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
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