Sectoral balances are relationships among money flows during an accounting period. Where we perceive accumulations of past imbalances to be accrued is another matter....
Sectoral balances are relationships among money flows during an accounting period. Where we perceive accumulations of past imbalances to be accrued is another matter....
From Bill Mitchell and Warren Mosler December2018 billy blog entry and mosler's MMT white paper (google docs) 2019. Some highly aggregated stocks and flows and boundaries introduced.
Modern
Monetary theory (MMT) has shown how modern monetary systems actually work. It
has shown that governments that issue
their own currency, such as the US, can never run out of money or be forced to
default on debt issued in their own currency. It has also demonstrated that
government spending to stimulate the economy is logical and that the resulting
deficit is irrelevant - the government always has the monetary means to eliminate
it. This directly contradicts neoliberal doctrine that wants to limit
government spending and posits that deficits destabilize the economy.
Neoliberalism often constitutes a 'worldview' and 'personal identity'. Those
who hold such strong beliefs cannot be persuaded to abandon them using
rational arguments and facts - psychological reasons usually impede it as research
has shown. The worldwide dominance of the
doctrine, vested interests and psychologically grounded opposition suffocate
MMT and rational arguments showing its superiority are seemingly of no avail.
From Bill Mitchell and Warren Mosler December2018 billy blog entry and mosler's MMT white paper (google docs) 2019. Some highly aggregated stocks and flows and boundaries introduced.
WIP summaries of bill mitchell's blog postings related to the connections between macroeconomics and wellbeing, particularly via unemployment and inflation
This model
shows the basic functioning and dynamics of a 'modern monetary system'.
The non-government
sectors, consisting of the private and foreign sectors initial y starts with
zero currency units. It is important to realize that after creating a new currency the government
must first spend currency units into the economy before they can be used:
without currency units the private sector could not even pay taxes! A government
that has its own freely floating currency can create a much money as it wants.
It does not need tax receipts to finance its spending, and any money it spends into
the economy above that collected in taxes represents income for the private
sector. The model show that the government initially created 9 trillion money units,
but spent only six trillion into the economy. The six trillion showed up as a government
deficit but as wealth in the non-government sector.
Since the government
can create as many money units as it wishes and transfer them to
the private sector to ensure an adequate
level of demand in the in the economy, austerity is unnecessary: money is available,
though real resource may be scarce. This also shows that the government can
contribute actively towards the creation of prosperity.
Please note that this model was originally
created by Gene Bellinger, IM 3206, from which this version was cloned.
Sectoral balances are relationships among money flows during an accounting period. Where we perceive accumulations of past imbalances to be accrued is another matter....
This model illustrates the current practice and consequences of government spending. Following the
direction of the arrows from right to left the model shows the following sequence
based on current practice:
Government
Spending at a certain point leads to spending in excess of tax receipts. This
will automatically lead to the issue of treasuries in the belief that the excess
spending must be financed by borrowing (although the government has the capacity
to create money). This in turn will
increase the national debt.
Consequences that follow from this practice:
1) That national
debt increases whenever the government spends in excess of tax receipts.
2) That the
government must pay interest on the debt issued, which in turn increases and
reinforces the need for government spending.
3) That the
interest paid on treasuries will increase private sector income.
There is an
alternative view, supported by Modern Monetary Theory, of how government spending
can proceed. Please see this Insight:
Model-SIM from Chapter 3 of Wynn Godley and Marc Lavoie's Monetary Economics, adapted for an open economy. The model is stock-flow consistent with only government money--no bills or bonds. No central bank and interest rates do not change. Government spends buying output from the production sector. The production sector is passive turning over all revenue over to households. Households save out of income and spend partially spend out of wealth. Imports and exports pass through the production sector illustrating the idea that consumer households buy from domestic businesses that which they have imported. The model also tracks the sectoral balance flows and changes in equity. Sectoral flows and equity balances match each other dollar for dollar to satisfy the sectoral balances accounting identity (Household Saving - Consumption) + (Business Saving - Expenditure) + (Taxes - Government Spending) - (Exports - Imports) = 0. Since business investment occurs internally to the Business Sector,
