Any discussion of how the UK might pursue MMT as an EU member would be completely theoretical. We left the EU at the end of January. (We are in a transition period, but we will probably “crash out” without a new free trade agreement with the EU, because the negotiations can’t be completed before the transition ends on December 31st.)
Our politicians believe that governments must tax in order to spend. The discussion on how we will pay for the billions of pounds spent into existence to deal with COVID-19 has already begun.
Cory’s explanation of MMT is really helpful, along with everyone’s elaboration in these comments. But, for your information, here is another example of an organization issuing its own currency that is backed 1:1 by legal tender (British Pounds). So it’s not issuing legal tender, but is backed by it.
A community cash organization like the Bristol Pound is a deeply humbling and enlightening event to experience. Since you are interested in this, in one hometown of mine, I will say that I co-founded a local community cash organization that was very similar to the Bristol Pounds, actually! The organization exchanged community dollar notes 1:1 with US Federal dollar notes. Everything described in the explainer video–except for the slick digital app–we helped create and saw thrive in our community. Next to MMT, it was a drop in the bucket, but despite any pitfall, it worked beautifully.
Heard Kelton on Le Show. She said that it’s better for govt to borrow money rather than tax to cover expenditures, which I don’t understand at all. Borrowing instead of taxing turns assets (ie. tax income) into liabilities (ie. debts) Covering the interest on borrowing requires more taxation. Why does that not eventually disappear up its own a$$hole?
Germany owed debt in other than its currency. The London Payment Plan (City of London inspired, no doubt) meant that reparation payments had to be paid in gold or other valued (stable and traded) currency.
Germany’s currency was in the process of being devalued in currency markets which made repayment in gold or solid currencies impossible except via printing, problematic as each mark printed was worth less than the previous mark printed vs. gold.
Basically, you can print to your heart’s content as long as there is no gold standard and everyone (the U.S. currency has reserve currency status which means when the world is in a panic regarding payments, dollars are better than gold because every transaction can be settled in dollars and its value will fluctuate little, and in a panic, will actually gain value) is willing to accept your currency globally.
German hyperinflation resulted especially from a debt owed in a currency other than what they printed. That restriction was exacted on them because of Germany’s massive land and capital losses after world war one which meant that their capacity to trade goods and services for gold and hard currency was no longer considered viable at their former status and that they then no longer had a globally accepted currency for trade and speculation.
Anyway, have a reserve currency and don’t have a gold standard and you can print (issue treasury debt like madmen) and the world will gobble it up and not reject it. That’s our world anyway.
Even household and local budgets don’t work like we pretend budgets work. Most people run frequent deficits and have debt loads proportionally larger than Greece. If your mortgage is larger than your household income for two years, you have a larger debt burden than Greece. If you dip into your savings or take out a loan to get through a rough patch, you are effectively running a deficit. Once you get to the local level in all but the smallest towns, the ability to issue bonds that are invested in a way that allows for more tax revenue is a huge break from household budgeting
There’s a “sort-of” exception to the rule, when some local municipalities do end up issuing their own time bank currencies. Ithica hours are the most famous, but there are many more towns practicing this.
The main caveat being, no more than 30% of a cash transaction can be tome bank currency. A restaurant worker can’t be given more than 30% of their wages in time bank currency, and patrons cant pay more than 30% of their tab in the scrip. So far, the IRS has been letting things slide, but not without scrutiny.
Just a clarification, a lot of these community time-bank organizations, like Ithaca Hours, that issue time currency hours are non-governmental organizations (NGO’s). They are not municipalities or other government organizations and do not issue legal tender, which is required to be accepted as a payment for debt. At the time we implemented our community cash system back in 2000, the Federal government was the only authorized entity to issue and print legal tender paper cash. Our NGO, entirely run by volunteers, made the collective decision to print paper cash at an exchange rate of 1:1 with US Federal dollars, which helped first adopters feel more comfortable accepting the money. And the initial investment to print the paper currency was paid for out of our own pockets. Also, businesses that signed up to participate in the community currency system did so voluntarily, and some of them accepted 100% community currency per transaction, others 10%, and others another such arrangement.
