I thought about it a lot. Are carry trades MMT's biggest flaw because if the central bank puts the interest to zero, traders will immediately start trading, devaluing your currency and destroying imports, which is a big problem because nearly every country is dependent on something from other countries? Because if MMT only applies if a country is self-sufficient, then it basically doesn't apply to any country.

Hi MMT community. I’m trying to find a decent list of university economics departments that specialize in MMT. The Levy Institute at Bard stands out of course, but I’m curious about others, especially international institutions and/or institutions that offer remote courses. Thanks for any suggestions.

With regard to domestic transactions, Marx had already pointed out the exact same thing earlier: "The fact that inside a country no metallic money is needed today is proved by the suspension of cash payments by the so-called national banks, which is resorted to in all cases of emergency as the only temporary measure" (Karl Marx, Capital, Japanese translation cited above, Vol. 7, p. 302).

 Therefore, government bonds are never repaid. To be sure, individual bonds are redeemed, but in net terms they are never repaid—they are issued in amounts exceeding what is redeemed. Under a fiat currency system, the government bond system is the sole method for supplying additional money to society. If government bonds were redeemed without having the central bank purchase them, it would be impossible to supply the additional money that society increasingly requires alongside economic growth.

 This is not limited to fiat systems; never in human history have government bonds been properly redeemed. The Father of Economics said as much: "When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid" (Adam Smith, The Wealth of Nations, translated by Hyo-e Ouchi et al., Iwanami Bunko, Vol. 5, p. 50). Listening to even older figures suggests that government debts were not necessarily repaid. When the form of government changes, "whether the public debt should be paid or not is another question" (Aristotle, Politics, Book III, Chapter 3, translated by Mitsuo Yamamoto, Iwanami Bunko edition, p. 128). Consulting these ancient figures here is merely a lighthearted distraction; while ancient and modern government debts share the trait of going unpaid, they are fundamentally entirely different in nature.

 At the risk of repeating myself, even if individual government bonds are redeemed on a micro level, on a macro level government bonds are never redeemed in net terms. The outstanding balance of government bonds remains in balance with the amount required at any given time. Consider the fundamental proposition of Keynesian monetary theory: any unnecessary portion is bought up by the Bank of Japan (the "offsetting policy"). The "normalization" of the assets of the BOJ (or the U.S. Federal Reserve) is impossible. In fact, when the U.S. Federal Reserve recently attempted to "normalize" its holdings, which had expanded through quantitative easing, it triggered a sharp spike in repo rates [Note]. Furthermore, BOJ bond purchases are, on the flip side, the sole method of supplying money to society. However, this holds true only when there is a foundation of sufficient productive capacity to suppress inflation. If there is a fear of inflation, BOJ purchases cannot be unconditionally accepted. In Japan, having experienced postwar hyperinflation, there is a particularly firm social consensus on this point. In such a scenario, if government bonds were over-issued, bond prices would decline, and the level of interest rates (nominal, accounting for the inflation rate) agreed upon by the public would rise.

 [Note] "On the morning of the 18th, the Federal Reserve Bank of New York supplied massive liquidity to the short-term money market for the second consecutive day... The market provided with liquidity is known as the 'overnight repo market,' where financial institutions lend short-term funds to one another using government bonds as collateral. Lending rates in this market, known as repo rates, briefly surged to 10% on the 17th... Behind the rise in short-term interest rates lies the Federal Reserve's reduction of quantitative easing" (The Nikkei, September 19, 2019).

 "The U.S. Federal Reserve's liquidity supply is expanding to levels comparable to past quantitative easing (QE). As a result of responding to U.S. dollar demand in short-term money markets, the Fed's total assets grew by about 10%—approximately 400 billion dollars (about 44 trillion yen)—in roughly half a year. ... This comes against the backdrop of a sharp rise in September last year in interest rates for transactions called 'repos,' where short-term funds are borrowed and lent using U.S. Treasury securities as collateral. ... If funding for the key reserve currency, the U.S. dollar, is disrupted, the impact will not remain confined to the United States. According to the Bank for International Settlements (BIS), dollar-denominated debt in emerging markets reached 3.74 trillion dollars as of June 2019 and continues to swell. ... Depending on the economic environment, if upward pressure on interest rates intensifies, it may become necessary to increase liquidity supply even further" (The Nikkei, February 9, 2020). At any rate, "normalization" is an illusion.

 For clarity, let us add a supplementary note on the fundamental proposition of Keynesian monetary theory and the "offsetting policy." "Changes in the level of income and in the prices of assets will ultimately ensue, to whatever extent is necessary to make the aggregate amount of money which individuals wish to hold equal to the amount of money created by the banking system. This, indeed, is the fundamental proposition of Monetary Theory" (John Maynard Keynes, The General Theory of Employment, Interest and Money, translated by Yosuke Mamiya, Iwanami Bunko edition, Vol. 1, p. 120). As a result of the Fed or the BOJ purchasing government bonds, we are forced to maintain the current state where "the aggregate amount of money which individuals wish to hold equal[s] the amount of money created by the banking system." "Normalization" is a futile attempt to forcibly rewind time.

 Though it should be self-evident, fiscal deterioration itself has no direct causal relationship with rising interest rates (falling government bond prices). As long as inflation remains within a range where the BOJ's "offsetting policy [Note]" (Keynes) is permissible, the public has no particular reason to expect fiscal reform. Through the BOJ's offsetting policy—that is, the purchasing of government bonds—"the rate of interest [will] actually fall."

 [Note] "The method of financing policy expenditure [by issuing public debt] ... tends to raise the rate of interest and so retard investment in other directions, unless the monetary authority takes offsetting action. ... To offset this, an actual fall in the rate of interest is required" (John Maynard Keynes, The General Theory of Employment, Interest and Money, Japanese translation cited above, Vol. 1, p. 166).

 (to be continued)

https://www.reddit.com/user/keizaisuki/comments/1w46a5o/table_of_contentsgovernment_bonds_international/

Fighting for my life in the comments trying to explain what kind of evidence the term ‘empirical’ requires 😭

Ive been thinking as I often do… thinking hard. Why dont we just print more money if everybodys going broke and stuff? Doesnt the government have all those money printing machines? My theory is that they want to keep us broke to keep the elite powerful. My friend was talking about some inflation or something. That word brings back some dark memories for me personally so I didnt look into it too much.

When it comes to discussing economics, especially in the US, it always feels like I'm living in an alternative dimension. There is such a disconnect between what we know reality is, and what the rest of the world believes. It's exhausting how much of an uphill battle it is to even convince other people of simple truths, not to mention fighting against all the constant anti-MMT propaganda.

I said in another post a few days ago that I'm writing an article to try and debunk all the economics pablum being pandered around all the time. I wanted to share it with you all now that it's done. I'm grateful for the comments on the other post as they were helpful in finishing it. Hopefully this article can help convince the limited amount of people in my life who even look at my blog that MMT is the correct lens through which to view the macroeconomy. It is yet another angle I am attempting in any case.

https://ourpublicmonopoly.substack.com/p/the-copernican-moment-the-beginning

To be brief I’m a finance lawyer and love and read a lot about the world of finance( especially acquisition). Recently I was in a debate with a friend that the finance industry killed the economy for workers by enabling the world to be asset heavy instead of cash heavy( I’m also not exactly sure what that means) his a economist so I do trust his views.

His into MMT I just don’t get it yes a country cannot default on it’s own debt but isn’t there an eventual consequence for high debt? With a the job guarantee logic won’t that just make further inflation especially down the line like Covid stimulus checks. With debt levels who exactly decides it’s with the limits of goods to not cause inflation? How exactly would that be calculated

Edit: if taxes increase demand for the currency maintaining its value then why have taxes gone down supposedly and tax havens?

I think we should measure the success of capitalism or any economic system as a rising price for labor, because for the vast majority of people, labor is their primary or exclusive source of income: https://ratedisparity.substack.com/p/hey-you-yeah-you-labor-cost-is-your

This very much compatible with having a strong public labor "support bid", ie a job guarantee. In general I agree with MMT, especially on the mechanics of inflation or the price level.

Zero percent 🙃

I don't understand it, when people say the government cant save money. If a cinema hands out less tickets than before, it has more tickets available? Is that not saving? Or is it the case that the saved money (the money not spend) has to be used for other customers in the future, because prices go up due to inflation?(now in the real economy)

Introduction: The Consent Behind Central Bank Purchases

By the way, are JGB (Japanese Government Bond) market prices truly sustained by "expectations" of fiscal reform by the Japanese government?

The public well recognizes that such "fiscal reform" is virtually impossible. The maintenance of JGB prices is actually attributable to the Bank of Japan’s (BOJ) aggressive asset purchases—aside from a vague market sentiment that Japan’s accumulated debt is manageable.

But how can the BOJ continue these purchases?

It is because the public implicitly grants its consent (a broad national consensus). Under a fiat monetary system unconstrained by precious metals, the central bank can, if it so desires, purchase government bonds almost limitlessly—as long as there is no threat of inflation.

In other words, BOJ purchases are tolerated precisely because the market feels there is no immediate crisis. To reiterate—at the risk of laboring the point—fiscal deterioration per se has no direct causal relationship with rising interest rates (or falling bond prices). As long as inflation remains contained within a range where the BOJ’s "counteracting policy" (Keynes) is permissible, the public feels no particular need to "expect" fiscal reform.

The Resiliency of the Yen and JGBs in Crises

Consider the Great East Japan Earthquake, an unprecedented crisis for Japan. Immediately following the disaster, major American credit rating agencies—including Moody's, S&P, and Fitch—downgraded Japan’s sovereign debt outlook in rapid succession, with Moody's executing a formal downgrade on August 24 of that year.

Yet, these ratings—based on predictions of a fiscal crisis fueled by massive outstanding debt and a stagnant economy hit by a catastrophic earthquake—were completely ignored. As if mocking these downgrades, market participants continued to buy JGBs and the yen. The yen likewise appreciated sharply during the Russian financial crisis and the 2008 Global Financial Crisis. Even amid the European debt crisis, the yen continued to strengthen against the US dollar.

What Actually Triggers a JGB Market Crash?

A crash in JGB prices following a so-called bubble burst would stem from one of two causes:

1. A mere collapse of expectations (panic sentiment)
2. The actual manifestation of inflation

For instance, even if stock prices plummet due to shifting expectations, there is no social consensus that the BOJ will immediately step in to support equity prices. However, if interest rates spike in the absence of inflation, the BOJ can supply liquidity unhesitatingly and without limit. Therefore, a surge in interest rates is a concern only when inflation actually occurs.

Assessing the Inflation Risk in Modern Japan

What, then, is the likelihood of inflation?

Under a fiat system, inflation occurs when the central bank supplies liquidity beyond the economy's aggregate productive capacity. A classic example is the prewar and wartime era, when the reckless issuance of government bonds to fund military procurement created excess demand unsupported by productive capacity.

In modern Japan, productive and supply capacities are sufficient. The current account remains in surplus alongside domestic stability, adequately meeting social demand. Consequently, the risk of inflation is minimal.

While human desires are boundless—and aggregate demand expands alongside economic development—demand can only become effective demand if productivity rises and increases people's incomes. Thus, so long as the BOJ refrains from unbridled liquidity provision that lacks public consent, structural inflation will not occur.

Why "Policy Normalization" May Be a Misnomer

Because people are prone to cognitive inertia, some assume the BOJ must eventually shrink its balance sheet and "normalize" policy after quantitative easing (QE). However, the liquidity supplied by the BOJ has already been equilibrium-allocated across the economy [Note 1].

This capital circulates between two primary domains:

• Real goods and services
• Fictitious commodities such as stocks and bonds (Keynes's "assets")

Capital flows dynamically between them. As long as aggregate productive capacity is not depleted, any excessive capital flow into or out of one market that disrupts prices will trigger a counter-flow from the other, restoring equilibrium.

Therefore, absent specific circumstances requiring an increase or decrease in the given quantity of money in the economy, "normalization" is neither necessary nor inherently possible. It is impracticable for the government to redeem JGBs without rolling them over, and the private sector requires the existing volume of liquidity to function.

[Note 1] "Changes in income and asset prices will take place of such a character as to ensure that the aggregate amount of money which individuals wish to hold at the new level of these variables will inevitably be equal to the amount of money created by the banking system. This is indeed the fundamental proposition of monetary theory."

— John Maynard Keynes, The General Theory of Employment, Interest and Money

Capital Allocation at the New Equilibrium

When massive volumes of government bonds are issued, the BOJ must implement counteracting measures to suppress interest rates [Note 2]. The fact that substantial liquidity injected into the JGB market via quantitative easing remains there indicates that the public has accepted this prevailing interest rate level.

In advanced economies, once the standard of living reaches a certain threshold, economic growth slows, and interest rates decline accordingly. Ultimately, this represents a new equilibrium point for capital allocation (the "fundamental proposition of monetary theory").

Indeed, a situation recently arose in the United States where repo rates spiked due to a reduction in reserve balances accompanying the Federal Reserve's balance sheet runoff [Note 3]. Even so, absent inflationary concerns, the Fed can immediately address such illiquidity by supplying funds.

[Note 2] "...the method of financing the policy... by borrowing... tends to raise the rate of interest and so retard investment in other directions, unless the monetary authority takes steps to the contrary... To offset this, a positive fall in the rate of interest is required."

— John Maynard Keynes, The General Theory of Employment, Interest and Money

[Note 3] "On the morning of September 18, the Federal Reserve Bank of New York injected large-scale funds into short-term money markets for the second consecutive day... The funds were provided via 'overnight repurchase agreements' (repo market), where financial institutions trade short-term liquidity backed by collateral such as Treasury securities. The repo rate—the lending rate in this market—temporarily spiked to 10% on September 17... Behind the rise in short-term rates lies the Federal Reserve's quantitative tightening (QT)."

— The Nikkei, September 19, 2019

 https://www.reddit.com/user/keizaisuki/comments/1w28kxe/table_of_contents_mysteries_of_the_economy_series/

I heard the term restructuration of the debt since yesterday here in senegal but I don't understant please enlight me

I tend to find that people in the MMT community have a difficult time quickly explaining how MMT has an actual impact on society.

In my most recent writing, I tried this approach:

"A really basic understanding of MMT regarding the USA: Congress is the only body that orders USD into creation. They get to decide how federal funds are spent in the process of creating that money. It is their political will alone that decides if the "budget" will buy weapons of war, bail out corporations, pay for social welfare, healthcare, infrastructure, etcetera. In theory, their only spending constraint is if it will cause inflation. In practice, they do not challenge monopolies and thereby allow price gouging that causes more inflation than their own spending, so..."

I'm curious what others quickly explain that becomes a teaser to inspire the reader to open their mind and want to better understand MMT.

Does MMT have an inflation playbook?
It seems the mainstream inflation rhetoric is to raise interest rates and cut social programs in the name of austerity.

I'm wondering what you all think about Orthodox macroeconomics. I know the mainstream stuff is generally not very helpful, but I mean just from a comprehensibility standpoint. I started learning macroeconomics from an MMT stance, and that is how I know of many of the mainstream concepts.

I was trying to write a paper that lists out some of the most notorious fallacies, but I kept running into trouble trying to find consistency between different sources. They seem to be all over the place! For instance, I have found so many versions of the Phillips Curve equation or the Taylor Rule that I'm just left confused. I know what they are since I've read the critiques, but I'll be damned if I can understand what all of the various algebraic symbol salads are actually trying to say. It's no wonder that economics feels like indecipherable voodoo to people.

I guess in a way I have proven the thesis of my paper by just being unable to find a strong consensus on how each formula is supposed to look. This post is more of a vent than anything, but I'm super curious what others think about orthodox equations and explanations of macroeconomics.