FAQs

0. What is Modern about the Modern Money View?
1. What is the Modern Money View? 2. Who owns the Central Bank? Does Rothschilds own the Central Bank?
3. What is Inflation? 4. Is Government Debt like My Debt?
5. What about Hyperinflation? 6. Does this debase the currency?
7. Won’t this devalue the currency and cause inflation? 8. What about the NAIRU (Non-Accelerating Inflation Rate of Unemployment)?
9. Where in the World does the Modern Money View apply? 10. What’s NEW in MMT?
11.Do Banks or Government create money? 12. So Why are Taxes Important?
13. What is the National Debt then? 14. What about Balance of Payments Constraints/Crises? (ADVANCED)
15. Does having a Reserve Currency impact the Modern Money View? 16. Is the Modern Money View a political agenda?

What is Modern about the Modern Money View?

In this context the word “Modern” is used in the same context that Keynes has used it.

The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contracts. But it comes in doubly when, in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time – when, that is to say, it claims the right to re-edit the dictionary. This right is claimed by all modern states and has been so claimed for some four thousand years at least. (Keynes 1930, p. 4)

Further Reading
Keynes, J.M., [1930] 1976. “A Treatise on Money,” Volumes I and II, New York: Harcourt, Brace & Company.

What is the Modern Money View?

The Modern Money view is also known as Neochartalism, Modern Monetary Theory, Modern Money Theory and MMT. To put it simply, we have uncovered how money “works” in the modern economy. The findings have been reported in a large number of academic publications. In addition, the growth of the “blogosphere” has spread the ideas around the world.

According to L. Randall Wray, one of the original Modern Money academics, the Modern Money View consists of State Money/Chartalism (Knapp) + Credit Money (Innes) + Stock Flow Consistency (Godley) + Functional Finance (Lerner)
+ Endogenous Money (Schumpeter) + Financial Instability Hypothesis (Minsky) as well as input from Marx, Keynes, Veblen and other Institutional and Post Keynesian thought.

Further Reading
Modern Money Primer (Buy the book on Amazon)
Modern Money Mechanics


Who owns the Central Bank? Does Rothschilds own the Central Bank?

Let’s look at a few central banks around the world to see what they say

Reserve Bank of Australia

The Bank is a body corporate wholly owned by the Commonwealth of Australia.

United States Federal Reserve

The Federal Reserve System is not “owned” by anyone. Although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was established to serve the public interest.

The Federal Reserve derives its authority from the Congress, which created the System in 1913 with the enactment of the Federal Reserve Act.

Bank of England

The Bank of England is owned by the UK government. Parliament has given us powers through legislation, which means that we are accountable to both Parliament and the public.

Reserve Bank of New Zealand

The Reserve Bank of New Zealand is New Zealand’s central bank. It was established in 1934, and although not a government department, has been wholly owned by the government of New Zealand since 1936.

Bank of Canada
Canada’s central bank was founded in 1934 and opened its doors in March 1935. In 1938, it became a Crown corporation belonging to the federal government.

So no the central bank of your country nor any country is owned by Rothschilds.  The central bank is the counter-party to the Treasury in any given country.

Further Reading
www.rba.gov.au/qa/
www.federalreserve.gov/faqs/about_14986.htm
www.bankofengland.co.uk/about/Pages/governance/default.aspx
www.rbnz.govt.nz/about-us/what-is-the-reserve-bank
www.bankofcanada.ca/about/#history
http://www.levyinstitute.org/publications/central-bank-independence


What is Inflation?

Inflation is the continuous rise in price level.  A price rise is a necessary condition for inflation it is not a sufficient condition.  That is, the price level has to be rising each period that you observe it.  There are two types of inflation – they are cost push and demand pull.  There are two types of cost push inflation – cost push/acts of God and cost push/market power.

Demand pull inflation is when demand for a product or input outpaces the supply of the product.  Cost push/acts of God is where a natural disaster wipes out an input, say a crop of bananas.  Cost push/market power is where the price of a common input is artificially inflated by the monopoly or oligopoly suppliers, say the oil crisis of the 70s.

Further Reading
Inflation: What Really Causes It
Modern Money and Inflation
Money Growth does not cause Inflation
What Causes Inflation?


Is Government Debt Like My Debt?

No.  You are a user of the currency whereas the government in a non-convertible floating flexible exchange rate is the issuer.  Government debt consist of government bonds which are like a term deposit at the bank.  Its just a matter of shifting government issued money from a term deposit (government bond) to a saving account (reserve account or exchange settlement account) at a central bank.   It is still government issued currency.

Further Reading
There is no need to issue public debt
Modern Money Theory Basics
The National Debt Is Actually A Government Savings Account Video


What about Hyperinflation?

Hyperinflation is always caused by the systemic destruction of productivity. This means there is not a linear progression to hyperinflation.  It can occur in many ways.  In the two most obvious examples Weimar and Zimbabwe, they both lost productive capacity and had debt obligations in foreign currency.  Similar events also occurred in Argentina and Venezuela.

Further Reading

What went wrong with Zimbabwe How Zimbabwe went wrong Hyperinflation requires extreme conditions
Modern Money View and Hyperinflation Part 1 Modern Money View and Hyperinflation Part 2 Modern Money View and Hyperinflation Part 3
What Happened in Argentina What Happened in Venezuela Hyperflation Hysteria (pdf)
Understanding Hyperinflation

Does this debase the currency? Won’t this devalue the currency and cause inflation?

Debasement is typically associated with commodity money such as gold or silver where less gold or silver is used in coins than was originally used – this is considered debasement.  In a fiat currency debasement is usually considered to be inflation due to money creation with little productive behind it.  This can lead to hyperinflation.  In some circles any extra money creation is considered debasement.  This however is to treat fiat currency as if it was a commodity.

Further Reading
Debasement
Hyperinflation
Commodity Money


What about the NAIRU (Non-Accelerating Inflation Rate of Unemployment)?

The NAIRU uses a model called the Phillips Curve and it does not hold up in the data.  It is a myth.

Further Reading
Dreaded NAIRU is still about!
Others doubt the NAIRU
Phillips Curve is Useless


Where in the World does the Modern Money View apply?

The Modern Money view applies everywhere. It does not matter what currency system you are using, the Modern Money view recognises the constraints of that particular monetary system. It allows us to understand what the consequences of particular monetary system design parameters will be. According to the well-known trilemma, government can choose only two out of the following three: independent domesticpolicy (usually described as an interest rate peg), fixed exchange rate, and free capital flows.

Further Reading
There is a range of currency regimes
Does MMT apply here?
Exchange Rate Regimes


What’s NEW in MMT?

This is a list we could never do justice.  We could always add something.

  • Buffer stocks to control inflation.
  • Employment Guarantees using buffer stocks.
  • The consolidation of the central bank and treasury with an emphasis on banking arrangements.
  • Making the dynamics of fiscal deficits and debts clear.
  • The importance of semantics as it applies to ideology and macroeconomics

Further Reading
What’s new in MMT Part 1
What’s new in MMT Part 2
Full Employment and Price Stability
What’s new in MMT Video


Do Banks or Government create money?

Both banks and the State (the national or federal government) create money . In a state money system, banks are dependent on government. Their IOUs (deposits created through lending) are promises to deliver the government’s currency (cash or reserves) on demand to the account holder.

Government is the sole issuer of currency. It does not “borrow” cash and reserves from the private sector. To the contrary, government is the original source of cash and reserves.

Bank loans create deposits. Borrowers draw upon these deposits to spend. In doing so, their spending creates income just as government spending does, and adds to the market demand for goods and services as well as enabling saving and tax payments.

Further Reading
Modern Money Basics
Money Creation in the Modern Economy (pdf)


So Why are Taxes Important?

Taxes from the point of inception are sufficient to drive the currency.  This enables the government  to provision itself.  It does this because the tax in effect creates unemployment.  This creates job seekers that the government can then hire with its currency.  Taxes also serve other roles.  These are to address inflation, correct harmful behaviour and redistributive purposes.

Further Reading
Taxes: The Modern Money Approach
Warren Mosler: On the Role of Government
Taxpayers Do Not Fund Anything
Can Taxes Finance Government Spending? (pdf)


What is the National Debt then?

The national debt is nothing more than the dollars spent by the government that have not yet been used to pay taxes. They are in the economy as cash and as dollars in exchange settlement accounts and securities accounts (Australian Government Securities) on the Reserve’s books. It functions as the net money supply.

Further Reading
Public Debt Explained in a Tweet
Is Government Debt like My Debt?
Debt, Deficits and MMT


What about Balance of Payments Constraints/Crises?

It depends. It depends on a lot of political factors and choices of both domestic and foreign nations.

Balance of payment crises are usually but not always a political confection of those who own or hold sway over particular foreign currencies along with political sanctions. Balance of payment issues are nearly always a political power play by an actor. However, there are developing nation situations where it can occur naturally due to inappropriate political choices.

None of these events negate anything espoused by Modern Monetary Theorists.

Further Reading

Developing Nations and High Trade Deficits Why do Developing Nations Often Have High Inflation Video

Fiscal Systems, Organizational Capacity, and Crisis: A Political Balance of Payments Approach

Current Account and Currencies Don’t Peg the Currency
Is Exchange Rate Depreciation Inflationary? Free Trade & MMT
Balance of Payment Constraints Ultimately, real resource availability constrains prosperity

Does having a Reserve Currency impact the Modern Money View?

The Modern Money View does not privilege the US because it has a reserve currency.

While it is true that the existence of the US dollar as a desired reserve currency means that they do not have to worry about foreign reserves as much as other nations with less attractive currencies, this doesn’t undermine domestic sovereignty.

Further Reading
US & Reserve Currency
Emerging markets through the MMT lens (Audio)

Is the Modern Money View a political agenda?

Modern Money View is a framework for understanding how modern monetary systems function.  It is not a political agenda or regime change.

Further Reading

MMT is what is, not what might be

Advertisements