"In spending the cash to implement its deficit, the government shifts the economy to full-employment … GDP has increased without either debt or interest rates rising. This effectively makes the bond disappear. "What's to stop traders from deciding that your currency will become nearly worthless if your leaders start printing money and expanding the budget deficit, and trying to punish you accordingly? The Federal Reserve then (supposedly) remits the interest payments back to the Treasury. A budget deficit is merely evidence of extra government spending, and government spending boosts the wealth of private sector businesses and households.Australia has effectively posted a balanced budget, but economists say a deficit and more Government spending is actually what the economy needs, David Taylor writes.They say it depends what deficit spending is used for.
"I saw them up close when I worked in the US Senate. "Fourthly, MMT economists say countries that issue their own fiat currency can afford to buy anything that's available for sale in their own currency, and they can never go bankrupt in their own currency. "The government might get the cash to spend in its deficit by giving the central bank a bond in return for the cash," "But the bond is just a government debt which it owes itself, so in the view of many MMT supporters, the bond could be deleted from the central bank balance sheet by offsetting book entries in the accounts of the government and the central bank. Because it makes politicians think they can't afford to spend more on socially important programs until they "find the money" to pay for them.According to MMT adherents, that view is misguided — because a sovereign government that issues its own currency can print as much money as it needs to pay for all the goods and services it needs in its own currency — within limits.Mr Greenspan, again, made a similar point in 2005 when he admitted that the US Social Security system couldn't run out of cash. Is that politically practical?Grenville says in an MMT context, "perhaps this all-wise committee could just set the budget deficit size, and leave it to parliament to make the hard decisions on distribution and on the size of the public sector by setting taxation rates. The result, every time, was that too much money was printed, with inflationary consequences. "When there is confidence in the integrity of government, monetary authorities — the central bank and the finance ministry — can issue unlimited claims denominated in their own currencies and can guarantee, or stand ready to guarantee, the obligations of private issuers as they see fit," Greenspan said. It was replaced by an acceptance of the so-called "natural rate" of unemployment, which is assumed to be around 4 or 5 per cent unemployment.One of the Reserve Bank's targets is full employment, but back when that target was set it meant a very different thing to what does today.MMT economists say the idea of a job guarantee is not radical.
Increasing the deficit to finance a war is not the same thing as increasing the deficit to build more hospitals and schools.They argue investments that will enhance productivity through better health, greater knowledge and skills, improved transport and the like are worth funding, even if it results in a budget deficit.Secondly, MMT economists say we've been thinking about government spending incorrectly.They say the argument (promoted famously by British prime minister Margaret Thatcher) that national governments must tax or borrow before they can spend is wrong.MMT argues it's the other way around — national governments have to spend money into the economy before they can tax or borrow. This makes them “un-disappear.” The money that the Federal Reserve receives in payment for its bonds disappears, shrinking the overall money supply.Thus, the Federal Reserve today, and for decades now, has accomplished all the promises of Modern Monetary Theory. "Virtually everything else is handled in a decentralised way, bringing decision-making as close as possible to the people and communities who will benefit most directly from the tasks that will be performed. "The federal government guarantees the financing, establishes the broad parameters that define the types of jobs the program aims to support, and provides oversight to ensure compliance and accountability.
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