We’re starting to add video for the understanding the modern monetary system section on the website. This first series covers the very basics. If you’re not familiar with our work then I would highly recommend reviewing the videos before diving into the main paper on understanding the modern monetary system. The videos will be archived permanently on the site in the toolbar.
Part 1 – What is Modern Monetary Realism?
Part 2 – The importance of being an autonomous currency issuer
Part 3 – Inflation, not solvency, is always the true constraint for an autonomous currency issuer
Part 4 – If taxes don’t “fund” spending then what role do they serve?
Part 5 – Why does an autonomous currency issuer sell bonds if they don’t “fund” spending?
Great stuff to get things going!
Simplicity = message power
You claim that a currency issuer can not run out of money. It is very simple to do so. It happens when the currency is no longer accepted as money. This is what happens in hyperinflation. The honest statement is that a currency issuer can not run out of currency.
http://howfiatdies.blogspot.com/2012/03/how-can-government-run-out-of-money.html
I’ll hit on hyperinflation in a future video….
The point is that statement “if you can print currency you never run out of money” it not true. You should not say it. It is misleading.
Even in a hyperinflation the govt doesn’t “run out” of money. So your point is a semantic one….
It does not run out of currency but it does run out of money. It is important to understand the difference and not to blur it to others.
You will see that governments are not able to pay their soldiers or tax collectors and people stop coming to work. They still have currency but it is no longer money. This is modern monetary realism that you must understand.
Not exactly that they are not able to pay them. The pieces of paper that they give to their soldiers no longer buys anything the soldiers want. So to them it is as if they are not paid. Governments fall when they can not pay with something useful.
I understand hyperinflation just fine. See my paper on it. I fear you are the one who doesn’t understand it very well and this explains why you’ve been predicting it for so long.
Give me a couple more years and we will see who is right about hyperinflation in the US dollar.
I have no doubt that you know the difference between currency and money. However, I think a statement that “if you can print currency you can not run out of money” is taking advantage of people who do not know the difference between currency and money. It makes it sound like there is never any problem with printing more currency, but we both know there can be troubles.
Vince, if you’re right I will surely eat crow. Have a nice weekend.
Money can be many things. Govt does not have a monopoly on money. But it doesn’t run out of fiat paper currency in a hyperinflation….
I agree. If you said ” a government that prints currency can not run out of currency” there would be nothing misleading or wrong. But to say that if you print currency you do not run of out money is misleading.
Vince, the videos are a general understanding. I think you’re being a little overly crtitical, but I appreciate your comments! Go drink some whiskey. It’s st pats day.
Happy St Patrick’s day! Cheers! All the best.
I don’t like the bathtub analogy. This makes it look like taxes have to be exactly like spending or you get destructive inflation. It is not what you mean. Maybe something like Krugman’s babysitting coop that needs more tokens when new members join. Not sure what is good analogy, but I think you can get something better than the bathtub.
In the 4th video you say taxes control demand. If nobody paid taxes the money would collapse. But in the comments on another post you said that MMR does not buy the MMT idea that taxes support the currency. So is the 4th video wrong or the other comment wrong? Or am I confused?
I say taxes don’t “drive money”. Many things drive money. And you’re right that production and the desire to accept the currency in the first place is a primary driver. This is all explained in the primer. As I mentioned at the outset, the videos are far from a complete understanding.
In video 5 it seems very wrong to say “the government is always trying to push interest rates up from 0%” when the reverse is going on in reality. The Fed is printing money and buying bonds to push interest rates down. If the Fed was not buying or selling anything interest rates would go up.
This is not correct. The OVERNIGHT rate, which is the one we’re discussing, would go to zero if the reserves were not managed through maintenance or interest on reserves.
Cullen- I have a newbie question for you. Can you elaborate on why the overnight rate would go to zero? Wouldn’t the lending banks demand some compensation for default risk, even if the lending is overnight? Thanks.
You say “the government can control the entire bond market yield curve”. You do understand that they can control either the inflation rate or the interest rates but any attempt at both is going to be a compromise?
One problem is that it seems that if taxes are related to the demand for currency, we should be able to relate the marginal demand for currency to taxes–but I think it’s self-evident that the marginal demand for currency is not affected by taxes.
I think this can take years to pan out… for instance, 2008 was a necessary correction, but utterly demolished our balance sheets and we started wanting to hoard $$’s, forcing our gov’t to deficit spend in droves. That demand probably “should have” manifested itself slowly over the previous decade as our trade deficit ran far in excess of our fiscal deficits.
However, since vertical money isn’t an e-brake, and more like a rudder on the titanic, it took years for this need to erupt in our faces after housing corrected.