This was reposted at New Economic Perspectives and Clonal called attention to it here n the comments. Appended here are comments on FaceBook.
Herald Scotland
The Myth of Debt
Chris Cook | senior research fellow at University College London and a former director at the International Petroleum Exchange
From FB — MMT, Heterodox and Dissident Economics

Chris Cook: That would have been better taken out.

*********************

Warren Mosler: good article thanks!!! you might add that 'paying it back' is just a matter of debiting one account at the boe and crediting another, both denominated in pounds. so both are 'the money' the difference being a time deposit vs an overnight deposit.

Warren Mosler: the mainstream implies that when you 'buy the debt' the state is 'taking your money' as if you come home and tell your wife you had a very bad day, you moved 1 million from checking to savings and so lost 1 million.
8 comments:
Which came first, the chicken or the egg?
I might argue that the egg came first. For if a dinosaur laid an egg and it hatched a chicken, then it must have been a chicken egg.
At the link, the comparable argument is:
The fiscal myth of tax and spend shared by virtually all schools of economics is that tax is first collected and then spent. This has never been the case: the reality, as we have just seen, has always been that government spending has come first and taxation later.
Turns out, today we have eggs becoming chickens and chickens creating eggs, all at the same time.
The question "Which came first: government spending or taxation?" is completely irrelevant. The MMT view is weakened by it.
Art,
One can easily become blind to govt fiscal authority if the fact that logically the govt has to spend first in order to collect the taxes is not emphasized over and over these days...
You hear this all the time: "What is the govt doing with the taxpayers money blah blah blah...."
It's not the "taxpayers money"... It's our government's "money".
The libertarians just have to get over it already.
rsp,
Just for clarification, Chris Cook is not MMT, that is, he did not come to his conclusions through MMT and has not been associated with MMT. He did not post that at NEP but gave his OK to do so when asked for permission. His is an independent view.
Thanks, guys.
Tom, I am probably the most ignorant person when it comes to "neoliberal" and "new keynesian" and "new whatnot" economics. Predefined economics.
I remember Chris Cook's name from a series of comments (here, I think) some weeks back. And the link post struck me as very much like things I've heard before, things that (I think, anyway) are MMT things.
But thanks for the clarification.
Matt: "It's not the 'taxpayers money'... It's our government's 'money'."
Agreed. On the back of some financial document I read long ago, the fine print said that the credit card I was using was the property of the issuer. Something similar applies to The Dollar, fine print or no.
Anyway, what the libertarians (or whoever) really care about is the VALUE they earn and accumulate, not the green papers with serial numbers on them.
However, I still think "which came first" is a weak argument.
:)
Art, if the state only accepts its own money at official payments offices, e.g., for taxes, fines, and fees, then the state has to issue credits before it an receive returns. It's a simple matter of logic.
Coin and Treasury notes only come from the Treasury and central bank notes and reserves only come from the central bank.
Government payment offices only accept cash (coin and notes) as spot payment and they only settle in reserves in the case of payment intermediated through depository banks.
There are two ways that non-government can get these credits and that is either through the Treasury expenditure or borrowing from the central bank, and only depository institutions have access to the central bank.
So if govt does not provide credits through expenditure (spending, interest payments and transfers), then obligations that govt imposes in form of taxes, fines and fees have to be paid from funds borrowed from banks and the intermediary bank has to borrow the rb from the cb in order to settle the obligation with the state in the govt's payment system.
More complicated than tally sticks but the same difference. Chris Cook reminds up of that, since a lot people seem to be unaware of it.
Wait, now...
"if govt does not provide credits through expenditure (spending, interest payments and transfers), then obligations that govt imposes in form of taxes, fines and fees have to be paid from funds borrowed from banks and the intermediary bank has to borrow the rb from the cb in order to settle the obligation with the state in the govt's payment system."
So... If I borrow from the bank to pay my taxes, the bank creates the deposits by making the loan. But when the government wants to cash my check, RESERVES go from my bank's account to the government account? Okay...
Dollar for dollar? Okay.
So you are saying that reserves DO constrain lending, but not in the creation-of-money phase. Only in the repayment-of-debt phase.
Reserves don't constrain lending, they constrain payment. Something like that.
Final settlement after netting intra-bank and inter-bank (clear house) is in the government's money, i.e., rb. Spot settlement is in cash.
Banks money is credit money, that is, a promise to settle in the government's money as required. Banks have to obtain cash and rb that they needed to settle, since they cannot create it themselves. That would be counterfeiting.
In an endogenous system, banks can always get the reserves to clear by borrowing from the cb as needed, so in that sense they can "force" the govt to create money, but they cannot issue it themselves since they do not have authority to do so.
In an endogenous banking system, the cb is the LLR and provides liquidity (rb to clear) to all solvent banks in the payments system by automatic overdraft, which is borrowing at the discount window at the penalty rate.
Thus the cb does not have control over the amount of rb in the payments system directly through the amount of rb it creates. It controls the amount of rb available to banks in order to set the overnight rate through exchanging rb and bonds through OMO, always ensuring that are enough rb available to clear at the target rate for interbank borrowing.
Post a Comment