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MONETARY POLICIES


In a 2013 treatise called “Modern Monetary Theory 101: A Reply to Critics,” MMT academics actually concede this point. But they write that


“these


constraints do not change the end result,” and here the argument gets a bit technical. Their reasoning is that “The Fed is the monopoly supplier


of


CB currency [central


bank


r es e r v es ] , T r e a s u r y spends by using CB currency, and


since


the Treasury o b t a i n e d CB currency by


taxing


and issuing treasuries, CB currency must be


injected


before taxes and bond offerings can occur.”


The central bank is not the monopoly supplier of dollars.The vast majority of the dollars are created by private banks through loans


The counterargument, made by American Monetary Institute researchers among others, is that the central bank is not the monopoly supplier of dollars. The vast majority of the dollars circulating in the United States are created, not by the government, but by private


bank-created money can be taxed or borrowed by the Treasury before a single dollar is spent by Congress. The AMI researchers contend, “All bank reserves are originally created by the Fed for banks. Government expenditure merely transfers (previous) bank reserves back to banks.” As the Federal


banks when they make loans. The Fed accommodates this process by supplying central bank currency (bank reserves) as needed; and this


FX


Reserve Bank of St. Louis puts it, “federal deficits do not require that the Federal Reserve purchase more government


securities; therefore,


federal deficits, per se, need not lead to increases in bank reserves or the money supply.”


What federal deficits


do


increase is the federal debt; and while the debt itself can be rolled over from year to year (as it virtually always


is), of the


exponent ia l ly g row i n g interest tab is one


m a nd a t or y budget


that taxpayers must


those items pay.


Predictions are that in the next decade,


interest alone could add


$1 trillion to the annual bill, an unsustainable tax burden.


To fund a project as massive as the Green New Deal, we need a mechanism that involves neither raising taxes nor adding to the federal debt; and such a mechanism is actually proposed in the US Green


FX TRADER MAGAZINE April - June 2019 53


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