MMT is essentially a con. At the moment, cash (and its electronic equivalent) is a debt owed by the Bank of England to the note or account holder. Deposits, our main form of money, are debts owed by other banks to the acount holders. They have value to the holder of the money because they are a debt owed by the bank (i.e. an asset of the holder and an equal liability of the bank). I consider it misleading to call it “fiat” money because it is actually a debt.
MMT involves creating true fiat money: printing pieces of paper (or the electronic equivalent) which are supposedly assets of the holder but not liabilities of anyone. That would imply that the government can create actual wealth by fiat because total net worth is apparently increasing. But it’s not true. To test whether actual wealth is being created, the question to ask is: does the existence of the new money allow society to consume more goods and services than it produces? Obviously not. Therefore the money is not truly wealth, but only a means of wealth redistribution. The people who print it get something for nothing, and the people who own it at the point it is taxed away get nothing for the something they gave in exchange for the money.
Now in practice, the Bank of England is writing IOUs in exchange for government debts (gilts) which will never be paid, so in practice we have MMT already. That’s not a good thing. The Bank of England should only be accepting valuable assets in exchange for the money they create, and that means ending the assumption that government debts are worth face value.
Always look at net worth – it reveals the dubious reasoning in these theories.
Thank you for a clear rebuttal of the idea that we can have a ‘free lunch’. You clearly have a greater understanding than i do but as trustee of a pension fund I see the effect of quantitive easing on gilt yields which as had a dramatic detrimental effect on funding levels for the past 10 years. This is being paid for by sponsors in a variety of ways and the debt continues for the next few decades. We had not recovered from the 2008 crash – God knows what the next lot of printing money will do ?
MMT is essentially a con. At the moment, cash (and its electronic equivalent) is a debt owed by the Bank of England to the note or account holder. Deposits, our main form of money, are debts owed by other banks to the acount holders. They have value to the holder of the money because they are a debt owed by the bank (i.e. an asset of the holder and an equal liability of the bank). I consider it misleading to call it “fiat” money because it is actually a debt.
MMT involves creating true fiat money: printing pieces of paper (or the electronic equivalent) which are supposedly assets of the holder but not liabilities of anyone. That would imply that the government can create actual wealth by fiat because total net worth is apparently increasing. But it’s not true. To test whether actual wealth is being created, the question to ask is: does the existence of the new money allow society to consume more goods and services than it produces? Obviously not. Therefore the money is not truly wealth, but only a means of wealth redistribution. The people who print it get something for nothing, and the people who own it at the point it is taxed away get nothing for the something they gave in exchange for the money.
Now in practice, the Bank of England is writing IOUs in exchange for government debts (gilts) which will never be paid, so in practice we have MMT already. That’s not a good thing. The Bank of England should only be accepting valuable assets in exchange for the money they create, and that means ending the assumption that government debts are worth face value.
Always look at net worth – it reveals the dubious reasoning in these theories.
Thank you for a clear rebuttal of the idea that we can have a ‘free lunch’. You clearly have a greater understanding than i do but as trustee of a pension fund I see the effect of quantitive easing on gilt yields which as had a dramatic detrimental effect on funding levels for the past 10 years. This is being paid for by sponsors in a variety of ways and the debt continues for the next few decades. We had not recovered from the 2008 crash – God knows what the next lot of printing money will do ?