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MMT economists describe any transactions within the private sector as "horizontal" transactions, including the expansion of the broad money supply through the extension of credit by banks. MMT economists regard the concept of the money multiplier , where a bank is completely constrained in lending through the deposits it holds and its capital requirement, as misleading.

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According to MMT, bank credit should be regarded as a "leverage" of the monetary base and should not be regarded as increasing the net financial assets held by an economy: only the government or central bank is able to issue high-powered money with no corresponding liability. MMT proponents such as Warren Mosler argue that trade deficits need not be unsustainable and are beneficial to the standard of living in the short run. Exports, on the other hand, are an economic cost to the exporting nation because it is losing real goods that it could have consumed.

Cheap imports may also cause the failure of local firms providing similar goods at higher prices, and hence unemployment but MMT commentators label that consideration as a subjective value-based one, rather than an economic-based one: it is up to a nation to decide whether it values the benefit of cheaper imports more than it values employment in a particular industry. MMT argues that as long as there is a demand for the issuer's currency, whether the bond holder is foreign or not, governments can never be insolvent when the debt obligations are in their own currency; this is because the government is not constrained in creating its own currency although the bond holder may affect the exchange rate by converting to local currency.

MMT does agree with mainstream economics, that debt denominated in a foreign currency certainly is a fiscal risk to governments, since the indebted government cannot create foreign currency.

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In this case the only way the government can sustainably repay its foreign debt is to ensure that its currency is continually in high demand by foreigners over the period that it wishes to repay the debt — an exchange rate collapse would potentially multiply the debt many times over asymptotically, making it impossible to repay. In that case, the government can default, or attempt to shift to an export-led strategy or raise interest rates to attract foreign investment in the currency.

Either one has a negative effect on the economy. Economist John T. Harvey explained several of the premises of MMT and their policy implications in March MMT claims that the word "borrowing" is a misnomer when it comes to a sovereign government's fiscal operations, because what the government is doing is accepting back its own IOUs , and nobody can borrow back their own debt instruments. In this theory, sovereign government is not financially constrained in its ability to spend; it is argued that the government can afford to buy anything that is for sale in currency that it issues there may be political constraints, like a debt ceiling law.

The only constraint is that excessive spending by any sector of the economy whether households, firms, or public could cause inflationary pressures. MMT economists advocate a government-funded job guarantee scheme to eliminate involuntary unemployment. Proponents argue that this can be consistent with price stability as it targets unemployment directly rather than attempting to increase private sector job creation indirectly through a much larger economic stimulus, and maintains a "buffer stock" of labor that can readily switch to the private sector when jobs become available.

A job guarantee program could also be considered an automatic stabilizer to the economy, expanding when private sector activity cools down and shrinking in size when private sector activity heats up. MMT can be compared and contrasted with mainstream Keynesian economics in a variety of ways: [4] [6] [7]. A survey of leading economists by the University of Chicago Booth 's Initiative on Global Markets showed a unanimous rejection of assertions attributed to modern monetary theory in the survey: "Countries that borrow in their own currency should not worry about government deficits because they can always create money to finance their debt.

Black said "MMT scholars do not make or support either claim.

Climate change and the role of central banks

The post-Keynesian economist Thomas Palley argues that MMT is largely a restatement of elementary Keynesian economics , but prone to "over-simplistic analysis" and understating the risks of its policy implications. He argues that these insights are well captured by standard Keynesian stock-flow consistent IS-LM models , and have been well understood by Keynesian economists for decades. He also criticizes MMT for "assum[ing] away the problem of fiscal—monetary conflict" [68] — that is, that the governmental body that creates the spending budget e.

Congress may refuse to cooperate with the governmental body that controls the money supply e. He also argues that MMT lacks a plausible theory of inflation , particularly in the context of full employment in the employer of last resort policy first proposed by Hyman Minsky and advocated by Bill Mitchell and other MMT theorists; of a lack of appreciation of the financial instability that could be caused by permanently zero interest rates; and of overstating the importance of government created money.

Palley concludes that MMT provides no new insights about monetary theory, while making unsubstantiated claims about macroeconomic policy, and that MMT has only received attention recently due to it being a "policy polemic for depressed times. Marc Lavoie argues that whilst the neochartalist argument is "essentially correct", many of its counter-intuitive claims depend on a "confusing" and "fictitious" consolidation of government and central banking operations [13] — again what Palley calls "the problem of fiscal—monetary conflict.

New Keynesian economist and Nobel laureate Paul Krugman argues that MMT goes too far in its support for government budget deficits and ignores the inflationary implications of maintaining budget deficits when the economy is growing. The chartalist view of money itself, and the MMT emphasis on the importance of taxes in driving money, is also a source of criticism. From Wikipedia, the free encyclopedia. The lead section of this article may need to be rewritten.

The reason given is: Does not adequately cover the topic. Conflates policy proposals of advocates with the theory itself. Please discuss this issue on the article's talk page. Use the lead layout guide to ensure the section follows Wikipedia's norms and to be inclusive of all essential details. May Learn how and when to remove this template message. Basic concepts. Fiscal Monetary Commercial Central bank.

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Related fields. Econometrics Economic statistics Monetary economics Development economics International economics. Edward C. Sargent Paul Krugman N. Gregory Mankiw. See also.


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Macroeconomic model Publications in macroeconomics Economics Applied Microeconomics Political economy Mathematical economics. Percent change in U. Further information: Sectoral balances.

Stupor models

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Modern Monetary Theory

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