Deficit Owls 🦉 Profile picture
Jun 1, 2018 12 tweets 3 min read Twitter logo Read on Twitter
Most people think that "printing money" causes inflation while government "borrowing" does not. But they're wrong. They both can cause inflation, and by the same amount. Let's see why. (Thread)
People think this because "printing money" increases the money supply, while "borrowing" does not, it just shifts money around. But that's not really how prices work. Inflation happens when people try to buy more goods/services than the economy can produce. (2/)
If the car-makers can only produce 100 cars, but buyers are trying to purchase 1,000 cars...then they're going to raise the price. It's less about how much money there is, and more about what people are doing with their money. Not buying anything = no inflation. (3/)
When the government "prints money," they just give money to somebody. When the government "borrows", they still give money to somebody, but also sell a Treasury Bond to somebody else, taking their money away. (4/)
Treasury Bonds normally have a Maturity Date, the day the gov will redeem the bond into money. But suppose it didn't. Suppose instead that it was redeemable on demand. That is, you could take it to the Treasury any time you wanted, and get the money instantly. (5/)
Hopefully it's pretty clear that in this case, there's no difference between "printing money" and "borrowing." Yes, the gov took money away from somebody - but that person can get it back literally any time they want to, and then use it to buy cars or whatever. (6/)
In that case, a Treasury Bond would be basically equivalent to money, it's just that you have to jump through an extra hoop (taking it to the Treasury for redemption) before you can spend that money. (7/)
In real life not all Treasury Bonds are like that, but we have other institutions that create the same result: markets and banks. In the market, there are Dealers who stand ready to buy and sell Treasury Bonds on demand, so that if you have one but decide (8/)
that you'd rather buy a car instead, you can sell it and they'll get you money. Or, you can go to a bank and use a Treasury Bond as collateral to get a loan, and then spend money that way. Because of these institutions, real-life Treasury Bonds are also basically money, (9/)
which you just have to jump through an extra hoop (selling to a dealer or offering as collateral to a bank) in order to spend. (And if you care to count Treasury Bonds as "money" in this way, then both "printing money" and "borrowing" create the same amount of money.) (10/)
So, hopefully this helps you to be a little less scared about "printing money." As far as the inflationary impact, we already potentially face that, whenever the government runs a deficit. (Fine)
P.S., if you'd like to know why I used scare-quotes around "printing money" and "borrowing" every time, you'll just have to #LearnMMT! (Fine for real)

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More from @DeficitOwls

Aug 27, 2018
If there's a key, foundational insight from MMT, it's probably NOT that "taxes don't pay for gov spending," but rather the rejection of money as an impartial medium. In the mainstream view, money plays an a-political role, whose job is merely to help us measure value and (1/)
ease transactions. This is based on the premise that the market "invented" money as an alternative to barter. But logically this fails at explaining many aspects of money, and historically we know it's not true. A better narrative is Christine Desan's "stakeholder" story of (2/)
money, which begins when an authority of some kind ("the state" or its precursor) demands goods and labor, to be put to work for "the public purpose." This initially takes the form of tribute, where, say, the stakeholder demands that each person work for him 1 day per week, (3/)
Read 9 tweets
Mar 6, 2018
The key to understanding money, taxes, unemployment, inflation, and national debt is to start with the following question: how does the government get ahold of the real resources (workers, buildings, cars, computers, fuel, etc.) that it needs to do the job of governing? 1/
There are a number of ways you might imagine, each with pros and cons. For instance, the government could ask for volunteers and donations. This tends not to work very well, for obvious reasons. 2/
Another method would be confiscation: if the government needs a car, it could simply take it from you, at gunpoint. Obviously this would work, but has the distinct disadvantage of being massively unpopular. 3/
Read 21 tweets
Feb 15, 2018
Another few words on national debt. People have a hard time accepting that debt is different for the government than for you and me. They figure, nobody is above the rules. But that's wrong, because there's one group who's very clearly above the rules: the Mafia. /1
Everybody knows the rules don't apply to the Mafia. When the Mafia asks you for something, you give them what they want. When the Mafia tells you what to do, you do as you're told. The rules are different. Why? Because they have the guns. That means they set the terms. /2
And it's the same with government. They have the guns. They use those guns to force you into debt, also known as "imposing taxes." The gov imposes a tax on you, then tells you that it will only accept payment in 1 form: the currency that the government creates. Or else. /3
Read 12 tweets

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