Modern Monetary Theory (MMT) is Confusing the Sovereign Money Debate

Please stop it

Modern Monetary Theory (MMT) Confusing the Sovereign Money Debate.
(Please compare the two videos at the bottom, then let me know if I am right or wrong)
When I noticed Modern Monetary Theory (MMT) I was at first happy to see another group advocating the use of sovereign credit over private bank credit, as the basis of the money system.

But upon further reading and watching interviews I became alarmed to find that the main players of it, of which I have no doubt their hearts are in the right place, but did not display a full understanding of the level of private bank supremacy in America itself, nor other Western nations, in which attention to MMT has been growing a lot of media attention, including here in my native New Zealand.

To summarise, MMT are going around saying that governments within the post World War Two Western financial system, apart from those in currency unions, the rest are sovereign currency issuers rather than currency users, which means they first dont have to find the currency they use from other sources, they are all practicing monetary sovereigns, printing their own currency.

They are indeed sovereign in that they could choose to be money sovereigns, but the fact is, they are choosing not to be. They have abdicated the administration of their money system to a network of privately owned banks, to which they have gifted their nation's natural wealth, preloaded credit cards for them to then loan back as compounding interest-bearing loans for the enjoyment of that natural wealth. Because it is sold to us that the private banking network is more “adult” and better educated than the state in monitoring the correct credit card limit, measured against the natural wealth credit reserve that preloads it.

This is done through a multilayered network of private banks, with privately owned Primary Bond Dealer Investment Banks at the top of the tree. They are the credit wholesalers that write the magic wand interest-bearing credit loans, that originates the currency of the money systems in their realms of influence.

That's at the government level, via private debt management offices aligned with their state-owned treasuries. The Primary Bond Dealers get more action, often with another state central bank thrown in as an intermediary, funding private domestic borrowing with open market operations to further obscure the process.

Providing the currency society uses, entirely originated as compounding interest-bearing loans owed to them, which they can then sell or hold to maturity. Which is all a matter of public record on the private banking network explanatory documentation, if you care to look.

MMT is also correct when they say that government spending is not dependent upon taxation, but not in the sequence they describe. They claim Western governments first spend sovereign fiat currency into circulation then only use taxes to control inflation if it occurs, when infact, presently, the governments, and society for that matter, are borrowing their entire credit and currency from the privately owned banking network to spend, then service the debt via taxation and direct interest payments, and indirect interest payment factored into goods/services pricing.

But despite being able to find acknowledgement of the primary bond dealers in MMT writings, they tell people that the governments of Western nations are all currency issuers, that are spending their own fiat currency into circulation, then if inflation occurs because the overcook the issuance and they cant tax enough to reduce it, they only then go and borrow the shortfall from the Privately Owned Primary Bond Dealer Investment Banks, only then starting the debt doom loop entrapment at their hands.

Making it appear the state is responsible for its own downfall and not the private banking network, which must have them laughing all the way to their banks.

They are confusing the Sovereign Money debate terribly with this false explanation that makes it appear that Western governments are already presently the primary administrators of the credit and currency in their money systems, when they are not. It is what all fully financial system literate sovereign money advocates are advocating for.

As evidenced in this Jack Tame Q&A interview with MMT representative Steven Hail, in which it was inaccurately said, many times without question that the New Zealand Government is an issuer of our currency, when although it could be, it is a matter of absolute public record that it is presently by political choice, choosing not to be, at great harm to society.

Many Eastern nations outside of the Euro/American private bank-dominated Western financial system actually do administer their own national credit card preloaded with their natural wealth credit reserves, which is what money as a system fundamentally is.

I agree with a lot of what MMT says, and believe its heart is in the right place. But it's causing great confusion that New Zealand and others can least afford at this time, facing a fast-tracked corporate coup at the hands of these private bank forces.

Stephen Hail Q&A Jake Tame Interview Aug 11 2024

JT
Modern Money Theory is an economic model that reframes thinking around taxing, spending and public finances. In really simple terms, if a government, like New Zealand, issues its own currency, modern monetary economists say that government theoretically can never go broke, because they can always issue more currency to cover their debts, and the government shouldn't fixate enough on delivering budget surpluses.
Steven Hail is an economist from the Modern Monetary Lab research institute in Australia, what is modern monetary theory?
SH
It’s an approach to macroeconomics and public finance which takes the monetary system seriously. That’s the short answer.
JT
How so?
SH
Well the most important thing people are perhaps not aware of, or is misrepresented or ignored, is the distinction between currency issuers and currency users.
JT
Right
SH
You and I Jack are currency users, before we spend dollars we have to go and get them, we have to earn them or borrow them, if we borrow them we run up a debt, and we can get into difficulties paying off that debt into the future, maybe even become insolvent.
If you are a currency issuer, however, you are in a completely different position.
JT
Hmmnn
SH
The New Zealand Government issues the New Zealand Dollar, the New Zealand Government doesn't have to go and find its own currency, from the private sector, or investors in China, or somewhere, before it can spend New Zealand Dollars, before it can invest New Zealand Dollars, in addressing its priorities in meeting the needs of the New Zealand people.
Every dollar that the New Zealand governments spends, although the institutions are discussed and the way we do the accounting sometimes obscures this, but every dollar the government spends is a new dollar.
It’s a deposit in the banking system, in somebody’s bank account somewhere in New Zealand, in the reserve account that, that bank holds at the reserve bank.
JT
Hmmnnn
Every dollar the government spends is a new dollar, um, taxes at the national level in New Zealand destroy dollars that have previously been created by the New Zealand government. What that means is the New Zealand government can never become insolvent in liabilities in its own currency, and on top of that because the New Zealand currency is a freely floating currency the government doesn't guarantee to convert it into a commodity, or into a foreign currency at a fixed rate, or anything it could possibly run out of.
What that means is, that although the New Zealand government and the New Zealand economy faces restraints which are determined by the productive capacity of the economy, your people, skills, equipment, technology, institutional capacity, materials, it faces no purely financial constraints.
There is one other point to, which is that it is normal for currency issuers like the New Zealand government to run deficits over time on average. If you look at the 40 or so countries the IMF classifies as advanced economies going back as far into the past as the IMF provides data for, those governments run deficits on average every single year, and they have to do that, otherwise the rest of us, the private sector cant run surpluses, cant run healthy balance sheets.
JT
So if we accept the framing around MMT, how does it change the way that government, of Finance Minister approaches fiscal policy?
SH
Well the important thing if you are thinking about investing more in power, transportation, housing, healthcare, education or what ever, is that before you make those investments you have to think about whether the economy at the moment has the capacity to safely absorb that spending without adding to inflationary pressures that should be the key issue as far as public finance is concerned, not fiscal rules that treat the government as though its a household, as the the government has to balance its budget over time or run surpluses.
Because the government is in a completely different position to everybody else as far as finance.
JT
Does that mean though, that in the simplest terms, the net effect for countries like New Zealand that issue currency, is it under MMT, or modern money theory ethos, governments have a net effect of spending more?
SH
Not necessarily, um, it depends on the circumstances, there are circumstances when its appropriate for a governments to run surpluses, for example if you were talking about Singapore or Norway, that might be appropriate because those countries have such large, current account, basically balance of payments surpluses adding demand to the domestic economy that its necessary, atleast it maybe necessary under some circumstances for those governments to run surpluses in order to limit demand in the economy to the productive capacity of the economy and avoid inflation.
But that not usually true in New Zealand.

Here below is examples of the confusing contradictions MMT keep making, and below that is the conclusive prove I have compiled that the present order of things in New Zealand is private banking issuance of our nations credit and currency as interest bearing loans, to fund societies spending, then taxation and interest factored into pricing as the means of servicing the rent on our currency:

Stephenie Kelton, the most prominent person of MMT:

The deficit is the difference between two numbers. It’s the difference between the number of dollars the government spends into the economy each year, and the number of dollars the government subtracts out of the economy each year (mainly through taxation). So if the government spends $100 in, and taxes $90 out, we label it a government deficit, because the government has spent more than it collected in taxes. The deficit on the government’s books will read -10. We’ll say that’s a deficit we’ve recorded. What we forget to do is pay attention to the fact that the government’s deficit is making a financial contribution. If they put 100 in and subtract 90 out, somebody got 10, right? So that’s a +10 on somebody else’s balance sheet, so government deficits create financial surpluses in some other part of the economy.

Now each year that the government runs a deficit, it matches up its deficit spending by selling government bonds, U.S. Treasuries. So if the deficit is $10, the government will sell a $10 government bond. What happens is that it takes the $10 away from someone and replaces that with a government bond. All the government bonds that exist are what we call the national debt. I think it’s awful that we use that word to describe the outstanding stockpile of U.S. Treasuries because those are people’s assets. They’re holding onto them and it’s basically an interest-bearing form of U.S. currency. They’re dollars that [accumulate] interest.

The government doesn’t have to offer people interest-bearing dollars, but it does. It chooses to do so. Historically all of the bonds that have been issued and reissued comprise this thing we call the national debt. The national debt is nothing more than a historical record. It’s kept track of every past deficit the government has ever run, where it has placed U.S. Treasuries into somebody’s hands, and we call that the national debt......

The Australian government in the 1990s balanced its budget and was running budget surpluses. Remember, when the government is running a deficit, it’s selling Treasuries. But when it’s running a surplus, it’s supposed to be paying down debt, retiring maturing bonds, letting them roll off and then people don’t get more.

So here’s the Australian government running budget surpluses, paying down Australian government debt, and investors went crazy. They started clamoring for government bonds. “Hey, where’s our risk-free reward?” Because these are safe, risk-free assets that pay interest. You get return without risk. It’s a sweet, sweet deal if you can get it. So investors clamored for more government bonds and the Australian government started issuing government bonds to satisfy the appetite of investors for this risk-free return, even though they were running budget surpluses. So at least part of the answer is that financial markets very much like these things.....

NJR

One question about your framework is the extent to which [you talk] about a very particular kind of government that the United States federal government is. One of the difficult things for people [to understand] is that local and state governments, because they don’t issue currency, still do have to think [like] households. And lots of other countries’ governments that don’t have [monetary sovereignty] have to think about their budgets the way households do. So are we talking about a very particular thing that happens to apply because the U.S. federal government is so financially powerful and has this exorbitant privilege?

SK

No, the conversation that we’ve had so far is equally applicable [to other governments]. We talked a little bit about Japan, right? Japan is another example of a currency-issuing government, that has, if you like, infinite fiscal capacity where the relevant constraint is inflation. The U.K. is one. Canada is one. Australia is one. New Zealand is one. China has an extremely high degree of monetary sovereignty. You don’t have to be the global reserve currency issuer to enjoy the policy space to run your macroeconomic policy in a way that’s aimed at maximizing full employment domestically, which is what we’ve been talking about.......

And on the income to bond holders, you and I have talked about this. I just made the case that maybe we want to phase this stuff out because it’s a risk-free reward. Warren Mosler has referred to it as UBI for rich people. It’s a universal bond-holder income, right? A payment that goes to people who are already wealthy enough to have some dollar savings that they can trade up into interest-bearing dollar savings. So I don’t know who wrote [the Jacobin article], but it sounds like they didn’t do their homework.

Stephen Hail
https://era.org.au/explainer-what-is-modern-monetary-theory/
“The Australian government, being a currency-issuing central government, cannot run out of Australian dollars. It is never forced to borrow Aus dollars – although it can and does choose to do so – and its debt securities play a useful role in our financial system. “

Stephen Hail

“The second of these statements confirms the obvious fact that governments can cause inflation, if they choose, by spending too much themselves, or not taxing enough. When this happens, the total level of spending in the economy exceeds what can be produced by all the labour, skills, physical capital, technology and natural resources which are available. We can also destroy our natural ecosystem if produce too many of the wrong things, or use the wrong processes to produce what we want to consume.

The Australian government is a currency-issuing central government. It cannot run out of Australian dollars. It’s never forced to borrow Australian dollars, although it can and does choose to do so, and its debt securities play a useful role in our financial system.

It doesn’t exactly need to tax us to pay for its spending either. Taxes exist to limit inflation. It’s necessary for us to pay taxes to keep total spending – government and private – at a level which will not be inflationary.”

“So, the government cannot run out of dollars; that doesn’t mean the government should “spend like a drunken sailor” or that we don’t have to pay taxes; it does mean balanced budgets are unnecessary. It also means government deficits can play a supportive role, allowing the private sector to build up its saving. “

Stephen Hail
https://era.org.au/nationalise-the-banks-dont-blow-up-the-banking-system/
“I recommend an MMT frame to people now because it is technically correct and because it has important implications for economic management in general and the fiscal space available to monetary sovereign governments in particular.

The last thing MMT is, or should be, is a cult, or something people accept because it fits their wishful thinking.

Remember that it doesn’t imply additional spending – government or private sector, doesn’t carry an inflation risk, doesn’t replace the real constraints we face due to a limited productive capacity, and doesn’t provide an easy resolution to our ecological problems.

What it does tell us is that anything which is possible, given our real resources, is affordable. What it does tell us is that we can afford full employment. What it does tell us is that there is no financial constraint in the way of investments in clean energy and ecological repair or in the way of a more even distribution of income and wealth, sustainable prosperity, and a decent and dignified life for all.

For years now, I have received regular (evangelical) emails from well-meaning people who are emotionally highly committed to either/both a stand-alone universal basic income and positive money /AMI proposals to eliminate debt money creation by banks.

The reason I have not accepted either of these proposals as useful is that I put them through the same scepticism I applied years ago to MMT. They didn’t pass the test.

A stand-alone UBI will be set at too low a level to raise people out of poverty; it will divide the population (as they are now) into the ‘haves’ with secure jobs and the ‘have nots’ who are left on the scrap heap; it will not be inclusive; it will not act as an anchor for inflation; it will not stabilise an unstable economy by expanding in a downturn and contracting during an upswing in the economy.

There is no reason you cannot have an unconditional basic income for people who choose not to participate in a job guarantee. But a job guarantee will provide people with a higher income; it will be socially inclusive; it will be a far more effective way of delivering a more even distribution of income over time; it will drive up wages and conditions of work for the low aid and those in insecure employment; it will stabilise the economy; and it will act as an anchor for inflation.

The job guarantee can be used to transform what is deemed to be activity worthy of recognition by remuneration.

It just makes more sense. Remember, I’m not saying you can’t have an unconditional income for people who don’t want to participate although they are able to do so, but a UBI on its own is not in my view a path to sustainable prosperity.

I base this view on a great deal of thought and reading a lot of research. I did not start off wanting to take one viewpoint over another. I started off as a sceptic.

PM proposals which place money issuance in the hands of a panel of experts, and which no longer allow for an elastic supply of credit to business by deposit creating institutions, supervised by a central bank (or other banking supervisor), lack the flexibility to meet the needs of a complex economy, and in any case PM proposals are entirely unnecessary.

The assets private banks are allowed to hold, and the activities they are permitted to engage in, should be tightly restricted, and that is not the case at the moment. There should also be a public interest bank, owned by the central government, which people can bank with, if they choose. I do not disagree with Bill Mitchell’s view that the entire banking system may be better nationalised.

Banks provide a public service, and bank employees – particularly in banks which are too big to fail – are basically public servants. Like Bill, I would leave only the small mutual banks, credit unions and building societies in the private sector. But this is not the only option.

Private banks, and the financial system as a whole, can be regulated and supervised to ensure they act in the public interest, which is more or less how things worked between the 1930s and the 1970s – an era when there were no major banking crises.

Whether you are in favour of nationalising the banking system or not, the Positive Money proposals, to end commercial banking as we have known it for generations, in favour of an approach to lending and borrowing apparently inspired by neoclassical loanable funds theory, are unnecessary. In my view, they are also unworkable, in anything beyond a very small economy. But that is irrelevant, really. We just don’t need them. There is nothing fundamentally wrong with our monetary system today, which we cannot fix through regulation and/or nationalisation.

There are good reasons to maintain an elastic supply of lending to business and endogenous money.

You want democratic control of the process? Nationalise the banks: don’t blow up the banking system.

Again, I did not start off with an emotional opposition to PM. I hope I looked at what was suggested, thought about the proposals based on 30 years of teaching financial economics, and found them wanting.

Of course, you don’t have to agree with me.

I just ask people to avoid an emotional commitment to an idea, or set of ideas and proposals, at least until you have first been a complete sceptic and tried to demolish the logic behind them, and subsequently found yourself unable to do so.”
End