The big problem with that 'observation" is that the government...

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19/06/20

11:33

Post #: 45321768
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Originally posted by nooneimportant ↑

Modern Monetary theory is poorly named. It isn't a theory, but is instead an observation of how the economy works.

We have seen that the government doesn't need to borrow money in order to spend it - they create the money! In other words, if there's no one who wants to lend to them they simply have the Reserve Bank (i.e. their left hand) create / print lend the money to the Executive branch (the right hand). Similarly, when you pay taxes the money you transfer is simply removed from the economy. In theory this goes to the Reserve Bank. But the Reserve Bank by definition has unlimited money.

The above is a statement of fact. Modern Monetary theory is just observing that fact and making it simple to understand. It doesn't prescribe "what next", although I think it probably leads to a very Keynesian worldview.

So what is the job of the Reserve Bank? Why can't they just print infinite money for everyone? Because too much excess money causes inflation due to excess demand. We know this and we see it in Zimbabwe, Venezuela, etc. The role of the Reserve bank is to provide enough money to drive demand - especially at times like this, when the economy is struggling. The role of the tax system is to temper that demand and take some of the excess money out of the system.

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The big problem with that 'observation" is that the government is not limited in any way by money but the people they serve are

So if the government is not prudent in their activities the public suffer even though they may be hard working and prudent

In other words we may as well not work and not save and not be careful as we lose either way

Is that a good way to run a country ??

So the only way for the people to prosper is to throw away the current economic rational, dispose of the RBA, stop banks for being anything other than storage and limit them to lend only what they have
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