[RobertoG]

It's a very common misconception.

It's interesting to realize that you can create money in the same way that a bank. Just give your friend a promise that you will pay him in the future and he could use it as money with third parties. Most people wouldn't accept it, but that is a different issue.

If somebody is in the mood to destroy more preconceptions about economy I recommend Warren Mosler 'Seven deadly innocent frauds of economic policy', it can be a good introduction to Modern Monetary Theory:

http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

[blue1]

> Deadly Innocent Fraud #1: The federal government must raise funds through taxation or borrowing in order to spend. In other words, government spending is limited by its ability to tax or borrow.

Unfortunately, in the (deadly?) Eurozone this is indeed how it works.

[RobertoG]

Yes, but most people, including me, didn't realized at the time what was going on.

And most don't realize yet.

[spdionis]

But if they can borrow from the European Central Bank what's the problem?

[blue1]

Statute of the ECB, Article 21.1:

«In accordance with Article 123 of the Treaty on the Functioning of the European Union, overdrafts or any other type of credit facility with the ECB or with the national central banks in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.»

[nabla9]

Anyone who reads Modern Monetary Theory should keep in mind that its somewhat fringe (not outside fringe like Austrian school, but very criticized and not widely accepted).

[RobertoG]

What you mean is that it's not mainstream. That's true.

Despite that, I can't recommend it enough. It's just after starting to read it that what was going on in the economy of the world made any sense to me.

Also, mainstream economy is just totally wrong in many of its descriptive aspects, but they continue teaching falsehoods anyway. An example at hand is how the fractional banking and the creation of new 'money' by banks works in, virtually, all the modern economies.

This is the reason that the linked PDF by someone a few posts above is so important. They say what Modern Monetary Theory have been saying all the time but the source is the Bank of England.

I think it deserve to be linked again: http://www.bankofengland.co.uk/publications/Documents/quarte...

As Henry Ford said: "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

[vezzy-fnord]

The problem with MMT is that it extrapolates far too much from accounting identities and treats both the financial system and the state as a closed vacuum divorced from all issues of public choice and expectations. This is what leads to Mosler's "Seven Deadly Innocent Frauds" and his policy proposals. That they're frauds is technically correct from a national accounting POV, but taking them literally as the MMTers do can be disastrous. In fact, it's not taking them literally that separates MMTers and other people. It's not that mainstream economists aren't aware of the logical implications of ex nihilo fiat money creation.

Also, MMT is nothing new or groundbreaking, contrary to their claims. There have been chartalist and endogenous money creation theories for ages, and most mainstream economists are quite aware of them, contrary to the assertions of many MMTers. What separates MMT from the rest is its fusion with more dubious Post-Keynesian theories.

[RobertoG]

I have to read yet a good criticism of MMT that have not been addressed by the MMT proponents. Maybe you can address me to one.

MMT people don't claim it to be any new or groundbreaking, on the the contrary, they claim is just common sense and chartalism. What they claim is that chartalism is true, especially in modern economies. This is a very difficult thing to dispute if you analyze how money works nowadays.

In my experience, the real problem with MMT, is that the implications of what an economy is or how it really works are politically indigestible for a lot of people and inconvenient for a few.

[vezzy-fnord]

Again, the problem is not the chartalism per se, it's that they read far too much from it for the policy aspects. They basically use the monetary theories as a front for the far more dubious Post-Keynesian policies, which have to be analyzed separately.

A good reading of the Public Choice journal and similar is a nice antidote to some of the zanier MMT and Post-Keynesian proposals.

[RobertoG]

Public Choice journal, I would prefer a more specific link to a good critic of MMT but I take note, thanks.

I want to return the courtesy, this a reply to critics or MMT: http://www.levyinstitute.org/publications/modern-money-theor...

I have not problem with a lot of post-keynesian ideas by the way.