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    Randall Wray's MMT Presentation For Modern Money and Public Purpose

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    This is the powerpoint presentation that Randall Wray used with his presentation at Columbia Law Schools' Modern Money and Public Purpose

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    Randall Wray's MMT Presentation For Modern Money and Public Purpose

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    devindsmith
    4K views28 pages
    This is the powerpoint presentation that Randall Wray used with his presentation at Columbia Law Schools' Modern Money and Public Purpose

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    Randall Wray's MMT Presentation for Modern Money and Public Purpose

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    This is the powerpoint presentation that Randall Wray used with his presentation at Columbia Law Schools' Modern Money and Public Purpose

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    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    4K views28 pages

    Randall Wray's MMT Presentation For Modern Money and Public Purpose

    Uploaded by

    devindsmith
    This is the powerpoint presentation that Randall Wray used with his presentation at Columbia Law Schools' Modern Money and Public Purpose

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
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    The key takeaways are that governments that issue sovereign currencies like the US dollar are not financially constrained and can never default or run out of money to spend.

    The main topic of the document is how modern monetary systems work, specifically focusing on sovereign currencies like the US dollar.

    Some of the key principles discussed are functional finance, the relationship between governments and the currencies they issue, and that budget deficits do not burden future generations.

    MODERN MONEY: The way a sovereign currency works

    Professor L. Randall Wray University of MissouriKansas City [email protected]

    First we will take a quiz. No cheating! Write down your answer. There is a correct answer for every question. Questions concern statement of fact. No theory, ideology or theology is contained in statements. There are no policy proposals involved; the questions concern current operating procedures already in place in all sovereign currency nations.

    Just like a household, the government has to finance its spending out of its income or through borrowing.
    TRUE OR FALSE

    The role of taxes is to provide finance for government spending.


    TRUE OR FALSE

    The National Government borrows money from the private sector to finance the budget deficit.
    TRUE OR FALSE

    By running budget surpluses the government takes pressure off interest rates because more funds are then available for private sector investment projects.
    TRUE OR FALSE

    Persistent budget deficits will burden future generations with inflation and higher taxes.
    TRUE OR FALSE

    Running budget surpluses now will help build up the funds necessary to cope with the ageing population in the future.
    TRUE OR FALSE

    All Are False!


    St Louis Fed: "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 dollardenominated assets.

    Government can NEVER run out of Dollars; It can NEVER be forced to default; It can NEVER be forced to miss a payment; It is NEVER subject to whims of bond vigilantes.

    "I think there is an element of truth in the superstition that the budget must be balanced at all times. 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 in Blaug, 1995)

    What is Money? Why is it accepted? What is the relation of the Govt to its Money? What is fiscal policy? What is monetary policy?

    Social

    State money of acct A record of debit/credit

    unit of account

    Money

    things; hierarchy Denominated in the state money of acct

    Gold? US Dollar: this note is legal tender for all debts, public and private; Canadian Dollar: this note is legal tender; Australian Dollar: This Australian note is legal tender throughout Australia and its territories. UK Pound: I promise to pay the bearer on demand the sum of five pounds Euro: No legal tender laws Fiat??? Nothing???

    Use of currency and value of M are based on the power of the issuing authority, not on intrinsic value. State played central role in evolution of M.
    From beginning monetary system mobilized resources

    One Nation, One Currency Rule


    Separate currencies not a coincidence. Tied up with sovereign power, political independence, fiscal authority.

    TAXES DRIVE MONEY:


    state imposes obligation, payable in states own money thing IOU; spends its money into existence

    How Govt Spends its Own Currency: Keystrokes


    Spendingcredits
    Govt credits banks reserves; bank credits acct of recipient

    Taxesdebits
    Govt debits banks reserves; bank debits acct of taxpayer

    Deficitsnet credits
    Govt net credits banks reserves; bank net credits acct of recipient

    Bond Sales by Govt: Why the Bond


    Vigilantes Cannot Dictate Terms

    Deficit spendingnet credits reserves Excess Reservesbid overnight rate down


    To Feds support rate (fed funds rate)

    Bonds: Interest earning alternative (IRMA)


    Part of Monetary Policy, whether new issues or open market sales (NB: Surplusesnet debitsOMP or Redemptions)

    Central Bank Policy


    Money, Inflation, and Interest Rate Targets Consensus: central banks always operate on overnight interest rate
    Accommodates Demand for Reserves

    Convertible vs noncovertible currencies


    Convertible: can lose control of interest rate (Greece) Nonconvertible: controls overnight rate (Japan)

    Principles of Functional Finance (Abba Lerner)


    i. Govt should spend more if there is unemployment

    ii. Govt should supply more money (reserves) if interest rates are too high

    NB: Budgetary outcome, Debt outcome should never be primary consideration

    Budgeting, debt limits Operational constraints:


    Treas writes checks on accts at CB CB prohibited from buying Treas Debt new issues Use of Special Depositories Use of Tax and Loan accts

    Deficit spending creates private financial wealth

    Note that CB operations do not; it buys Bg or lends against collateral (helicopter drop is fiscal policy) CB Lends; Treasury Spends

    Doesnt matter whether bonds must be sold firstso long as CB accommodates reserve demand Doesnt matter whether CB prohibited from buying new issuesroundabout through banks Doesnt matter whether Treas must have money in its acct at CB to spendCB and banks cooperate

    Member states gave up own sovereign currencies Adopted a foreign currency, the Euro Much like a USA state: a user of the currency, not issuer Constrained in its spending: tax revenue, bond sales, willingness of ECB to lend Problem: no fiscal equivalent to Uncle Sam in Washington

    Conclusions
    Currency-issuing govt spends by crediting bank accts, taxes by debiting Can always afford to spend more
    Issues: inflation, exchange rate effects, interest rate effects

    Sovereign currency gives more policy space


    No default risk Can control interest rates Can use policy to achieve full employment

    What I did and did NOT say


    I did say: Sovereign govt faces no financial constraints; cannot become insolvent in its own nonconvertible currency But it can only buy what is for sale I did NOT say that govt ought to buy everything for sale Size of govt is a political decision with economic effects I did NOT say that deficits cannot be inflationary: Deficits that are too big can cause inflation I did NOT say that deficits cannot affect exchange rates: Sovereign govts let currency float; float means currency can go up and down

    Thank you
    L. Randall Wray Professor of Economics, UMKC [email protected] www.levy.org Blogs: Great Leap Forward http://www.economonitor.com/lrwray/ NEP http://neweconomicperspectives.org/

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