So here we go!
Just like a household, the government has to finance its spending out of its income
or through borrowing. Is that true or false?
Write down your answer.
Question two! The role of taxes is to provide finance for government spending.
True or false?
The national government borrows money
from the private sector to finance the budget deficit.
True or false?
I see a lot of you tend to get a lot of these wrong.
By running budget surpluses the government takes
pressure off interest rates because more
funds have been available for private
sector investment projects.
True or false?
Persistent budget deficits will burden future generations with inflation and then higher taxes.
Running budget surpluses now will help build up the funds necessary to cope with the aging population in the future.
True or false?
Okay, you can tally up your results. They’re all false.
Every one of those is false.
Recently there’s a paper from the St Louis Fed. Let me read this and then translate.
St Louis Fed if you don’t know is a
bastion of monetarism. This is Milton-Friedmann-type economics.
So what I’m telling you, it is accepted from right to left, okay?
As the sole manufacturer of dollars
whose debt is denominated in dollars
the US government can never become
insolvent, ie unable to pay its bills.
In this sense, the government is not dependent on credit markets to remain operational.
Moreover there will always be a market for US
government debt at home because the US government has the only means of creating risk-free
dollar-denominated assets. Let me
the government can NEVER run out of dollars;
it can NEVER be forced to default;
it can NEVER be forced to miss a payment;
it is NEVER subject to the whims of bond vigilantes.
Okay? That’s what the St Louis Fed tells us.
And you can find virtually identical
quotes from Bernanke, from Greenspan. Okay?
And really from almost all economists.
When President Obama tells you we’re running out of money,
that the piggy bank is empty,
that is just not true.
And all economists know that it’s not true.
Okay, so the question is: “Why do they lie to you?”
There’s a… a nice little video by Blaug in which he interviews Paul Samuelson.
I won’t read this long thing you can see the Powerpoint later.
He says, “there’s an element of truth in the superstition that the budget must be balanced”.
He says, “at all times” but then later on he talks about over a long period, longer periods of time.
He likens it to an
old-fashioned religion used to scare people,
Okay? So that they will behave in a
particular way. Says, “We have…
have taken away a belief in the
intrinsic necessity of balancing the budget
if not every year then over a short period of time
If Prime Minister Gladstone came back to life he would say, “Uh oh, what have you done
and James Buchanan argues in those terms, I have to say, I see merit in that view”.
So he likens it to a superstition, an old-time religion.
Okay? We have to do this because we have a fear
that our elected representatives will spend without limit.
And so we make up this lie,
that the federal government is like a US household.
You hear this all the time in the debates about the budget
the US government is like a household. That is not true!
Unless you have a printing press in your basement and you’re printing up dollars,
you are nothing like the federal government.
The federal government creates money as it spends.
So the framework that I am working from,
called Modern Money.
We’ll use Modern Money to
answer these sorts of questions.
What is money?
Why is it accepted? What’s the relation of the government to its money?
What is fiscal policy? And what is monetary policy?
Almost all the conventional wisdoms,
that provide answers to these, have got it wrong.

MMT: Government Budgets Are NOT Like A Household
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12 thoughts on “MMT: Government Budgets Are NOT Like A Household

  • October 6, 2016 at 11:12 pm
    Permalink abba lerner in a video with so many insights about money creation and stagflation

  • February 20, 2017 at 3:56 pm

    How much did too big to fail cost ? and why they have rates at 0 for so long ?

  • February 22, 2017 at 4:08 pm

    Where can a find the proof of MMT from the government/the fed itself. I get the idea very clearly but a want to see a governmet proof of MMT.

  • October 28, 2017 at 5:42 pm

    In the context of MMT, why was the US government's credit rating downgraded in 2011?

  • December 25, 2017 at 9:31 pm

    The problem with your thesis is simple. You think the only debt is the borrowing. That's just 10% of the government's debts.

    They have unpaid invoices, unpaid wages – all short term debts, not included

    They have public sector worker's pensions. Paid for up front [like the borrowing] to be paid in the future [like the borrowing]

    They have social security pensions. Paid for up front [like the borrowing] to be paid in the future [like the borrowing]

    Both the last too are debts to be included on the balance sheet in an honest set of books. See IFRS accounting standard.

    There will be other debts too.

    Now, there is one difference between these debts and most of the borrowing. They are inflation linked. The idea that you can print to pay off fixed rate debts cannot be extrapolated to inflation linked debts.

    To pay inflation linked debts you have to tax the payments from the productive element of society in order to make good on the value based debt. It's not X units of money. It's whatever it takes in cash terms to buy Y units of the inflation basket. So you are exposed to the X-Y exchange rate which is prices or inflation.

    You are half way there. You know that you need tax to give value to fiat money.

    Where you go wrong is in ignoring the pensions debts.

  • February 23, 2018 at 8:34 pm

    Thanks for the video Deficit Owls. What exactly is the process by which a 'government' prints money in order to spend them? It can't be that the treasury says to the central bank 'I've got some liabilities that are due, please credit my account with some freshly created money so I can make the payments!'. I also know that in some countries it is legally or customarily the case that the central bank won't (normally) buy govt bonds in the primary market. But even if they could buy them (or if the CBs buy them in the secondary market), what happens to the govt bonds that mature while being on the central banks' balance sheets? Do those liabilities go away (eg by debt cancelling and such)? Is there any source or good literature you could recommend so I can understand the minutia of this process? (I'm not an economist)

  • March 7, 2018 at 4:27 am

    hahahahaha sounds like famous last words and American arrogance. America can never go insolvent! We are America!

    The rest of the world is rightly concerned with national debts, including the US national debt but these idiots think Americans have nothing to worry about. America has a magic wand. America can buy now and pay never. This is the same type of stupidity that had banks buying and selling worthless mortgages like baseball cards causing the last recession.

  • March 15, 2018 at 6:45 pm

    MMT – the pollyanna version of oversimplified Keynesian economics and another reason why economics is not a science and economists are often despised.

  • June 30, 2018 at 3:40 am

    The MMT assumption that we can promise a permanent first world lifestyle to americans simply because they have access to unlimited "dollars" is grossly naive. Sure, yes the US cant go bankrupt, blah blah, because its debt is denominated in its own currency but that is irrelevant. Wealth is measured by your ability to trade currency for real resources, and that value is based solely on the reputation of the us as owning production. The us dominated innovation and means of production for 150 years, and reached a point the actual resources produced by a us citizen greatly outpaced other nations, especially the third world. Consequently the global community gained faith in the dollar as gold, and believed it was worth lots of resources. Today we all enjoy a nice lifestyle for free, in essence, simply because people continue to have faith in the dollar and gives lots of things for it. But this reputation is not permanent, as MMT people seem to believe. Pumping out dollars to pay pensions, or to invest in poor and low producers to "spend" into the economy does not ensure average productivity remains much higher than the worlds average. This is required to have a first world lifestyle. Subsidizing consumers is incideous, as we undermine our the basis of our own dollar by investing in the means of production in cheaper foriegn countries. We equalize global standard living and bring down the us middle and raise third world economies. Consequently as the middle class declines, we must print more dollars to subsidize them. The notion that we must increase production to ensure all the printed dollars can be used to prevent inflation is true but horribly naive since we are building the means of production abroad. When people abroad realize the amount of resources they produce (i.e., the value of their labor) is more on par with americans, they wont be duped into accepting the dollar as valuable anymore. Its value and american wealth declines. The combination of printing dollars, providing it to consumers to buy foreign production, and losing our means of production is a death spiral. The only place "mmt" as value is the idea of printing money to invest in infrastructure, technology, and other things that ensure americans real productivity is higher than the third world. Thats hard in a global economy. Our earlier investment in railroads, interstate highways, the space program, etc put us so far ahead of the world we all got a first world standard of living for it.

  • April 3, 2019 at 6:11 pm

    Please share this vid wtih #governmentsareNOThouseholds

  • April 3, 2019 at 6:15 pm

    Attention all Australians!!!!!!! We have to share this stuff as we are facing a Federal Election Downunder and the Deficit/Debt Con is central to the current Government's Re Election Strategy #governmentsareNOThouseholds


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