MMT comes to the rescue… (DTM erreskatera dator…)

Aurreko sarreran1 ondoko baieztapena irakur daiteke:

zorraren birrordainketak dirua deuseztatu du.”

Baieztapen hori ezbaidatuko dugu Bill Mitchell-en lan batez2 baliatuz.

Ikus dezagun bankugintzaz Mitchell-ek dioena:

1) Lehendabizi gobernu sektorea eta sektore pribatua berezi behar dira

The government sector is entirely different in this regard because in a fiat monetary system it is not revenue constrained (as the monopoly issuer of the currency). So for it accumulating debt has a different implication. Yes, it has to be paid back and yes, it has to be serviced. But these actions occur at the stroke of a pen by crediting bank accounts.”

2) Gobernuak gastatzen du banku kontuak kreditatuz

Governments spend by crediting bank accounts (adding reserves in the commercial banking sector). If the government wants to achieve and sustain full employment then it has the capacity to do that by closing the spending gap.”

3) Gobernu defizitak ez-gobernu sektorearen aurrezki netoa berdintzen du

This means its deficit will have to equal the non-government sector’s net saving. That will be enough spending. Beyond that – as above – inflation becomes the problem.

I also note that solvency is never a problem for government in its pursuit of full employment – only inflation is the potential problem.”

Government deficits do equal private savings if the external sector is in exact balance always. Not likely.”

4) Nola jaulkitzen duen gobernuak moneta

How does the government which is the monopoly supplier of the fiat currency issue it? Well by spending.”

We are certainly operating in a fiat monetary system (excluding the individual Eurozone countries and certain other small nations) where the government is sovereign in its own non-convertible currency and relies on its capacity to impose taxes/fines to ensure that the non-government sector has a requirement to get hold of that (otherwise worthless) currency.”

5) Nola deuseztatzen diren finantza aktibo netoak

The way we know it is an intrinsic part of the consolidated government sector is because its transactions with the non-government sector can create or destroy net financial assets.

6) Ez-gobernuko erakundeen arteko transakzioak ezin dute finantza aktibo netoak deuseztatu

Transactions between non-government entities can never do that. More about which later. But you might like to read or re-read the following trilogy of blogs – Deficit spending 101 – Part 1Deficit spending 101 – Part 2Deficit spending 101 – Part 3.

7) Erlazio horizontalak eta bertikalak

It would help to read this blog – Deficit spending 101 – Part 3– where a detailed analysis of what modern monetary theorists refer to as the horizontal relations in a monetary system is presented. We distinguish the horizontal dimension (which entails all transactions between entities in the non-government sector) from the vertical dimension (which entails all transactions between the government and non-government sector).

In simple terms, the horizontal dimension is equivalent (totally consistent) with the (properly accounted for) circuit theory and endogenous money models.”

8) Tradizio post-keynestarra eta DTM

The leveraging of credit activity by commercial banks, business firms, and households (including foreigners), which many economists in the Post Keynesian tradition consider to be endogenous circuits of money, occur in private credit markets. The crucial distinction is that the horizontal transactions do not create net financial assets – all assets created are matched by a liability of equivalent magnitude so all transactions net to zero – always.

9) Merkataritza bankuek ez dituzte behar erreserbak kreditua sortzeko

The other important point is that private leveraging activity, which nets to zero, is not an operative part of the stores of currency, reserves or government bonds. The commercial banks do not need reserves to generate credit, contrary to the popular representation in standard textbooks.

So whenever we are analysing horizontal transactions we always have to find an asset to match with a liability.

10) Erlazio bertikalak

In the vertical dimension, net financial assets can be created and destroyed by government. That is a fundamental difference between the sectors.

… only the government transactions with the broad non-government sector create or destroy financial assets.”

11) Gobernuak ez du kontrolatzen diru eskaintza

… the government is the monopoly issuer of the currency. By loans creating deposits, banks certainly create credit which can be used for any number of things. This is not a struggle over control of the money supply. It is clear that the government cannot control the money supply as the mainstream macroeconomic text books claim. This fact is one of the essential insights of endogenous money theory, which is the area of research that Steve is active.

The essential point – explained above is to understand the difference between vertical transactions between the government and non-government sector, which create/destroy net financial asset positions in the non-government sector; and, horizontal transactions within the non-government sector which have to net to zero.”

12) Bankugintza

Gogoratu sarrera honen hasieran esandakoa eta bigarren oharra

Bank loans create deposits but the loan is an asset to the bank just as the deposit is a liability to the bank. Nothing net has been created.”

… from Steve’s perspective he is asserting that the non-government sector can alter net financial asset positions independent of any government involvement. The fact is that it cannot – categorically – do that. Let me explain. I also had some input on this from Warren Mosler.”

… Modern monetary theory uses the aggregation – non-government sector to eliminate confusion about whether the private sector is resident or more general. This is important because foreign governments are equivalent to “domestic private” from the perspective of the home economy in that they cannot create or destroy net financial assets in the home currency of issue.”

13) Steve-ren usteak: usteak ustel, ez erdi ustel

Steve then seeks to explain his position by noting that there is another “source of money” which is “endogenously created by the private banking system – and on the data”. He believes that “there is not a balance of money and debt creation … but a surplus of debt creation over money, so the two sum to a substantial negative”.

Well this might exist in Steve’s models but it is impossible in the real world where accounting principles rule. Why? Because bank loans create equal deposits as a matter of accounting (identities).

The bank has an asset (loan) and an equal liability (deposit). The borrower has an asset (deposit) and an equal liability (loan). If we consolidate over the entire non-government banking system then the sum of loans and the sum of deposits cancel out even though there is more “money” in the private sector hands as a result of the bank bank balance sheet expansion.

The point loans create deposits certainly but net out to zero.

Only cumulative government deficit spending adds net finanical assets to the non-government sectors, just as budget surpluses destroy them.”

14) DTM

Modern monetary theory is not left-wing just as much as it is not right-wing. It is an operationally-based characterisation of the way the monetary system operates and the way that the government sector interacts with the non-government sector. It is a stock-flow consistent framework.

The reality is that whatever the government does (using its opportunities) – big or small, surplus or deficit, whatever – will have implications for what the non-government sector does. If they run surpluses then the non-government sector runs deficits. We have to get down to that level of understanding and acceptance before we can discuss other matters that might reflect our values.”

15) DTM eta ekonomiaren bi sektoreak

Modern monetary theory does start with the broad sectors – government and non-government – because you cannot understand what goes inside the non-government sector (which includes foreigners, households, business firms and commercial banks) without first understanding how the government and non-government sector interacts.

Why is that necessary? Simply because the government is the monopoly supplier of fiat currency which is required by the non-government sector to pay its tax liabilities. You cannot assume that away because it motivates non-government activity and outcomes.

16) Superabitak eta defizitak

Further, the accounting statement the government surplus (deficit) is exactly equal to the non-government deficit (surplus) has behavioural underpinnings and so you have to understand that if the government is in surplus in any period, the non-government sector has to be in deficit. Then the question is what activities, decisions etc are manifest in that non-government deficit.”

Gogoratu Stephanie Kelton3:

(A – I) = (G – Z) + (E – i)

Alegia, aurrezki pribatu totalak (A) hauexek berdintzen ditu: barne inbertsio pribatua (I) gehi defizit publikoa (gastuak, G, ken zergak, Z) gehi esportazio netoak (esportazioak, E, ken inportazioak, i).

18) DTM eta politika

The only way that the non-government sector can save and national income keep rising is for the government sector to fill the spending gap left by the saving – that means running a deficit.”

Modern monetary theory tells you (predicts) what will be the tendencies of any particular government or non-government behaviour.

You can establish the most libertarian society you can think off – getting rid of those “well connected political hacks” – but as long as the government that is in place issues the currency as a monopolist and taxes (fines) exclusively in that currency then your economy will be bound by the dynamics laid out in modern monetary theory.”


a) Egia da Krugman-ek ez duela ulertzen zorrak nola funtzionatzen duen.

b) Baina hori argudiatzeko DTM ulertu behar da, bestela jai.

2 Ikus In the spirt of debate … my reply:

Iruzkinak (1)

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