I feel I have to write something about #MMT, that’s Modern Monetary Theory.
I was recently given link http://neweconomicperspectives.org/2014/01/diagrams-dollars-modern-money-illustrated-part-1.html
I don’t get all of it (but I understand systems and I see the system)
I want more to read this and “get it!” because it is very important that we do not misunderstand it. Very serious misconceptions are currently causing great suffering.
We have to re-evaluate our relationship to money, whether we use it, or it uses us. And we must recognise that we choose our value ratio of society vs money, directly by how much we distribute from it’s source [central banks, government]
We have a “fiat” currency. There is no gold standard. “the paper is worth what it says it is, because it says it is”. If you go to the Bank of England demanding your dues with a ten pound note, the best you’ll get is two fivers and the door.
So what is that paper worth? Of itself nothing, but it’s the blood that feeds our economy. Nearly every transaction relies on it. And we all want to amass enough of it to ensure the economy around ourselves and families is fed well [through retirement too]. Our entire economy runs on the movement of money and right now everyone (99%) is feeling the pinch, because too many simply don’t have enough of it.
So what’s this about italian cars?
Where does fiat currency come from? It’s issued by the central bank. For UK that’s the Bank of England. Commercial banks and others have reserve accounts at BoE. All outgoing government money goes through the reserve system. Accounts are credited, cash is printed. All incoming money, tax, is debited ultimately through the same system. The deficit, the difference on these two cash flows (in and out), is causing political hysteria because people, politicians too, do not understand it better. (and probably some do, but like things this way)
Think of driving a car (bad analogy klaxon) on a journey. “You got to give her some gas going up the hills, and relax a little on the downgrades”. But try driving with a backseat driver shouting in your ear that you must balance the gas and keep it as low as possible. What happens when you’re trying to drive uphill?
The deficit is misunderstood. We have; an economy starving, and goods on shelves unbought (though stacked for free by workfare). A fiat economy is not like a domestic household. Sure if *you* hold someone else’s money and you have to pay it back you can get problems, but government fiat reserve spending is not like that.
Government issues currency. The only reason government collects it back [as tax] is to reduce the amount of it in the system, so it’s value maintains some stability. Government doesn’t have to collect tax at all, certainly it makes no difference to it’s ability to add more currency into the system.
If we step back there’s an organic nature to the beast ~ fiat currency gives beautifully nuanced control to government (preferably democratically answerable governments who actually know how to work the levers).
When too much of a proportion of all money in existence is concentrated in too small of a portion of the economy, other equally essential parts suffer. The easiest fix is to inject money directly where it’s needed, with safeguard standards for all (such as; no one should get chucked out of their “only” home) and redress the proportions, by government spending. Let the value settle as it will.
The key to a working society is the distribution of wealth, not the arbitrary value of pieces of paper. Whether the rich suddenly start coughing up taxes or whether we go thru a little inflationary redistribution, let us see …
But please please PLEASE, stop getting all worked up about balancing the deficit!
… for further reading, there are numerous links ALL worth reading on the same site, and/or also, Warren Mosler’s book “seven deadly innocent frauds” (cheap on kindle and I believe pdf search downloadable) and follow #MMT on twitter.