MMT for Dummiez

14 April, 2018 at 16:12 | Posted in Economics | 1 Comment

 

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1 Comment

  1. I agree with Modern Monetary Theory that the government budget is not like a household budget, that government spending is not constrained by tax revenue or interest rates, and that China is not America’s banker.
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    I disagree with MMT that jobs and GDP growth should be goals of public policy. I want a basic income, so we can learn more and need less.
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    I also think that MMT ignores the financial sector. In its three-sector model, MMT asserts an accounting identity with no evidence; the graph of the balances of the three sectors assumes the line for private sector debt, because of the accounting identity. I believe the private sector creates net financial assets on its own without necessarily having to go through the government sector; if my contention is accurate, private sector balances can be largely independent of public, or external, balances.
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    The video did say that banks create money from thin air. I agree, but that money creation does not have to be reflected in public balance sheets. As I see it, private IOUs circulate as money and can easily be put off forever using financial techniques. The Fed will supply as much money in exchange for private IOUs as the private sector asks for. But the IOUs themselves also circulate as money, independent of the Fed.
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    The key disagreement is whether the private sector can create Net Financial Assets without going through government. I think the following graph of OTC derivatives shows the scale (hundreds of trillions of dollars over a decade) of private sector Net Financial Asset creation:


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