How MMT is NOT printing money!

This is a guest/adapted post from a series of tweets by Scott Fullwiler.

From the very beginning, in the 1990’s, MMT has NEVER argued that ‘printing money’ was necessary. Anyone saying MMT = “print money,” even if they (correctly) incorporate an inflation constraint, is getting MMT dead wrong.

The argument from the earliest days in Warren Mosler’s “Soft Currency Economics,” Wray’s “Understanding Modern Money,” or Stephanie Kelton’s “Can Taxes & Bonds Finance Government Spending?“–the MMT argument is that ALL government deficits are ‘printing money’ ALREADY (!).

These and other early foundational pieces on MMT argue that the choice to issue bonds or not is about monetary policy – how to set the CB’s interest rate target, not whether to ‘finance’ a deficit or ‘print money.’

The argument across literally dozens of publications is consistent–whether or not government issues bonds when it runs a deficit, the macroeconomic impact of ‘bonds vs. money’ is nil.

What matters for macro impact is the deficit itself, and how it is created (spending/taxing priorities), since the deficit is creating net financial wealth in the private sector (note I did NOT say ‘real‘ wealth (!)).

The choice to issue bonds or not in the face of a deficit is simply about 1 risk-free government asset (say, T-bills) vs. another risk-free government asset of perhaps slightly longer maturity (but that’s also a policy choice).

This is also partly why we predicted back in the 2001 that Japan’s QE (Quantitative Easing) wouldn’t be inflationary, and predicted the same for the US in 2008. QE & ‘monetization’ of government debt is about an asset swap–it’s the deficit itself that has the ‘quantity’ effect, not the financing.

Similarly, in the real world, Central Banks (CB) are defending their national payments systems every minute of every day. This means they accommodate banks’ demand for CB liabilities always at or near their current interest rate target.

From an MMT perspective, it’s really weird that people believe a government running a deficit via overdraft at the CB is inherently inflationary, but the current system, where government runs a deficit while CB guarantees market liquidity for bond dealers to buy government bonds, isn’t.

So, from the beginning 20+ years ago, MMT said the ‘choice’ to issue bonds when running a deficit was about how to set CB’s interest rate target. With bond sales, CB accommodates banks at its target rate. Without bond sales, CB sets rate at ZIRP (0%) or uses interest on reserves – IOR=target rate to set target rate <> 0.

This is just supply and demand from ECON 101. If you push out the supply curve beyond the entire demand curve, either the price falls to 0 or you have a price floor set at <> 0. Those are the only 2 possibilities when ‘printing money’ to run a deficit.

Neoclassicals actually agree with this for different reasons. For them, if we ‘monetize’ government debt & CB rate = 0, ‘monetization’ isn’t inflationary. Or, if CB sets rate <> 0 via IOR=target rate, still not inflationary.

In both cases, CB’s reserves are considered effectively equivalent to holding, say, T-bills. So, ‘monetization’ or ‘printing money’ is effectively equivalent to ‘printing’ T-bills. In other words, if you blend neoclassical model w/ actual CB ops, ‘printing money’ isn’t inflationary.

Putting this all together . . . MMT has NEVER argued that ‘printing money’ as conventionally interpreted is necessary to carry out MMT policy proposals. All deficits create net financial wealth for private sector, regardless of ‘finance’ method.

Choice to issue bonds or not when running a deficit is about how to set CB’s target rate, not ‘financing’ a deficit. This means that interest on national debt is a policy variable, or at least can be (for monetary sovereign, of course).

So, choice to issue bonds or not is not about ‘quantity’ impact of a deficit, but about ‘how’ CB chooses to achieve its target rate. Hitting interest rate target by overdraft to government & pay IOR=target rate=2% has no difference of macro significance from hitting interest rate target by government instead issuing T-bills while CB ensures market liquidity at target rate = 2% to banks & bond dealers.

Now, there are places where MMT scholars argued for no bond issuance, government gets CB overdraft, & CB sets target rate= 0 (permanent ZIRP).

Note, though, that this is:

(a) not arguing in favor of ‘printing money’ even in neoclassical view
(b) and is therefore, simply a policy proposal for low interest rates on government debt.

It is also NOT arguing for ZIRP in a neoclassical world–Wray did his Ph.D. under Minsky. Minsky was against manipulating short term rates; instead favored credit regulations/margins of safety.

That is, when MMT proposes ZIRP, it is proposing it for ONLY the government debt, NOT for the economy overall as in a New Keynesian model. There are dozens of MMT publications on regulating credit, and more on the way. MMT was about macroprudential before that was a thing.

Minsky was adamant that manipulating short-term interest rates was actually destabilizing (he blamed the rise of money manager capitalism on Volcker’s high rates). Raise margins of safety to slow credit rather than raising the overnight, risk-free rate.

A benefit of margins of safety is that raising interest rates to slow credit leads to higher hurdle rates that can only be met by riskier projects, while raising margins of safety slows credit by favoring the LESS risky loans.

Particularly given that the problem of a debt bubble is that credit QUALITY is bad, it’s really weird from an MMT perspective that it’s mostly MMT arguing in favor of macro policy that target credit quality while neoclassicals go to lengths to NOT talk about credit quality–use a Taylor rule to manipulate short-term rates, increase liquidity requirements, increase capital, but little to nothing about underwriting. (Shocker–we now have a corporate debt bubble.)

So, MMT is NOT arguing for ‘printing money’ and ‘ZIRP’ in the conventional, neoclassical world. MMT is arguing for stabilizing demand side of the economy with a mix of government’s budget position (at low rates, however ‘financed’) & credit quality/margins of safety.

Further Reading
A walk-through of government financing

Opportunity Cost of MMT’s Job Guarantee

I recently wrote the post below for Real Australian Progressives.  The only addition I have made here is the graphic below.

Opportunity Cost of the Job Guarantee

Over the years most of us have become familiar with Maslow’s Hierarchy of Needs.

At the most basic level to survive we need food, water, rest (physiological), shelter, warmth and security/safety (Safety). These are the most basic needs. We also need to have friends, the feeling of belonging and social engagement and the feeling of accomplishment and achievement (Esteem). These are the love/belonging and self-esteem parts of the pyramid. Without any of these one cannot achieve one’s full potential of self-actualisation.

This is why many of the things mentioned in other articles here are specifically about social inclusion and engagement. These are the things in society that when individuals go without causes mental and physical health problems and from there lead into bad behaviour.

Unemployment, especially long term unemployment can lead to social exclusion and thus alienation that can cause social problems. These all affect economic and social outcomes for society at large.

  • loss of current output;

  • social exclusion and the loss of freedom;

  • skill loss;

  • psychological harm (mental health);

  • ill health and reduced life expectancy (anxiety and drug use);

  • loss of motivation (a sense of rejection, lack of self esteem);

  • the undermining of human relations and family life;

  • racial and gender inequality; and

  • loss of social values and responsibility.

All of these can lead to crime whether it be break-ins, malicious damage, immediate need for a natural high (e.g. taking a car for a joyride) or a drug induced high just so the person ‘feels normal’. All the stresses of life don’t matter when you do these things. Unfortunately they can have negative effects on society at large. It leads to family breakdowns, suicide, assaults and much more. It is not just unemployment that causes these. For whatever reason, whatever traumas that have been suffered, these people do not feel safe or like they belong so they end up causing harm to others. All these people want to do is feel valued.

Food, shelter and belonging can begin the healing of bad behaviour. Integration with social norms will encourage the belonging and decrease the bad behaviour. Allow them the courage to tell their story, to form a connection with you and have compassion and understanding for their situation and they will feel valued.

Question for Economists

Reblogged from Modern Money:

To all economists in the Australian media that follow the Neoclassical/New Keynesian/New Monetary Consensus paradigm I have a question. My question is do you disagree with this:

There are only three ways to put the private sector in surplus

Run a government deficit & a current account surplus
Run a government deficit > current account deficit
Run a government surplus < current account surplus

Yes or No will do but feel free to expand!




Paying for the NDIS is easy!!

There’s an article up on the ABC News website today National Disability Insurance Scheme: Where will the funds come from?

The good news is we answered it years ago in 2011 as was published in the Sydney Morning Herald The Right Way to Pay for the NDIS.

Revisiting Milk

Milking the Public


Low prices benefit dairy farmers

Milk pricing & exports

The Milk debate is in the news but we visited this about 5 years ago.  Largely it is a non-issue. That is not to say there are not issues of concern in the dairy industry.


ANZAC Day is a national day of pride. A day of pride in the enduring spirit of mateship and ingenuity.

ANZAC Day is not just a day based on the remembering the events of Gallipoli and our lucky escape. It is remembering all the fallen Australians and what they fought for – whether it was the spirit of adventure, the defense of the British Empire or for the defence of the nation. In a way its probably a second rememberance/armistice day.

It is through these bonds of mateship that were long established in Australia before we federated our nation that Australia became what it is today. It was in the days when the country still rode on the sheep’s back, we faced up to the harshness of working the Australian land but we were relatively relaxed because of the great distances involved in travelling from one station to another. We never really rushed unless there was an emergency. This is one of the reasons Australia is so relaxed today. Today it is sometimes referred to laziness but for me that is only for those that don’t understand the genesis of Australia.

Mateship was also defined for me in the war mythos of Australia. My recollecctions are not entirely what they used to be but one such story in I think WWI was the Aussies kept coming, if their leader had been killed, someone else would take charge and if that person was killed then someone else would and so on, all the way down the line.

There are a few that remain that promote that ANZAC Day is about Nationalism but I feel too often they mix up nationalism with patriotism.

The Oxford English Dictionary defines nationalism as: Advocacy of or support for the interests of one’s own nation, esp. to the exclusion or detriment of the interests of other nations. Also: advocacy of or support for national independence or self-determination.”

Patriotism as: 1.The character or passion of a patriot; love of or zealous devotion to one’s country.

2. One who disinterestedly or self-sacrificingly exerts himself to promote the wellbeing of his country; one whose ruling passion is the love of his country; one who maintains and defends his country’s freedom or rights.

As you can see there are distinct differences.