Australian Politics Forum - Modern Monetary Theory (MMT)

thegreatdivide

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Re: Modern Monetary Theory (MMT)
Reply #135 - Apr 29^th, 2022 at 12:23pm

Frank wrote on Apr 29^th, 2022 at 12:01pm:

thegreatdivide wrote on Apr 29^th, 2022 at 9:47am:

The idea that government deficits are bad is wrong.

https://www.keenforthesenate.com/a-resilient-economy/

"This may seem an outrageous claim to make—surely economists (if not Pauline Hansen) know how money works? However, no less an authority than The Bank of England has said that economic textbooks are wrong about how banks work:

The reality of how money is created today differs from the description found in some economics textbooks:

Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.

Mainstream economic textbooks are as wrong about how governments operate as they are about how banks operate.

When a bank makes a loan for, say, $1 million, it puts $1 million in the borrower’s deposit account, and it records that the borrower now owes the bank $1 million. The deposit account is a Liability of the bank; the loan is the bank’s Asset. Similarly, if the government makes a payment–say paying $1 million for goods purchased from a firm–then the government puts $1 million in the deposit account and $1 million in the Reserves of the banking system.

Where does the bank get the money that it lends, and where does the government get the money that it spends? Neither the bank nor the government “get” the money: instead both banks and the government create money.

Money is primarily bank deposit accounts these days (plus a small amount of cash). Deposit accounts are a Liability of the banking sector. To create money, you have to increase the Liabilities of the banking sector. This is only possible if the Assets of the banking sector rise by the same amount, at the same time.

A bank loan of $1 million does this by increasing the Loans of the banking sector at the same time as it credits the depositor’s bank account with $1 million.
Government spending of $1 million does this by increasing the Reserves of the banking sector at the same time as it credits the depositor’s bank account with $1 million.

The same thing happens in reverse when a loan is repaid, or the government taxes the private sector: money is destroyed".

Nonsense. Not even you believe that money is meaningless.

Not that money is meaningless, just that it is created by the legal currency-creators (whether by government, or private sector banks).

as noted by prof Steve Keen:

"To create money, you have to increase the Liabilities of the banking sector. This is only possible if the Assets of the banking sector rise by the same amount, at the same time".

Quote:

The point of $1 million bank deposit is that you can withdraw it in cash or you can transfer it to someone else's account in exchange for, say, a house that is now yours.

And the point is the bank can write you the loan which enables you to withdraw the money irrespective of the bank's money reserves.

Quote:

You get REAL stuff when you tap your card at the shops, not just shifting deposits hither and yon.
Money stands in for all that REAL stuff, not for nothing and thin air.

Correct..... Amazing, you are correct sometimes.

But here's the bit you are missing: money "stands in for Real stuff, but is itself created out of nothing.

(just likes the points used to keep score in a sporting match).

i