A conversation between MMT founders

A different blog post today. On November 29, 2019, I sat down with my friend Warren Mosler in Newcastle, Australia while he was on his more or less annual visit to see us. We decided to film a conversation we had about the origins of Modern Monetary Theory (MMT), how we came to it, the current state of MMT and future trends, including being part of the narrative surrounding the Green Transition. You will hear our concern about how the work we put in place at the outset is now being used in popular debates as well as other anecdotes. We consider the recent YouTube debate that Warren participated in in Italy and clear up the misunderstandings that followed that episode. We provide our own perspective on the way the GND debate is unfolding. I hope you find the 38 minute video that follows interesting.

The conversation goes for 38 minutes and 42 seconds.

The opening music is from Lyn Taitt and the Jets – Only a Smile – recorded in 1967 and distributed by Beverleys Records (flip side Easy Come Easy Go).

It was late afternoon and nearly summer so there was a lot of bird activity outside in the trees which you can pick up on the audio. We edited as much out as we could without compromising the sound too much.

That is enough for today!

(c) Copyright 2020 William Mitchell. All Rights Reserved.

This Post Has 77 Comments

  1. Youtube is down at the moment.
    Will check back later.
    Hope you are both coping with the smoke?
    Even New Zealand is getting it now with health warnings to-boot.
    The glaciers here have become covered in fine ash!

  2. This was great! For a number of reasons. Thank you for sharing it. I have great respect for both Warren Mosler and Bill Mitchell and it was interesting to see where the two of you have some disagreement despite the many, many things you agree upon. And to be honest, I kind of got a kick out of seeing you interact with someone you can’t overrule as to what MMT says or doesn’t say. But I have a few questions. First is- what were you guys drinking and was it any good?

    I don’t understand what Warren was saying (about 12 minutes in) about government setting the price it pays for things and if it is willing to pay more for something, then that is inflationary. He uses pay for soldiers as an example, but what would happen if he used barrels of oil? What happens to a government, say Japan, that decides it will only pay ‘X’ amount of its currency for a barrel of oil but no one is willing to supply that for ‘X’? I would think that government isn’t going to be able to get much oil. Or is Warren with the soldier example really sort of promoting a labor theory of value? Not that that would be bad.

    Why isn’t it reasonable to consider banks to be the agents of the government? I think I agree more with Warren than Bill about this section. And that leads into the next section where I also agree that one of the fundamental MMT ideas is that the government spends first rather than the other way around. And it was interesting to see Warren push back a bit on the ‘taxes don’t fund spending’ statements. But he clarifies it by stating that the tax liabilities come first and then he gets into the MMT ‘money story’ which is really great. And for me, the MMT ‘money story’ is really most fundamental of all.

    And last question- why do you say ‘Green New Deal’ is going to require lots and lots of real high skill jobs? I don’t understand that. Couldn’t hiring people to plant trees or separate recyclables be a large part of a GND? And what would be an example of some real high skill job that the government would need in order to do a green new deal? Economists? Lawyers? It’s not like we would need thousands and thousands of new physicists or expert machinists to make a start.

  3. Dear Jerry Brown (at 2020/01/02 at 4:21 pm)

    We were drinking a soft drink. It was fine.

    best wishes

  4. Great to see this video. What resonated for me was Warren talking that the mainstream has “it all backwards”. That’s what I have been blogging about. The so called “budget surplus” actually is a cost. The pollies all look at taxes as revenue and the deficit as cost when it has to be the other way round. Since taxes cannot be revenue the deficit must be creation. Therefore a budget surplus requires public assets to be used to balance the budget, driving the economy into reverse.
    What I have yet to see is a documented explanation to show “proof ” so we can try to get the government to understand they are wrong. Anyone seen something?

  5. Jerry,

    The way it works is this.

    Government sets a price for a commodity it wants – say £50K for a nurse. Then it simply refuses to spend that money until it gets the price it demands. That leaves the system short of money, taxation continues to drain, and because under MMT policies the banks are constrained in what they can lend for they can’t replace the money in circulation. Bidding for nurses in competition to the democratic choice of the nation isn’t “capital development of the economy”.

    Additionally government can use its other coercive power to force bids at its price (banning private hospitals for example – which is the only place spare nurses can be found incidentally. Surprisingly taxing the rich doesn’t causes nurses to pop into being fully formed from the ether). The result is a bot of a recession in part of the economy and a price squeeze until sufficient bids for those nurse places come into to release the money into circulation – at which point the squeeze is automatically lifted.

    One of the reasons mainstream economic types can’t get their head around MMT is that in their world all resource conflicts are resolved via a bid-up auctions – people pay higher and higher prices until all bar one entity pulls out. MMT theory understands that there are several other ways that resource conflicts can be handled when you have a democratic government that is something more than “just another market player”.

    Incidentally bid up auctions degrade transitively into “how much money can you persuade the banks to create for you?”. Again something mainstream economists struggle to get their head around.

    In terms of oil, the question is ‘who is the oil producer going to sell their oil to if not you?’ In aggregate all demand is already satisfied at the price people are willing to pay, so your only choice is to leave the oil in the ground – or drop the price to encourage more bids.

    The floating exchange rate helps here, because again if the government is withholding spending, there are fewer units of currency in circulation, which makes them harder to get. Therefore the exchange rate tends to move in that direction. So although the government paid fewer £s to get the oil, it’s likely that the exchange rate as moved so the oil seller ends up with the same amount of money in US dollar terms (assuming that is their base unit of account).

    In terms of taxation liability, it’s not the tax bills that come first. It’s the *expectation* of a tax bill. I know I’m going to get a council tax bill in £s in April. Hence I’m working today for £s so I can pay it then. Or I’m talking to the bank about a £ loan so I can get that in place to pay the bill in April (loans take time to turn up – something else mainstream can’t seem to get their head around: time effluxion). Either way my actions today have been driven by a future event.

    Happy New Year everybody.

  6. I agree with Dr. Mosler,
    The money story starts with taxes.
    The Mainstream have this part wrong.
    Most MMTers also have it wrong.
    The story starts with the Gov. announcing that it WILL collect taxes.
    Then some people are willing to part with their labor or their stuff in exchange for this magically created currency.
    So, the Gov. spends some currency to pay the workers or to buy some stuff. Now some people have some currency.
    Then other people sell their stuff to the 1st people because they are the only ones with some currency.
    the 2nd group are willing to do this because they will need some currency to pay the taxes in the future.
    So, after a while everyone has some currency to pay their taxes with.
    Then the gov. collects the taxes.
    This is then repeated into the future.

    So, most MMTers have it wrong. The story does not start with the Gov. spending the currency, nor does it start with the Gov. printing some currency. It starts with the Gov. announcing that it will start collecting a tax in the future. This is the very first step. Then the Gov. needs to print some currency.

    One major lesson of this {for me} is that the rich must have a major tax liability. If they don’t then why are they willing to trade their stuff for some currency. They have the stuff because the rich fund the making of the stuff.

  7. “the rich [ … ] have the stuff because the rich fund the making of the stuff.”

    Not to forget that the rich fund the making of stuff using money that the government spent, that the rich got hold of. Plus stuff could only be funded because workers and suppliers needed money come tax time. The National Market is a fascinating thing.

  8. I was having a little problem getting my head around Warren’s notion of the banks as agents of Government as a result of needing to be licensed and agreed with Bill that they are really private businesses seeking profit and in that respect different to nationalised entities.

    Thinking about it, in the days when there was more regulation such as credit controls which prevented housing/land bubbles (up to the early 70’s in the UK) then the banks were more explicitly linked to Government’s social objectives. So by extension, I suppose it’s possible to say that banks are still agents but within a neo-liberal paradigm they seem less like that.

  9. Dear Bill, thank you for answering one of my questions 🙂 I see you chose the easy one… Happy New Year Bill.

    Neil Wilson!!! Thanks and Happy New Year! But I don’t think the government of Japan is going to be able to set the price it pays in Yen for oil unless it was completely willing to disrupt all other prices and its economy.

  10. Simon Cohen @0:41, Warren Mosler also provided an example (real estate agent) of another type ‘agent’ that is both ‘in it for their own private gain’ yet still functioning as an agent of the person who hired them. I think it is a fair analogy to the relationship between commercial banks and the government.

  11. Also found this statement interesting from Warren: ‘Jobs are a cost and an input, they’re not a benefit.’

    Thinking about this, it seems to relate to the confusion myself and others have had about the import/export view of MMT where Imports are a benefit and exports a cost as real goods go elsewhere.

    Jobs are a cost in an accounting sense but doesn’t that leave out the sense of psychological well-being that secure work that is perceived as useful creates for the individual which can bee seen as a benefit? Unless we are using the word ‘benefit’ in a very restricted, technical way here, so that benefit means ‘ a good that you can get or purchase which does not involve your Labour or material resources of your society.’

    The first dictionary definition of ‘benefit’ I looked up states: ‘an advantage or profit gained from something’. So I guess that would fit in with the imports allowing you to receive goods that you didn’t work on or for which you provided resources.

  12. @ Neil Wilson,
    I think Dr. Mosler’s argument there is weak.
    Most of the oil that Japan imports is bought by the private sector.
    The oil that the Japanese Gov. buys it needs to burn pretty much every day. If Japan stops buying oil for a week it will have to stop burning oil. This means that Gov. cans will have no gas in them. Navy ships will sit in port and air force planes sit on the ground. Some oil exporting nation may wimp out and sell Japan its oil at less than the current market rate, but maybe not.
    . . . Dr. Mosler use a different example. His example was offering future pay to men to enlist in the Army. If the Army can’t fill its ranks at the current pay offered then it can shrink for a while. At some point one side will blink. Either enough men will enlist for less or Japan will offer more. Can Japan allow its Army to shrink to almost nothing in a pay dispute?
    . . . But, I think that a lot of gov. spending is done by competitive bidding. What happens if all the bids are higher than what the Japanese gov. wants to set the price at? What happens if the gov. wants to build a bridge and it can’t for a while because all the bids are too high. Comp. are not like people. People have to eat, comp. can for-go jobs if they will not be profitable. Who will blink is not obvious.

    Like I said his argument *as stated* was weak. Maybe he can flesh it out better.

  13. Yeah Simon. I wish he had put it more as ‘jobs are a means to an end’. Sure they are a cost, but usually they are a cost willingly incurred to provide a greater benefit. I would change the way Mosler framed that one. Your point about this being similar to the disagreements about whether imports are always a benefit is excellent.

  14. To me it seemed very simple that I could take out a bank loan to pay taxes (I don’t do it because it would cost me more, but the idea didn’t seem difficult.) A bank loan is an agreement whereby the bank agrees to spend its money on the borrower’s behalf. The bank has to have money of its own to do this, and the bank got that money by …
    Maybe a private bank does have a special deal with the government to get money. In a small way that can make the bank an agent of the government. Rhetorically there’s a problem with people who don’t grok just how *small* a way is meant — they know that private banks are private actors with interests and agendas of their own (nodded at in the interview, but maybe not taken entirely seriously.)

    I’ve been wondering, in actual economies, where the Ur-spend occurred in transition to a Modern Monetary System. In the U.S., would it have been government purchases of gold up to the end of convertibility in 1971?

  15. Simon, Jerry, & Steve, I think that a major problem that many have with understanding Mosler is that he is not the best expositor of his own position. Neither is Wray, for different reasons. Bill is the best expositor of this theory.

  16. Mel, from about 1933 until the implementation of Bretton Woods in 1946, the US was not on the gold standard and FDR did not allow anyone to hold gold. After 1946, the US guaranteed the price of gold at $35 an ounce until, as you mention, 1971 when Nixon unilaterally took the US off the gold standard thereby abrogating the Bretton Woods agreement and taking all the signatories to the agreement off it as well. The UK went off the gold standard in 1931 and then entered into the Bretton Woods agreement, which was set up by US Treasury official, Harry Dextor White. Keynes’ plan was basically ignored. In these periods when the US and the UK were not on the gold standard, the economic system was basically as MMT says it is, though the thinking remained as if the gold standard were still operational. To a significant extent, this is the case today.

  17. Neil Wilson

    Great to see you back. I hope this is your New Year resolution for 2020. (Although a dicky bird has told me you have been posting under an assumed name).

  18. An enjoyable and enlightening discussion. I was particularly interested in the concept that commercial banks are in effect agents of the government by virtue of their licence. I have been trying to figure out what legal coding allows the government to credit bank accounts and had started to come to the conclusion that it must be in the licence terms. I asked Warren and he said it is “probably” in the Federal Reserve Act. I read it, and the Banking Charter Act, and it is in neither. I wrote to several MMT proponents, plus a professor who wrote a book on the legal code of finance, and either mostly got no reply, or one said it is irrelevant. Eric Tymoigne said it is in his forthcoming book, but we wait in hope for that long delayed tome; the chapter was not written when he published an early draft (still a very good read however). This is the sort of Holy Grail of MMT for me, irrelevant as it may well be.

  19. China,

    Gets the oil price it wants in two ways

    a) It started buying more than it needs and storing it. Storing millions of barrels of the stuff.

    b) Just went to Iran to get the price it wanted after the west stopped Iran selling it to the West.

    Rumour has it The financial oil market has parted company from the reality of supply and demand. Between mid-2007 and mid-2009 the oil price went – the benchmark went from $80 to $147 to $35 back to $80. And, in all that time, the actual supply and demand in physical quantity changed by less than 3%.


  20. I love you guys, but the discussion on MMT’s largest contribution: “The govt spends first before it collects taxes.” is very poor wording as it’s misleading and raises more questions than it answers. Does it mean: “from the beginning of time?, in the US does it mean post-independence from England?, or post Civil War greenbacks, or does it mean this week when the Treasury disbursed checks but won’t collect taxes until April 15?” And of course as I’ve discussed with Bill Mitchell, the govt doesn’t technically NEED to spend before it taxes since it can technically open a private bank account with a private bank and tax and spend private bank money. And Warren’s statement that tax liabilities come before spending (or taxing) is 100% true but it requires a deeper analysis and explanation then most politicians, bureaucrats, economists, business people, bankers, and accountants have time for. There is too much emphasis on SEQUENCE.

    The fundamental difference between MMT and orthodox economists is the question of how does the govt pay for things. So a TRUE and explanatory statement is: “The govt (Treasury and Central Bank combined) does NOT NEED to tax or borrow in order to spend. It can simply issue. Then address questions and comments as they come in.

  21. If you take out a loan to pay taxes, you still somehow have to get money (ultimately somehow has to be added by gov; net zero) to pay back the loan that you took out.

  22. I think this little video brings to a head both the foundational concept of MMT and its unrealized potential for facilitating socioeconomic progress. Let’s take the admittedly poor example of a gun. As opposed to mainstream economics, MMT offers a much clearer explanation of how the gun works; i.e., that you first must load it (with the bullets created by currency-sovereign spending decisions) before it can be fired (by the implementation of federal purchases, policies, programs, etc.). MMT also explains why a particular gun (a given national economy) can hold only a certain number of bullets (money) without jamming (inflation), and also points out that the gun’s full firing capacity is limited by actual targets (available resources). While far from perfect, this analogy clearly reveals what MMT does NOT do, which is to suggest in any way how the gun should be used, whether for self-defense, recreational target shooting, the commission of a crime, etc. Both Bill and Warren, in the video conversation, express frustration that many on the left are focusing on the second question about the use of the gun–the question that MMT cannot answer–rather than on the clearer explanation of the gun’s operation that MMT can provide. I get Warren’s frustration here in light of his a-political position. But didn’t Bill and Tom Fazi recently put out a book (“Reclaiming the State”) calling not merely for a buffer stock JG to improve the efficiency of current capitalist consumer economies, but also for an ambitious and seemingly NECESSARY–indeed, URGENT–“socio-ecological transformation of production and society?” Warren may not think so, but I believe that Bill believes, as do many others on the left, that humanity is currently fighting a war against neoliberalism on both economic and environmental fronts, a war which poses an immanent existential threat. So while I understand Bill’s desire, as an economist, to keep the two issues intellectually separate (the explanation of the gun vs. its potential uses) I don’t understand why he is not overjoyed that more and more on the left, engaged in the war against neoliberalist oppression and ecocide, are coming to understand the gun that MMT has put into their hands.

  23. I enjoyed that video. A few things “jumped out” at me, simply because these things are forever directed at me in conversation. I`ll just mention one.
    The Italian guy said we can borrow money from the banks to pay taxes.
    My reply to such a story usually is: Yes but you then undermine two of the supposed reasons for taxes. (in this case I don`t mention the primary purpose, that being to drive demand for the domestic currency)
    1: It expand the “M1 money supply” through bank loans. As true and as endogenous as that might be, it does nothing to contain final private consumption spending, which is one of the supposed purposes of taxing income.
    2: You create a scenario for which taxation was not intended; that is to increase private sector debt through credit. That simply creates one liability to satisfy another. (Ponzi financing ……..this point usually brings “a ton” more discussion)
    It works most of the time….

  24. I disagreed with Warren on the “agent” terminology and agreed with Bill on the “licensee” terminology. I think though, that it is a cultural use of English “thing” rather than any real disagreement in understanding.

  25. @Francisco, the sequence thing is what I was suggesting was irrelevant in an email exchange today. The others didn’t agree. We were discussing how to present MMT to an unenlightened audience. I very much agree with your last para.

    Re discussion about govts buying imports (oil), is it not true that the foreign currency is at some point exchanged for the local currency, “of which the govt is the monopoly supplier”- so does it matter? (Sticking my neck out here as I’m not sure I’ve got it right – but I’m now too old to worry about sounding stupid.)

  26. larry,
    I suppose, then, that there was no particular, intentional, Ur-spend by the U.S. The treasury must have just spent what it spent, for the Vietnam War, and all the gov’t programs. Then in 1971, Nixon simply announced “Hey everybody! Convertibility is ended. All your money is Modern now!” (though not in those exact words.) The sky didn’t fall, and the U.S. monetary system was now a Modern Monetary System. I guess that makes sense.

  27. My outlook on the new year brightened more than I can explain as soon as I saw the comment at ‘Thursday, January 2, 2020 at 21:56’ and who wrote it. Neil, I honestly thought you had died and have been mourning you for more than a year now. And I never have been happier than now to have someone show me I was wrong about something. Even though I’m not wrong about what I wrote 🙂

    So back to the very serious business of economic thought. It seems reasonable to me that the government could set ONE price on ONE ‘something’ that is available (like labor) or can be produced inside that country. (like maybe oil-I picked Japan and oil for a reason though).

    But once the government sets the ONE price it can, all the other prices are going to fluctuate outside that control. Now Warren Mosler picked pay for ‘soldiers’ I think for his example, which is a type of labor for sure. Semi-skilled labor at least at first usually, I would think. Well I think that is sort of like a labor theory of value but I don’t know. And I’m tired and I’m happy you’re not dead.

  28. @Carol Willcox
    “… I’m now too old to worry about sounding stupid”.

    Me too (without the hashtag – I’m too old for that too).

    But about “the sequence thing”. Trying to clear my own mind about that, some time ago I wrote myself an essay to tease-out the argument and concluded, like you (and Flores) I think, that “taxing and spending: which comes first?” was essentially chicken and egg.

    But subsequently I changed my mind – partly anyway. I now think (and Bill has written much the same, but better) that it’s really only a question of differing levels of abstraction. The description of the operation of a fiat currency system which MMT presents doesn’t purport to be a literal one: it is highly abstract.

    If you want to know the time you look at the face of your timepiece (I’m assuming an analogue one here) and it tells you. But if you want to know how it does that you have to take it to pieces in order to find out.

    But a watch is a physical entity. If you want to know how a *system* (which is not a physical entity but a process) does what it does – which in the case of a fiat monetary system, far from being obvious by means of casual observation of its external appearance, is almost completely obscured by that appearance PLUS the conscious or unintentional misrepresentation of the underlying workings by conventional “explanations” deriving from a no-longer applicable, historical, era – you have first of all to rid your mind of inherited preconceptions and then construct a conceptual representation of its underlying, invisible, functioning.

    Nobody does that in everyday real life. Why on earth would they? – life’s too short. But specialists do, scholars do, scientists do, people with a certain bent do – in fact such people devote their lives to doing just that. A monetary system isn’t a physical entity but a construct: it can only be described conceptually – and mental constructs are abstractions by definition; they can’t be anything else having no physical embodiment. We observe their outcomes in the real world and from that adduce the chain of causation whereby those outcomes are arrived-at.

    That’s probably about as clear as mud but it’s the best I can offer.

  29. @ Neil Wilson
    “In terms of oil, the question is ‘who is the oil producer going to sell their oil to if not you?’ In aggregate all demand is already satisfied at the price people are willing to pay, so your only choice is to leave the oil in the ground – or drop the price to encourage more bids”.

    I’m probably being completely dumb but I fail to see how that statement can possibly square with reality.

    How about the second (the big one) oil-price shock? The OPEC producers did exactly what you say – they threatened (for political reasons) to leave the oil in the ground until the consumers paid the the hiked price they had decided to demand. You can call that a bluff: if the oil-consuming countries had held out against paying that price for long enough the producers would eventually have been forced to lower the price back down to the price the consumers were willing to buy it for.

    How realistic is that scenario? I would have thought:- not in the slightest degree. If it’s realistic why didn’t it happen?

    If you disagree, on what real-world argument do you base your disagreement?

  30. Thanks for your response, Robert. I’m OK with the abstraction but still think it may be ‘too abstract’ for those unfamiliar with MMT. I can foresee questions being asked, but since the talks are a joint effort we will discuss and agree.

  31. Additionally. I believe that Chris Williamson should have a role in educating Labour Party members. He’s still very popular and a good communicator. But I only have his old parliamentary contact details. I hope that Bill will contact him about this or the GIMMS girls.

  32. Fascinating video and discussion.

    My two cents on a few points …

    Despite all the real-world complications, I think it is still accurate to say that (in modern money systems) financial obligations to government – so long as these obligations are viewed from the perspective of non-government as a whole – can only be extinguished (i.e. finally settled) with government money (currency and reserves). The reality of overdrafts on banks’ reserve accounts does not seem to change this.

    If banks are short of the reserves necessary to settle tax payments of their customers, so that overdrafts are incurred on the banks’ reserve accounts, the individual taxpayers will be absolved of their tax obligations at the time their bank accounts are debited but these obligations will merely have shifted to other non-government entities, i.e. the banks. The obligations will not finally be extinguished until the banks have obtained the reserves necessary to eliminate the overdrafts. The reserves necessary to do this are issued only by government. Therefore, the non-government’s tax obligation cannot be finally settled until government has issued reserves sufficient for the purpose.

    I like the depiction of government as price setter, but still think it is apt to describe demand-pull inflation as a process in which spending is outstripping the capacity of the economy to respond at current prices.

    Although holding government prices steady will have a moderating effect on the price level, it is possible for overall demand to test capacity limits and result in demand-pull inflation because private spending is not subject to the same direct policy control.

    Booms driven by the private sector are likely to run out of steam sooner or later because of impacts on the sectoral balances, but there may still be price pressures in the meantime.

    Similar reasoning applies to currency value. In the extreme case where the government sets just one price, let’s say the minimum wage at $15/hr, this will anchor the value of a dollar to the equivalent of 4 minutes of minimum-wage labor. Other wages will vary over time relative to the minimum wage, but the government-set minimum wage will set a base level. If the minimum wage were subsequently doubled, or halved, there would be pressure on other wages to be doubled or halved, though the process would take time.

  33. Where government setting prices is concerned, it was my understanding that the complete statement is “the government can buy anything for sale that is denominated in its sovereign currency” — the sovereign currency being the one over which it exercises a (jealous) monopoly.

    If my understanding is correct, Japanese purchase of oil is not a very good example, as oil is priced in $USD almost everywhere in the world and Japan is not monetarily sovereign in $USD terms.

    I’d welcome corrections if they are available.

    As for Warren’s bit about the government’s ability to set prices, again it is my understanding that this is true only for those things which are for sale in its own currency.

  34. Thanks to both Bill and Warren, from whom I have learnt so much over the last decade, and to the other commenters above, especially Neil Wilson, whose views I have also read with interest.

    Framing: it struck me, listening to the discussion of tax liabilities (or the expectation of these based on the power of the state), that, as part of the MMT shorthand, it might be useful to emphasize the difference between a) taxes (that which is collected under the threat of penalty), and b) (the act of) taxation. That might get the message through. As in: “The Government does not need your taxes to spend; it needs taxation to modulate your behaviour.” or “the Government needs taxation, not taxes per se.”

    I am sure a better framing of this has been provided before, but something like this might be closer to what Warren used to tell the tea-party types — “You are overtaxed for the level of services you receive.”

  35. “If my understanding is correct, Japanese purchase of oil is not a very good example, as oil is priced in $USD almost everywhere in the world and Japan is not monetarily sovereign in $USD terms.”

    This is a common misconception that needs to be dispelled straight away. Just because something is priced in a currency doesn’t mean that is what you pay for the item in. It’s just a offer in the market.

    It is *always* the case that the end customer pays in the currency they want to pay in, and the end supplier receives the currency they want paying in. Otherwise the financial chain collapses and there is no deal in the first place.

    The reason banks make money is to line up the ducks in a row and make those financial chains work.

    Yes the Japanese can and will buy oil in Yen – because that is all they have and the oil supplier won’t sell their oil if they don’t take it. If the oil supplier has no use of Yen then they will take it to a global bank *who will discount it into a new issue of any currency they fancy*.

    A process that has interesting dynamic effects this margin is too narrow to contain.

  36. Thanks for this Bill,this is great.
    I always thought itd be great to listen in on you two.

    Happy new year

  37. “How realistic is that scenario? ”

    Pretty realistic. What was the price of oil in 1986? There was a six year decline in the price of oil after 1980 as economies rapidly moved away from excess oil consumption.

    The inelasticity that OPEC was relying upon turned out to be a chimera.

  38. Neil,

    “This is a common misconception that needs to be dispelled straight away. ”

    Prior to 2007, the Japanese paid for their crude in US$.

    In 2007, the Iranians requested the Japanese pay in Yen – to protect themselves against US sequestration.

    The Venezuelans have recently done the same. China has set up an oil futures exchange based in Yuan.

    Those sort of actions are essentially political and not commercial.

    So, I think your statement is a generalization that needs scrutiny (although it is not clear from your comments exactly what you are asserting).

  39. I agree with some who question the importance/relevance of the sequencing between government spending and spending. At this stage, since the currency has been established for years, it doesn’t matter. What matters is that the amount of money that the government holds is irrelevant since it can create money at will by spending or destroy it by taxation.

    One thing that as far, as I have read, MMT is silent on is the role of taxation: how should the government decide on the level of tax and from whom it should be taken. It can’t be that the role of tax is simply to establish the currency.

    On a different point, I don’t understand the statement from Warren that jobs are a cost. Surely, if the government pays for somebody to do a job either within the job guarantee arrangement or not, it would be expected that the outcome of the job would be some beneficial goods or service.

  40. @Tonyw,

    MMT, or at least Bill, is definitely not silent on taxation. Although it took me longer than I expected to pin down an article that succinctly covers taxation (although I am sure there are many – it’s just that I haven’t managed to find them via “search” yet.

    Another approach is to use the “site map” facility, by which means I found this article:


    That is titled: “Taxpayers do not fund anything”.

    It does cover, among other things the real role(s) of taxation.

    (1) As you say, one role is in the establishing of the currency.

    (2) The next most important role is, I would say, in allowing the government to allocate real resources to itself, by denying the non-government sector too much access to those resources.

    (3) Another role is to control aggregate demand in the non-government sector, and thereby to help control inflation caused by over-heated demand. (This is related to (2), I would say).

    I am sure there are other articles that also explain taxation, perhaps with different emphases, but I’m a bit too tired right now to look for them. 🙂

    There are other reasons for taxation (e.g. “sin taxes” like on tobacco or alcohol).

    Worth checking out this article:


    Titled: “Progressives should move on from a reliance on ‘Robin Hood’ taxes”

    e.g. this:

    Taxes play an important role in the Modern Monetary Theory (MMT) argument given they provide the ‘real resource’ space which permits governments to spend (in pursuit of their socio-economic mandate) and command real resources without introducing inflationary pressure.

  41. A couple of people asked questions that nobody answered, so I’ll try.

    John Doyle asks for “proof” that spending comes before taxes. Since MMT is attempting to describe reality, this is a bit like asking for proof that the sky is blue. But assuming that spending doesn’t come before taxes is absurd. Money has to come from somewhere, and spending is the only possibility.

    Rob asks ” money is just a contract, right?” Sure, Eric Tymoigne calls it a promissory note, which is a type of contract. We

  42. Just want to say that I believe that the taxation of land values should be an integral part of MMT in the same way as the Job Guarantee. One deals with the labour market the other with land, which are the two prime components of the economy.

  43. The EU and the launch of the Euro is a huge example of spending coming first.

    The ECB didn’t say give us your Euro’s so we can spend. Nobody had any they spent the Euro into existence.

  44. Neil Wilson wrote:-
    “Pretty realistic. What was the price of oil in 1986? There was a six year decline in the price of oil after 1980 as economies rapidly moved away from excess oil consumption”.

    And what were the buyers doing meanwhile? Paying the price the OPEC suppliers demanded? Or doing without oil – not

    I don’t think you’ve proved your point, but only demonstrated that your original statement was far too one-dimensional.

  45. Derek Henry wrote:-
    “The EU and the launch of the Euro is a huge example of spending coming first.

    The ECB didn’t say give us your Euro’s so we can spend. Nobody had any they spent the Euro into existence”.

    Are you sure about that? As far as I recall each eurozone member-country (and each had – and still has – its own CB) just converted its existing stock of broad(?) money denominated in its own currency into the Euro equivalent value, at the exchange-rate which had been fixed before the starting-gun was fired.

    That being so, I can’t see how it can be correct to say “nobody had any euros”. In fact they all had just what they had before in domestic currency, converted into the common currency the euro.

    There was also a one-year transition-period during which both currencies circulated and were convertible into each other (although I’m unclear as to whether that has any bearing on the question).

  46. @ Carol Wilcox
    “Just want to say that I believe that the taxation of land values should be an integral part of MMT in the same way as the Job Guarantee. One deals with the labour market the other with land, which are the two prime components of the economy”.

    I heartily agree. It seems so self-evident.

    Why is it, do you think, that it never seems to gain much traction, either in this forum or more widely?

  47. Neil Wilson @5:39

    That is useful to know about the availability of oil in yen — for now.


  48. “As far as I recall each eurozone member-country (and each had – and still has – its own CB) just converted its existing stock of broad(?) money denominated in its own currency into the Euro equivalent value, at the exchange-rate which had been fixed before the starting-gun was fired.”

    That’s what I’m thinking about when I ask about an Ur-spend. Here the ECB spent Euros to buy henceforth worthless local currency. It would be philosophically pleasant to see that fresh money being spent on barley or swords or something, but I suspect that those transactions happened too many centuries ago to be directly visible now.

  49. Yup.

    Very sure about it.

    The ECB just bought the currencies that were going out of existence as they were now worthless. Then introduced the tax liability in Euros.

    Nobody had any Euro until the ECB started crediting bank accounts. If you went to bed with Lira or Pesetas you woke up with Euro’s in your account.


  50. Carol Wilcox and Robert H,

    It isn’t as though governments do not tax land already. At least they do here in the US. Property taxes are probably my largest single tax bill, even if they are not levied by the US federal government. And it wouldn’t be fair to say MMT or Bill Mitchell ignores the possibility of taxing land- one of the most common examples of MMT explaining how taxes ‘work’ is the ‘hut tax’ after all. But I think that in general, MMT remains agnostic, for a good reason, as to which kind of tax is most fair, most effective, or most popular- and it leaves that up to the democratic process (which hopefully exists). Just so long as the tax decided upon creates demand for the currency it will work.

    So that’s my opinion about why MMT doesn’t emphasize land or property taxation. For whatever that’s worth 🙂

  51. Warren claimed that banks have access to overdraft facilities at the central bank.

    That confused me, because they don’t (in the jurisdictions I’m familiar with, at least).

    Banks do have access to central bank’s credit if they are able to post government bonds as collateral. If they don’t, then no credit for them. One thing is to claim that banks can replace government bonds with bank reserves and vice versa. The other is to claim that they have access to overdraft – which they don’t.

    In the US, Japan and probably some other countries, the central bank also accepts other kinds of bonds and financial assets as collateral, which also doesn’t characterize the credit facilities as “overdraft”.

    And I think this overdraft thing is crucial, albeit somewhat technical.

    Am I understanding anything wrong? Where am I failing here?

  52. I just turned on BBC Radio 4: … meets writers & thinkers who are breaking new ground. This week – Paul Krugman about the ideas he contends blocks the path to change!

  53. @Mike Ellwood Thanks for your reply. I suppose I was exaggerating somewhat and I appreciate your points. I should emphasise that I am not arguing against MMT, but I am arguing around the its edges.

    There are still some questions though. Macroeconomics tends to lump all parts of the economy together. When designing a tax system, we need to look at the different sections. For example, if a tax is implemented to make room for government spending in a particular area, it must work in that area and not overall.

  54. Dear tonyw (2020/01/05 at 12:58 pm)

    You said:

    Macroeconomics tends to lump all parts of the economy together.

    As if by way of criticism.

    That is what macroeconomics is – a study of the aggregates. You cannot criticise something for doing what it says it will do. It is like saying that neurology is flawed because it doesn’t study oncology.

    Which is why we don’t study micro issues relating to tax structure. That is a different branch of analysis.

    best wishes

  55. @ Derek Henry

    “The ECB just bought the currencies that were going out of existence as they were now worthless. Then introduced the tax liability in Euros”.

    As a matter of fact, the introduction of the euro wasn’t accompanied by the simultaneous (or subsequent) demise of the national central banks (NCBs). It’s they who issue their country’s (euro) currency, mint their coins/print their banknotes, hold their country’s banks’ reserves, backstop their country’s payment-system, etc. The ECB sets the common interest-rate target, which the NCBs are required by using those various tools to maintain.

    The ECB did not “buy” the old currencies in exchange for new euros. The NCBs changed the denomination of whatever they were holding from the old to the new value in accordance with the exchange-rate pegged beforehand between the two, The NCBs issued new euros and retired their old currencies progressively. In year one prices were required to be denominated in both. For a time payments continued to be expressed in terms of both currencies side by side.

    “Nobody had any Euro until the ECB started crediting bank accounts. If you went to bed with Lira or Pesetas you woke up with Euro’s in your account”.

    There was no “crediting” of bank accounts. Whatever amount was in your account, denominated in old currency, was on day one instantaneously converted to *that same amount* but denominated in euros.

    I flatly disagree that in *any* literal sense of the words the ECB on day one “bought the money-supply”. You could argue that I’m just being pedantic, and that may be so but I think there’s something more important than that at issue here – in regard to communicating intelligibly. In terms of the system’s ultimate *functioning* (ie in highly abstracted and extremely compressed terms) Warren’s way of describing the underlying process may be correct but it doesn’t describe the actual sequence of events that took place in the real world (and neither IMO does yours by derivation).

  56. André @Sunday, January 5, 2020 at 7:26,
    If Warren had claimed that banks know they usually could operate ‘as if’ they had access to reserves in excess of their current actual reserves at the central bank would you still have an issue with it?

    If you did still disagree then I think that could be important and you might want to do some independent research into banking operations to find out if Mosler knows what he is talking about. But he was a banker himself for a while and my impression has always been that he knows exactly what he is talking about.

  57. Jerry Brown
    Sunday, January 5, 2020 at 5:05
    Carol Wilcox and Robert H,

    It isn’t as though governments do not tax land already. At least they do here in the US. Property taxes are probably my largest single tax bill, even if they are not levied by the US federal government.

    Just to add that the equivalent in the UK is called “Council Tax”, introduced in 1993 to replace the short-lived and unpopular “Community Charge” (aka “Poll Tax”), which in turn had recently replaced the long standing “Domestic Rates” system of local government finance.

    In order to implement this, the government sent out teams of property valuers around the country who did quick and dirty valuations on all existing domestic properties in existence at that time. This data was then passed to local councils to assign each property a Council Tax “Band” (a letter from A (low) to H (high) ). The councils then use the bands to assign the actual annual Council Tax payable for each property, so that a higher value property will pay approximately (very, very approximately) proportionately more tax than a lower value property.

    Now, the tax band valuation limits are set as they were in 1991 (when the original valuations happened). New properties have to be valued, and a guess made as to what they would have been worth in 1991, and then a band assigned.

    UK national governments (especially Conservative ones) have always been very keen to control the amount of local taxation that local governments can raise. Usually they are allowed to increase council tax by approximately the general rate of inflation, but note, very much not by the rate of property inflation, which has been sky high in many areas, especially London and the south-east.

    Some people think that all properties should have been revalued regularly, to reflect their actual values. I think this is problematic for various reasons. In a way, those starting valuations were never meant to reflect their absolute value for all time. They were in fact meant to establish relative values among different types of property (which they only did very imperfectly, IMHO).

    Having said that, I suppose there could be a way of incorporating some sort of LVT into our existing Council Tax system, but I can’t help thinking that it would inevitably end up inflicting injustices on people (even more than the present system).

    For example, just say there is a property bubble one year (hardly unknown), and my property goes up in apparent value by 100% in 12 months (also not totally unknown in some bubbles). Then say, the government sends out its regiment of shock troop property valuers at the end of the year, and so my council tax doubles overnight. But my income hasn’t doubled overnight. In fact in might have remained static for a year or more, and therefore lost value by inflation. So, I don’t think that would be a very fair system.

    I’m not sure how exactly proponents of LVT suggest it should be implemented (perhaps Carol can throw some light on this), but I’d hope that any tax is only due once the property value increased is actually realised.
    The Wikipedia page on the subject just reminds me how complicated it can get.

  58. Robert,

    I still Fail to grasp the point you are trying to make or refute ?

    Are you saying taxes were collected before the Euro could be spent ?

    Nothing you have posted so far, all of which is common knowledge, proves that. If you were to go all the way back and look at why Lira and Pesetas were there, that were bought on 1-1 basis. It is a good old fashioned, spending first, taxes second story in these countries.

    Switch your point of view around a challenge if you like to make it interesting.

    Your task is to prove collection of taxes in Euros were essential, prior to day one, the day the Euros were spent. If you can’t then the statement stands.

    “The launch of the Euro is one of the biggest examples of spending first, taxes second ,with a tax liability in the currency.”

    The onus is on you to prove that statement is wrong.

    So far you have posted how the Euro was launched the sequence of events. However, you have not shown that tax collection in Euros prior to anything that you have posted being carried out ( including the sequence of events), was essential to that process. You have proven that the two are not linked though.

    Scotland wins independence at 21:00 on a Friday night and say they will launch a new currency on Monday morning. Introduce a tax liability in the new currency.

    What ?

    Scotland can’t launch a new currency on Monday morning because the new Scottish treasury hasn’t collected enough taxes. From Scottish tax payers who haven’t got the new currency yet ?


    The new currency will be spent on Monday morning in Scotland. The new Scottish central bank will credit reserve accounts with the new currency without even thinking about Scottish tax payers and what they have or don’t have.

    Write a paper that proves the collection of taxes in Euros was essential and where it was essential in the sequence of events, prior to day one. That shows without the collection of these taxes in Euros prior to day one. The launch would have failed and no Euro’s could have been spent.

    Job done or Warren statement stands.

    I will Look forward to reading it.

  59. @Mike, you haven’t read my paper. The Council Tax structure does not lend itself to reform. It’s the most regressive tax we have where the owner of a mansion in Westminster pays almost the same as the tenant of a bedsit in Weymouth. Also there has been no revaluation since its introduction – regular revaluation is essential for a property tax. Land values here are so unequal that it is necessary for LVT to be collected nationally. US owners pay hugely higher property taxes than here.
    Sorry to hijack your blog, Bill.

  60. @ Derek Henry

    You wrote:-
    “I still Fail to grasp the point you are trying to make or refute?”

    Evidently. Where to start…?

    “Are you saying taxes were collected before the Euro could be spent?”

    I never said or implied anything of the kind. This is just setting up a straw man, which you duly go on – predictably – to annihilate. Nothing changed in the causation “govts spend first, then tax” when the currency changed. I never said it did. All that I said happened was that everything – all spending and all taxing – just went on exactly as before but re-denominated in the new currency.

    “Scotland can’t launch a new currency on Monday morning because the new Scottish treasury hasn’t collected enough taxes”
    – I can see nothing analogous between the historical events surrounding the introduction of the euro and the launching – posited in the peculiar way that you do – of a post-indepence new Scottish currency. Those two situations are completely unlike.

    “Switch your point of view around a challenge if you like to make it interesting”
    – takes it as read that yours is the (only) correct reference-point. As must already be clear I don’t buy that (patronisingly expressed, if I may say so) proposition.

    “The onus is on you to prove that statement is wrong”
    – you may say that but I say that, on the contrary, the onus is on you to prove that statement is right. That indeed was my point at the very beginning. It still is (answering your opening question, quoted above).

    Neither of us has changed or added to our original – opposed – positions which we have each set out at length. For my part I stand by mine. Evidently, so do you by yours. If we continued with this we’d only go engaging in completely unproductive reciprocal point-scoring in a (potentially) endless loop.
    Can’t we, please, agree to just leave it that?

  61. @Carol Wilcox
    Monday, January 6, 2020 at 6:41

    “@Mike, you haven’t read my paper”.

    Carol, where can it be accessed please? I’d be interested to read it.

  62. Jerry Brown,

    “If Warren had claimed that banks know they usually could operate ‘as if’ they had access to reserves in excess of their current actual reserves at the central bank would you still have an issue with it?”

    Yes, I would still have an issue.

    Banks do operate ‘as if’ they had access to reserves in excess, but up to the amount of government bonds they hold (and whatever the banks believe are liquid assets, or HQLA, that they believe that can be readly converted into bank reserves). Banks do not operate as if they had access to overdraft facilities with the Central Bank.

    Mosler himself explains with a didactical metaphor: bank reserves are like “checking accounts”, and government bonds (and other HQLA) are like “savings accounts”.

    The Central Bank guarantees that the “savings accounts” are exchangable with the “checking accounts” and vice versa (through operations like bond auctions, repo and reverse repo operations, remunerated reserves in some cases, and other kinds of operations).

    The bank considers bank reserves, gov bonds, repo operations and other HQLA as liquidity. But banks do not have access to overdraft facilities at the central bank.

  63. André, I am not an expert on banking. And it often seems that the more I learn the more I realize just how much more I don’t know. But I would bet that a solvent bank in the US Federal Reserve System does in fact have access, in emergencies, to the Fed Discount Window which will provide liquid reserves to meet immediate shortfalls in that bank’s liquid reserves due to unexpected demands placed on that bank’s reserve balances. That is a type of overdraft protection- even if it might be costly to the bank and even if they are almost always unwilling to use that facility.

    Saying banks don’t typically act as if they have an overdraft account at the Fed is different from understanding that they in fact do operate in a system and in the knowledge of that system where that overdraft protection is indeed available if the worst happens.

  64. Jerry Brown,

    I’m not a specialist in the US financial system, but, as far as I know, the discount window is fully collateralized. That means that the bank needs to post collateral (government bonds or assets that the Fed accepts) in order borrow. In other words, the bank is exchanging a medium- or long-term asset (gov bonds) with bank reserves.

    It is as if the bank is withdrawing money from its “savings account” to its “checking account” temporarily. It is not as if the bank is using an overdraft facility. It is limited by the amount it has in its “savings account”.

    One of the implications is that bank lending is in part restricted by the amount of government bonds (and other liquid assets) that the bank is capable of securing through deposits or debt or whatever funding source it finds profitable.

  65. André, although MMT has taught me to question almost everything I previously learned about economics (for good reasons), I currently do not question that one of the reasons the Federal Reserve System was created was to deal with the problem of ‘bank runs’. That possibility is always present for any bank due to the nature of banking. Bank assets are mainly in the form of less liquid, longer term loan portfolios that they hold, while their liabilities are often due upon demand or due in the very short term. Any bank, no matter how solvent (meaning the value of their assets is greater than the value of their liabilities), is always at risk that the short term liabilities they have incurred might be demanded more quickly than the bank could liquidate its long term assets. It is my belief that the central bank will find a way to backstop any solvent bank that finds itself in that unfortunate position.

    Fairly recent history tells us that the Federal Reserve found ways to backstop banks even if they were very arguably insolvent. And that was not even limited to US banks and also applied to quite a few European banks. In my opinion you would be ignoring history and the purpose and goals of the central banks to maintain a stable payments system to insist that commercial banks are not aware of this. And ignoring the fact that specific institutional rules and regulations can be and are altered whenever it is deemed necessary due to circumstances. I would lighten up on the technical details and specifics and look at it from a broader perspective.

    This is all just my personal opinion on the subject and should not be attributed to either Warren Mosler or Bill or MMT. Even if I arrived at this understanding due mostly to their influence 🙂

  66. “Fairly recent history tells us that the Federal Reserve found ways to backstop banks even if they were very arguably insolvent.”

    In the US, corporate capture is the norm, and the Fed then just followed their bosses’ (private financial sectors) commands and bailed them.

    However, some banks did fail (like Lehman Brothers) and others just didn’t fail because they were bought by another bank (Merril Lynch, for example). If they had access to overdraft, why would they fail? Why would some banks be bailed out? The real world seems to be more complex then you describe.

    In other jurisdictions where corporate capture isn’t the norm, the Central Bank usually doesn’t bail banks. Maybe they would in the case of the biggest banks (too big to fail), maybe not. Whatever is the case, the claim that banks do have access to overdraft facilities just doesn’t seem to correspond to the real world.

  67. Andre, many of those, like Lehman were not then commercial banks with access to the Fed, but investment banks. Once the crisis developed, they begged for and received the status of a bank. And of course later put out propaganda that they really didn’t need it, weren’t bailed out. Yeah, right.

    In other jurisdictions where corporate capture isn’t the norm, the Central Bank usually doesn’t bail banks.

    Corporate capture as in the USA is the norm these days, imho. Look at Europe.

  68. André, my understanding is that Lehman, Merrill Lynch, and also Bear Sterns were actually not ‘commercial banks’ but were what is called ‘investment banks’ or brokerage houses. They were not under the same rules that applied to commercial banks and did not at the time benefit from the same level of protection from the US Federal Reserve that commercial banks did.

    But even in their cases, the Fed bent rules to arrange the sales of Bear Sterns and Merrill Lynch and probably deeply regretted not bending more rules in order to save Lehman. Cause right after that the shit really hit the fan. And shortly thereafter the Fed changed more rules and the other big investment bank Goldman-Sucks became a ‘bank holding company’ under the aegis of the Federal Reserve in order to survive the crisis. Plus the Fed suddenly ‘forced’ all these big banks to accept 10 billion dollar loans from the Fed. Plus the Fed suddenly decided to start buying private mortgage backed securities for which there was no market whatsoever at the time from these banks that held them as part of their ‘assets’. Plus the Fed and the Federal US Government decided to guarantee many of the liabilities of these banker’s corporate counterparties- without which happening they would have been busted.

    Just all coincidence no doubt. Yes the world is complex. I guess if you want to believe that technicalities actually prohibit the central bank or the government from doing what they decide is necessary, well that is your right to do so.

  69. “Just all coincidence no doubt. Yes the world is complex. I guess if you want to believe that technicalities actually prohibit the central bank or the government from doing what they decide is necessary, well that is your right to do so.”

    I never claimed that corporate capture is a coincidence, and never claimed that the US government has an appropriate relationship with the US financial sector. If you are attacking this sort of claims, then you are incurring in the Straw Man fallacy.

    And the overdraft thing has huge implications. You can call it a technicality if you want, but then it is a very important technicality that shouldn’t be dismissed.

    What I claim is that the banks do not have access to overdraft facilities at the Central Bank and they are not managed as if they had.

    I just gave some examples, but you just have to do a quick google search to find all the banks (including commerical banks) that went broke all over the world not only during the 2008 financial crisis but in other moments too.

    And it all doesn’t matter, because all you need is a single bank going broke to prove that they don’t have access to overdraft facilities – because if they had, they wouldn’t go broke. You would never hear anything about banks going bankrupt because that wouldn’t be possible.

    If you claim that all swans are white, I just need to show you a single black swan to prove you wrong.

    This is data. You can ignore the data, and hold to your beliefs no matter what. But that kind of behavior is not science. This sort of non-science is what Bill and Warren and many others heavily criticize in the mainstream economic thinking.

  70. Dear Andre, perhaps you should review what the Federal Reserve actually accepts as collateral from banks that seek reserves from the ‘overdraft facility’ called the Fed Discount Window. It is not just US government Treasuries- it is all manner of securities and a large part of a bank’s performing loan portfolio. I’m not trying to get you upset with me, I was actually trying to explain the way I understand your question.

    Here is the Federal Reserve detailing acceptable collateral categories and if I am reading it right, one of those categories includes unsecured credit card debt. Which wouldn’t seem overly restrictive to me. https://www.frbdiscountwindow.org/pages/collateral/discount%20window%20margins%20and%20collateral%20guidelines

    Solvent US commercial banks have access to overdraft at the US Fed. That doesn’t mean banks can’t fail or go out of business. That happens when the value of their assets is less than the amount of their liabilities. As when too many of the loans they made are defaulted upon.

  71. André, our discussion has been troubling me. I know from your past comments that you are an intelligent person and not some kind of internet ‘troll’ and that you are not seemingly ideologically opposed to MMT thought. So it has been bothering me that we have not been able to come to some understanding. And one thought that comes to mind is that we are using very different definitions of what the word “overdraft” means as used by Warren Mosler in the talk he had with Bill that we are discussing.

    You seem to be using that word as a synonym for a pre-existing, preapproved unlimited line of credit with the central bank that a commercial bank can always draw on at its pleasure, regardless of that bank’s assets or their quality. And honestly, if that was the case, I would be inclined to take your word that banks don’t enjoy that privilege.

    But I am using the term as an understanding that solvent banks always know that if at the end of the day they need reserves, they will always be able to get them, if not in the interbank market, then from the central bank itself as a last resort. Now I happen to think that Mosler was using the term more like the way I am using it. And that is what I think you were ‘missing’ in your original comment. But maybe you should ask him what he meant yourself. Cause I can’t speak for him. And apparently do a lousy job of it when I try.

  72. “and that you are not seemingly ideologically opposed to MMT”

    Yes, I’m not ideologically opposed to MMT. In my perception, MMT is far better than the mainstream theory in explaining and predicting real world phenomena. As someone else said here in this blog, I believe that Bill Mitchell and Mosler deserve Nobel prizes (if there was one for economics).

    But I cannot agree with everything they claim. I do not agree with Warren when he claims that, because banks have this special access to government supplied overdraft facilities, they are “agents of the state”.

    I believe that there is enough evidence to refute this claim. (And I don’t think that Warren uses the same definition as you do). In my view, this is more than an unreasonable oversimplification: it seems wrong.

    When Warren claims that banks have access to Central Banks’s overdraft, you generate a lot of confusion, even more so for people who are learning MMT.

    The other day someone questioned that, if banks have access to overdraft, “then why would banks seek deposits from customers?” and someone else “How then can banks go broke?”

    I cannot blame them for getting confused. This is a natural consequence if you accept those kinds of claims at face value.

    Another claim that I believe that evidence disputes is that banks don’t need to have liquidity (in the form of bank reserves, gov bonds or other liquid assets) before lending, and that banks would seek liquidity after the lending happened. That is not how it works in the real world, in my view. Banks do need to have at least some of the liquidity before lending (and if it is a small bank, it will probably need to have the full liquidity before lending).

    I’m not saying that I think the mainstream theory describes the financial system better than MMT, because it clearly doesn’t. But MMT theory seems to me, in this specific aspect, confusing or wrong.

  73. The reality is private banks are private organizations who have a license by governments to operate and lend what they like and how they like as long as they keep withing the deposit ratio of lending. They create their own money to lend and are Not agents of government just as a person who drives a vehicle on the road has to be licensed and is Not an agent of government but is restricted as to what their license says that forbids them from doing certain things.
    Private banks are in no way agents of government but must follow the limits of lending below or at the designated ratio. Government does not control their interest or risk or force them to lend more or less. Their employees and managers are not employed by government.
    It’s totally absurd to say private organizatons are government agents becasue it in no way meets with the laws relating to agency.

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