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New Currency Theory (NCT)

Samantha is correct. The govt will still have liabilities and not net financial assets, or whatever you want to call them. And calling these liabilities "debt free" is just a word game. It's the same type of game MMT plays in trying to depict a "new paradigm" for money.

The simple fact is, even if the govt issues a deposit from thin air they still need to finance that money via pvt sector demand. That demand might even cost them a nominal interest rate. Call this debt, call it an obligation, call it a banana. I don't care. It doesn't change the fact that having a printing press means you still have liabilities that need financing.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

The problem with the term "debt" is that it implies the need to repay. Government debt does not get repaid. Neither does aggregate private sector debt. So a lot of this discussion seems to stem from the misunderstanding that liabilities are just obligations. Those obligations can vary, but there's no accounting mechanism by which the government can eliminate its monetary obligations when it issues financial assets.

Yes, these terms are used very loosely - often philosophically  - which has no practical implications.  The important aspect of government debt is that there is still an obligation to pay interest, rollover principle as well as to attract that debt.  While interest may 'always be payable' , it still is a non-productive expenditure that competes with the real needs of society and benefits bond holders only.   While the government can't eliminate its debt obligations it still must address them as part of yearly disbursements.

Government debt is an unnecesary construct that is a holdover from the 18th century monarchs.


Would you elaborate on your description that "even if the govt issues a deposit from thin air they still need to finance that money via pvt sector demand."  ? What do you mean by "finance" here?  How is that equivalent to the meaning of finance as "issuing bonds"?

Hi Paul,

When the govt issues money it still requires a counterparty. There needs to be demand for that money. Without a counterparty the money isn't technically financed. You have financing for new financial assets when you have viable counterparties. Anyone who issues financial assets relies on demand from counterparties. This is the most basic way to think of financing.

The govt has unusual flexibility in the way it finances its money issuance because it is such a credible entity. But it still relies on demand from counterparties. Your comment about interest is interesting. I'd actually argue that it totally depends. When inflation is low the private sector is happy to sit on money that earns no interest. But when inflation is high I think that story changes and the govt's terms of financing completely change. They essentially have to promise interest to increase the demand for their money. Otherwise their counterparties will increase their demand for other relative inflation protected assets.

So no, I wouldn't say that the govt has no obligation to pay interest on its liabilities.


"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

The MMT people make the same mistake here. In fact, I'd argue that the vast majority of people make this mistake. They don't understand the concept of funding because they think the govt, by virtue of a printing press, can force people to hold their money. But this isn't true. In fact, it's better to think of everyone as having a printing press. We can all create financial assets denominated in USD. The govt is just a huge and extremely credible entity so the terms in which it finances its asset issuance is much reliable than most other entities.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

I agree with this.  In the case of monetary reform, the government would only issue money when there is a demand from counter parties to absorb it, such as vendors, contractors, government employee salaries, etc.

The only difference is that the choice of counter parties to receive government-issued money is at the descretion of the government as opposed to a private investor as  now.

Of course, once issued for public purpose, that money will circulate in the private sector leading to the creation of the usual financial instruments between private counterparties, but government gets first use.

So the disagreement may really boil down to the theory that government can't meet the needs of the "real" economy.  This is the crux of what Huber is describing as the historical "real bills" theory that asserts that bank-created money will always go to where the economy needs it.  We know from experience, this is false (GFC).




Again, I don't see what this accomplishes. In the current system we issue most of the money via the banking system and that goes towards productive endeavors (mostly purchasing homes). Then that money circulates as people trade it around and if it ends up sitting in someone's bank account being unproductively saved then the govt often steps in and issues a money-like instrument (a t-bond) to redistribute that money for public purpose. Whether that money is used first to get a mortgage or second to fund medicare is really inconsequential. It's like thinking that the first person to buy a stock at an IPO is necessarily better off than the later buyers. It's just wrong.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

Cullen -

Finally!  We're getting down to the real crux - its a difference in politics, not economics.  I see you are essentially espousing a variant on the "trickle down theory" where the money government needs will eventually trickle down through taxes and borrowing from a very narrow high earning population.  It's a prima facie case that your theory is not bearing out - for political reasons.  You believe once money is injected into the economy it will diffuse to where its needed.  Hasn't worked.  Money that is first used as a mortgage will not make it to medicare because their aren't political mechanisms for that to happen - you'd have to consider a 70%+ enforceable tax rate - which I suspect you are politically against - maybe I'm wrong.

Our govt spends SEVEN TRILLION dollars every single year. It is patently absurd to say that there isn't enough money getting around to public purpose.

And it's even more ridiculous to say that I am advocating trickle down economics.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche