 256k. Compare that to an iPad today.

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