Modern Monetary Theory (MMT)21 min read

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US Sector Financial Balances @ % of GDP, 1952 q1 to 2019 q3
US Sector Financial Balances @ % of GDP, 1952 q1 to 2019 q3


A. Work in Progress

This is a work in progress. I still have an incredible amount of work to do on this so that I can attempt to understand this complex topic. I will update this page when I get time.

If you have important or useful links or corrections please feel free to send them to me and I will take a look.

B. Warning! There is NO Going Back!

Once you understand Modern Monetary Theory (MMT) you will NOT be able to look at federal government spending or politics the same again, but it will also fill you with rage… and that will be a great thing. =)

C. My Journey into Modern Monetary Theory

I had heard about Modern Monetary Theory several years ago. I cannot remember specifically where, but I am pretty sure it was through Facebook and I was just enraged about the very idea of it. I had also heard about Federal Jobs Guarantee (FJG) around that time too and I was livid about this as well.

Both of my issues with MMT and FJG comes from my background with Resource Based Economies (RBE). Read my article The Cancer of Capitalism and It’s Antidote for more info on this topic. MMT, from the perspective of my experience with studying Capitalism and RBE, is just a rebranding of horribly broken monetary systems which happens every several decades as a way to keep people from rebelling and burning monetary systems down. We went from feudalism to capitalism to socialism to communism to democratic socialism, and now to Modern Monetary Theory. Also, around the time I heard about FJG I also had heard about UBI which I felt was far superior to FJG, especially with the tremendous amount jobs we will be losing to the automation and AI apocalypse. I was soooo pissed about both of these (MMT and FJG) from the RBE perspective that I even started to research a post to tear both of these apart. I still have that post sitting in my drafts.

Then I heard somewhere in the last few years that Alexandria Ocasio-Cortez (AOC), whom I love(d) with all my progressive feels, supported MMT and I was like “Fuck, now I have to really reconsider this!“. I also found out that she supported FJG too. I also found out that Bernie Sanders’ economic advisor during his 2016 campaign was Stephanie Kelton who is a bigwig in the MMT world. My rage filled world was crumbling at least as far as contemporary economics is concerned. =)

So, here is what sold me on both:

FJG: AOC had this amazing video created with the Intercept which was talking about the Green New Deal: A Message From the Future with Alexandria Ocasio-Cortez (Video). In there she specifically talks about how the FJG fits into the Green New Deal and then I understood it. I was amazed. I was sold so much I added FJG to my economic policies. Seriously, watch that video. It is not that long (~7 minutes) and it is powerful.

MMT: So, with AOC supporting MMT and Bernie Sanders’ economic policy advisor was an MMT bigwig that cooled my anger towards it and had me ready to start to consider it, but I did not have the time to research it.

However, a little over a month ago I had someone on my live stream where I talk politics ask me about my thoughts on this and I could only say what I said above, but that had me spend the next few weeks researching it – watching many videos and reading many articles. After all of that I was sold on this and then started this page to collect my thoughts. I even purchased the macroeconomic textbook which was written by some of the other MMT bigwigs to really get into it: Macroeconomics 1st edition (2019).

D. Page Overview

So, this page is here to act as a primer on MMT so that I can help you understand this idea, but also so that I can understand this topic myself. They say that you do not truly understand a topic until you can teach it to others, so here is my attempt at that like I always try to do.

This page is broken down into these major sections:

  1. The Basics of Modern Monetary Theory – We will first go over the very basic bullet points and concepts to get you started.
  2. Explaining Modern Monetary Theory Then we will jump in a little more in depth.
  3. Relevant Quotes – Check out the quotes, especially from Federal Reserve Chairmen.
  4. Learn More – More links to learn about MMT

I. The Basics of Modern Monetary Theory

A. There is Nothing New Here

The first thing you need to understand is that what MMT talks about is nothing new. They are not creating anything new. They are not proposing any changes to money or the system itself. All that MMT is, is an observation and a packaged explanation about how federal fiscal spending is actually done which is supported by many Federal Reserve Board Chairs’ quotes. Honestly, you cannot really have any productive discussions on the economy unless you understand how federal fiscal policy actually works. Understanding MMT is a prerequisite for progress.

In a later section much further towards the end of this document I will explain why economists and politicians are currently talking about MMT negatively.

B. Quick Intros

1. An Amazing and Quick Introductory Book

Money from Federal Government being poured into the Public Sector through government spending (Diagrams and Dollars: Modern Money Illustrated)
Money from Federal Government being poured into the Public Sector through government spending (Diagrams and Dollars: Modern Money Illustrated)

Seriously, go buy and then read this book: Diagrams and Dollars: Modern Money Illustrated. It is only $1.50 on Kindle and is only 41 pages long. This is a simple and amazing resource which gives an amazing and easy t understand intro to this topic through visuals as you can see above.

I think these may be the posts from which the book came from – same author:

2. Videos

Here are some great intro videos to get you started:

a. Stephanie Kelton

This video is 1 hr and 26 minutes: Stephanie Kelton: The Public Purse @ UCL Institute for Innovation and Public Purpose. She uses some great visuals here.

Stephanie Kelton: The Public Purse @ UCL Institute for Innovation and Public Purpose
b. L. Randall Wray

This video is ~48 minutes long – Everything You Want to Know About Modern Monetary Theory with L. Randall Wray with Bloomberg:

Everything You Want to Know About Modern Monetary Theory
L. Randall Wray with Bloomberg

C. Where Modern Monetary Theory Began

1. AKA (Also Known As)

Here are the other names that MMT is also referred to as:

  • heterodox economics
  • post-Keynesian economics
  • neo-chartel economics

The MMT name for this was branded by ??

2. The MMT Five

The people that originated the Modern Monetary Theory movement are:

  1. L. Randall Wray
  2. Bill Mitchell
  3. Stephanie Kelton
  4. ??
  5. Warren Mosler

It started with Randall, Bill, Stephanie, and ?? in ??. Eventually Art Laffer, a right wing economist of the infamous Laffer Curve which is used to justify supply side economics (Reaganomics), told Warren to go talk to the Post Keynesian group. Warren joined them and shared his views and they worked together to promote what would eventually become Modern Monetary Theory. Things did not really start moving forward for MMT until after Warren joined the group and created his blog – Mosler Economics which was created to promote MMT to the world.

D. Key Points

Note: An important thing to understand here is that, in this context, when we say Government we are specifically referring to Federal or National Governments which issue their own sovereign currency, and we do NOT mean state, county, or municipal governments which operate significantly differently.

1. About Government

Governments are NOT a Household or a Business – Governments are NOT a household or a business. They do NOT operate by the same rules because…

Government is a Monopoly – … Government has a monopoly on their sovereign currency and can print or create currency at will; whereas state, county, or municipal governments, as well as your household cannot and, therefore, they are revenue constrained.

Government Cannot Go Bankrupt – As long as Government owns their own sovereign and are the currency issuer then there is no chance of bankruptcy or not being able to pay their bills (as long as the debt is in their sovereign currency).

Governments Must Spend First – Government has to spend money first to add money to system so that there is money present to be taxed. Then you tax. (see the Monopoly game example below)

2. About Taxation

  1. Taxation is NOT Revenue – Currencies received through taxation to the Federal Government are NOT spent to pay for government expenses. The government is NOT revenue limited. It is resource limited. Even as early as the colonial times, tax money that was collected was burned in a barrel.
  2. Taxation is Used to Get the Public to do Things – Because people need the currency in order to pay taxes, and the government needs things done, then the need for currency provides the driving force to create the public services and infrastructure for the government and for society at large.
  3. Taxation is Used to Create Unemployment – ??
  4. Taxation is Inflation Control – Governments tax as a method to reduce available money which acts as a primary control for inflation because it reduces availability of money to purchase things which controls prices.
  5. Taxation as Inequality Control – Increase taxes to reduce inequality which also is a form of price control.
  6. Behavior Adjustment
    1. Disincentives – “Sin taxes” used to adjust behavior such as a cigarette tax, tax on financial speculation, carbon tax, etc.
    2. Incentives – create a rebates, subsidies, grants, etc… to encourage certain behaviors.

II. Explaining Modern Monetary Theory

A. MMT Overview

Shift from using the word Federal or National Budget for Federal spending to Fiscal Position to shift the conversation and to talk about it correctly, because a Nation which creates its own sovereign currency does NOT technically have a budget like households or businesses do, although businesses, state, and municipal governments, and households do because they are revenue constrained.

Progressive Taxation is a automatic economic stabilizer.

Fiat base currency that is floating and not fixed to some other value such as a currency or specie.
The US shifted to a fiat based currency in 1971.

Surplus Bad – Paying off debt through surplus results in depression because of private sector deficits.

US Debt – US Debt is just Treasury Bonds which are purchased with US Dollar.

B. Monopoly, the Game

Kelton’s video above @ 29 min mark

C. Talk Deficit to Me

?? heavy exporting countries can run a balanced or even a surplus, all other countries must run a deficit

chart of countries and deficits

Godley’s Law of Economic Motion (GLEM) – federal deficit is a private surplus, and vice verse.

Sectoral deficit balances between private sector, government, and foreign sectors.
Sectoral deficit balances between private sector, government, and foreign sectors.
US Sector Financial Balances @ % of GDP, 1952 q1 to 2019 q3
US Sector Financial Balances @ % of GDP, 1952 q1 to 2019 q3

Federal Reserve Accounts (Checking) vs Federal Reserve Treasuries (Savings)

A deficit in one area is a surplus in another area.

D. What About the Debt! Dear God the Debt!

We should not call it debt, because it is not debt in the classic sense.
We should call it Net Money Supply.

Treasury Bonds have never paid for any government spending. Only Congress can do that directly through legislation, but also because the bonds have to be paid back into the economy… with interest. Bonds are a tool for inflationary control.

The US debt which takes the form of US Treasury Bonds and can only be bought in USD and therefore removes USD from the economy to reduce chance for inflation and acts as a savings account for bond holders with its stability (guaranteed repayment because the Federal Government will NEVER default) and low interest rates as motivation for people to invest.

“The debt clock on West 43rd Street simply displays a historical record of how many dollars the federal government has added to people’s pockets without subtracting (taxing) them away. Those dollars are being saved in the form of US Treasuries. If you’re lucky enough to own some, congratulations! They’re part of your wealth. While others may refer to it as a debt clock, it’s really a US Dollar Savings Clock. But you won’t hear that from Congress.”

“By persuading voters that something must be done about these big scary numbers, politicians can push for cuts to popular programs like Social Security and Medicare. Winning support for an agenda that calls for painful cuts requires sustaining public outrage over our national finances. These are programs that benefit enormous constituencies. People will fight tooth and nail to protect them. Unless, of course, they can be convinced that there is no alternative. That we must act to “fix the deb’ before it’s too late.”

First, we must understand that the “national debt” is not actually a debt such as loan or something like that.

Each time the US has paid a significant amount of its debt down through budget balancing and surpluses a depression followed:

Years when Debt is Paid Down % Decline in debt Year Depression Began
1817-1821 29% 1819
1823-1836 100% 1837
1852-1857 59% 1857
1867-1873 27% 1873
1880-1893 57% 1893
1920-1930 36% 1929
1998-2001 ?? 2001

?charts of countries and debt?

E. But what About…

1. Argentina

Defaulted on US dollar denominated debt, was not debt in its own currency

2. China

China – 2 trillion in savings with the Fed due to trade disparities

Where did China get the $1.11 trillion in US Treasuries it held as of May 2019? Did Uncle Sam travel to Beijing, star- spangled hat in hand, to ask the Chinese government for a loan? Not at all.

China only holds 7% of all outstanding US Treasuries as of 2019

starting on pg 81 -83 of the Deficit Myth

3. EU

austerity measures and deficit limits due to countries no longer having access to their own sovereign currencies relying on the EU Central Banking system

4. Greece

Joined EU and no longer has a sovereign currency.
If they were not a member of the EU and still had their own sovereign currency then they would be fine.

5. Japan

?0% interest rates, 0 inflation – has NOT been able to increase inflation, low unemployment, and yet has a debt to ratio of 240%?

6. Venezuela

?had to buy a lot of US dollars which lead to import led inflation?

High Unemployment

7. Weimar Republic

Destruction from war and reparations from war, they lost their ability to produce

8. Zimbabwe

over spent the farming sector’s capacity to produce therefore inflation

III. Federal Jobs Guarantee (FJG)

  • it is more effective to target unemployment directly by giving jobs than through indirect measures
  • establishes a min wage and benefits floor
  • reduces inflationary pressures by absorbing excess labor and providing a ready pool of workers that employers can hire
  • keeps people employed so that businesses are will not shun a previously unemployed people
  • better measure of actual the unemployed pool than just guessing
  • greater economic and price stability because greater and more consistent employment – acts as an automatic economic stabilizer
  • helps to reduce the ups and downs of the economic cycles
  • jobs create actual real value to the communities where the job is created

IV. Relevant Quotes

A. Beardsley Ruml, Chairman of the New York Federal Reserve (1946)

The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government.

Beardsley Ruml, Chairman of the New York Federal Reserve (Taxes for Revenue are Obsolete, pg 35 in American Affairs, Jan 1946)

B. Paul Samuelson (1995)

The reaction to our post on the nine myths also reminded me of an interview Nobel winner Paul Samuelson gave to Mark Blaug (in his film on Keynes, ‘John Maynard Keynes: Life/Ideas/Legacy 1995‘). There Samuelson said:

I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, [then] in every short period of time. If Prime Minister Gladstone came back to life he would say “uh, oh what you have done” and James Buchanan argues in those terms. I have to say that I see merit in that view.

Paul Samuelson (1995) from Paul Samuelson on Deficit Myths

C. Alan Greenspan, Federal Reserve Chairman (1997)

… a government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit.

Alan Greenspan At the Catholic University Leuven, Leuven, Belgium
January 14, 1997

D, Dick Cheney (2004)

Reagan proved that deficits don’t matter.

Dick Cheney (January 9, 2004)

E. Alan Greenspan, Federal Reserve Chairman (2005)

more MMT quotes:

Pulled from MMT Explained:

Alan Greenspan: “There’s nothing to prevent the federal government creating as much money as it wants”

In 2005, in testimony to the US House Committee on the Budget, former Fed chairman Alan Greenspan was asked by then-US Rep. Paul Ryan about the “solvency” of the Social Security system, which Americans rely on for retirement payments. Many Americans worry that Social Security will become insolvent before they retire. Greenspan told him:

I wouldn’t say pay-as-you-go benefits are insecure in the sense that there’s nothing to prevent the federal government creating as much money as it wants in payment to somebody.

Alan Greenspan (2005)

He went on to explain that the real problem is whether there will be enough resources or assets in existence to support all the purchases the extra cash would demand. You can see a video of the exchange here.

F. Ben Bernanke, Federal Reserve Chairman (2009)

It’s not tax money. the banks have– accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. so it’s much more akin to printing money than it is to borrowing.

Ben Bernanke (Federal Reserve Chairman, 60 Minutes interview in Mar 2009)

G. St. Louis Federal Reserve (2011)

As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets (by virtue of never facing insolvency and paying interest rates over the inflation rate, e.g., TIPS (Treasury Inflation-Protected Securities).

Why Health Care Matters and the Current Debt Does Not ( St. Louis Federal Reserve (2011) )

D. Purpose of a Tax

V. Why Both Parties Will Fight This and Why This is Important For You To Understand

A. One Party system

The first thing you need to understand is that the United States is One Party System (OPS). Until you understand this you will NOT even be able to begin to understand why our country is sooo messed up. I talk about this and how this came to be in a rather large section here in my post here, so read that first:

Once you understand that we are a 1 party system and the both the Republican and Democrats server the 1% and not the people, then all of this can start be clear.

classism and economics

republicans are never asked how are you going to pay for it.

Democrats always asked how are you going to pay for it.

B. Economic Tool for Real change



revolution and guillotines

Learn More

A. Books

B. Videos

C. Links