Why a Currency Sovereignty Government Should Fund Services

30 Comments

1. Soooooo if we can just print money as required……………………they why do we borrow from others and pay massive interest??? Why do we borrow any at all, we can just print more and buy whatever we want??? We have 100% control over our money, we don’t need to compare our dollar to that of every other country.

2. Hi Pete, Thank you for your comment! It’s a common question when discussing currency sovereignty, so let me clarify a few key points: While it’s true that a currency-sovereign country like Australia can issue its own money, printing unlimited money without regard to inflation or other economic factors could lead to serious consequences, such as devaluing the currency and causing runaway inflation. The goal of responsible government spending is to ensure that money is used productively, like funding healthcare, education, and infrastructure, which can grow the economy and improve citizens’ quality of life. As for borrowing, the government doesn’t always “need” to borrow from others. However, it does so through the bond market as a way to manage inflation and create a stable investment environment. Borrowing can also be a policy choice to absorb excess money from the economy or to maintain relations in global financial markets. In short, currency sovereignty means flexibility in spending, but it doesn’t mean printing unlimited money without consequences. Responsible economic management requires balancing public investment with maintaining currency value and economic stability.
   See Who Really Pays For Our Government Debt?: https://youtu.be/mEwivQeD0Q8?si=p0NrHBqrrNRnW9q6

3. Disagree, this sounds like MMT Modern Monetary Theory as po rooted by far right and nativists, why?

   Temporary migrants churn over, locally via NOM counting students, is used to estimate their GST etc. for budgets, but white nativists claim migration is not needed for taxes and budget health to support more retirees?

   However, MMT has no working exemplars (Nth Korea?) nor peer reviewed modelling, but danger lurks…

   It’s a far right Mont Pelerin, Austrian & Chicago School tactics or libertarian AstroTurf trap to deny immigration, cut taxes to zero; crash budgets, services & delivery; then rebuild for and in the image <0.01% e.g. Koch linked IPA and their alleged sponsor mining heiress who thinks workers should be happy with $2 per day….

4. I’m with you, Denis. If the government isn’t spending money then services aren’t being provided.

5. In a resource rich country like Australia how is it possible for govt to be so poor they can’t even organize shelter for all? It’s not as if the raw materials are lacking. How much of the bushfire damaged trees in SE Aust could been converted into housing rather than palmed off to a few mates of the politico-oligarchs in power at the time (2020)? Forests are by and large a Commonwealth asset, how about setting aside a portion for public use?

   A lot of ‘money printing’ and subsequent inflation could have been avoided if Commonwealth resources had been managed in the manner that say the Norwegian govt treated its nation’s resources, ie, the govt holds a partial stake in the processing/value adding of the oil and gas? This map shows which countries have a positive balance of trade: https://en.wikipedia.org/wiki/Balance_of_trade Compare Norway with Australia, both resource rich countries. Looks to me that Norway is in a much better position financially.

   A nation’s currency exchange rate is related to resources and their value-adding or tertiary processing. Successive Aust govts have behaved like a drunk who drops a wallet containing $100 on the footpath, and who, rather than do some ‘work’ and pick up the wallet, goes onto to ask a stranger to pick it up in exchange for $5. The passer-by (foreign mining company) takes $5 out, returns it to said drunk, then walks away with a wallet now containing $95. The $5 represents the royalities the mining company pays to govt, unless there is a ‘royalty holiday’ in place. The $95 is the value of the resource which is shipped offshore and value-added before some of the processed products are imported back into Aust @ a 1000% mark-up or whatever.

   Things are so ridiculous that I read that Australia’s Strategic Oil Reserve, which is supposed to tide us over during some kind of global crisis, was being held in the USA until recently before their govt actually gave it to China in some trade deal.

   Why vote for the Uni-party, there is only a downside imo.

6. The National Accounts Sectoral Balances.
   The basic Income – Expenditure Model in macroeconomics can be viewed in two ways, (a) Sources of Spending and (b) Uses of Income Produced.
   These two perspectives can be arranged in the following formula:
   (G-T) + (I-S) + (X-M) = Zero. (Applies at all times)
   The sectoral balances derived are:
   *The Govt. Budget (G-T)
   where G=Total Govt. Spending
   T=Total Tax Revenue
   *The Private Domestic Balance (I-S)
   where I=Total Private Investment
   S=Total Private Savings
   *The Current Account Balance (X-M)
   where X=Exports (Foreign money injected into the economy)
   M=Imports (Money going overseas)
   For the budget to be in surplus, the following conditions must occur, simultaneously:
   a) Government Budget: Tax Revenue must be Greater than Government Spending.
   b) Private Domestic Balance: Savings must be greater than Investment.
   c) Current Account Balance: Exports must be Greater than Imports.
   Note: (I+S) + (X-M) can be grouped together to form what is termed the Non-Government Sector or Private Sector.
   Therefore, to have a ‘Budget Surplus’, the Private Sector must be in deficit.
   This is not an opinion but accounting facts.
   In Summary – You have to know these Facts.
   *The Federal Government Budget is nothing like a Household Budget or Finances of a Business or the State Government Budget.
   *The Federal Government is a Monetary Sovereign, a currency-issuing Government and faces no separate financial constraints, can never become insolvent.
   *The Federal Government face ecological limits and limits due to shortage of skills, infrastructure, technology and natural resources.
   *Budget Deficits in the future are inevitable and a good thing, spending cuts are unnecessary and a bad thing.
   *In order for the Federal Budget to be in Surplus it requires certain things to be true about Australia’s financial relationship with the rest of the world and Private Sector Budgets. Just because of the way the financial system works.
   *Modern Money is Government money and is created from nothing. It is ‘spent into existence’ by the Government (or Central Bank). It has a zero cost. It exists in the form of currency or Bank Reserves. It is not Private or ‘Credit Money’.
   *Every $1 of Commonwealth Government spending creates $1 of Government Money. Every $1 of Taxation destroys $1 of Government Money. Government net spending provides financial wealth to the Private Sector. Your spending does not.
   *The Government does not need to tax (or borrow from you) to get its money to ‘pay for’ its spending. It does need to tax you but for another reason. The Government does not need ‘your money’ – Quite the opposite.
   *The Government does not need to borrow its money from you. It does have a reason to issue debt, given the current system of setting interest rates but not to ‘fund’ its spending. Government debt issuance is about ‘Interest Rate Management’.
   *A Question – Can the Government ‘run out of money’, ‘Max out on its credit card’ or ‘leave a burden for future generations’? No. No and NOT this way.
   *Monetary Sovereign Governments can spend too much but they can NEVER run out of money.
   *For Australia, there is no such thing as a sustainable Budget Surplus!!! The Government Budget can only move towards Surplus if the Private Sector goes into further debt to allow this to happen – this means more household debt.
   *Households are not able to go further into debt forever. If they do it for a while it will go with a Property and/or share price bubble and an eventual crash.

7. Man-oh-man … !

   It’s nothing if not utterly fascinating to watch pseudo-rational nonsense like MMT taking hold of otherwise (seemingly) quite sensible, articulate and educated minds.

8. The Truth Revealed.
   Sometimes the truth is revealed in the media, for a short time at least; Alan Greenspan is an American economist who served as Chairman of the Federal Reserve Bank of the USA from 1987 to 2006. During his time as chairman he was called as an expert witness during a US. Senate enquiry into the sustainability of Social Security Funding by the US. Federal Government. Under oath, Alan Greenspan stated; “It doesn’t matter whether it is a question about Social Security, it could be about Defence Spending, it could be about Education Spending, it could be about Infrastructure Spending, it could be about Student Debt, it could be about anything. What matters is – there is nothing to prevent the Federal Government creating as much money as it wants. The Federal Government has no financial constraints whatsoever. But the Federal Government total spending should only equal the productive capacity of the economy. Any further spending will not lead to any further output because when the productive capacity of the economy is reached, all resources are fully employed, including people who are willing to work. Any further spending will just cause inflation.It does not lead to an increase in real goods and services being produced because the economy has reached its productive capacity.
   John Maynard Keynes in his 1936 book, “The General Theory of Employment, Interest and Money” which is now out-dated, considers that outstanding faults of economical society in which we live are its failure to provide full employment and its arbitrary and inequitable distribution of wealth and incomes. One of Keynes famous quotes was that “the difficulty lies not in accepting new ideas but in escaping from old ones”
   These notes have been gleaned from video lectures and papers presented by the following people:
   Bill Mitchell, Professor of Economics at the University of Newcastle.(one of the worlds foremost economists)
   Mr. Phillip Holden, Economics Master and Headmaster at St. Lawrence College, Athens.
   Mr. Phil. Lawn, Professor of Economics at the University of Adelaide.
   Mr. Stephen Hailes,Economics Lecturer at all three Adelaide Universities.
   Ms. Joan Muyskens, Professor of Economics, University of Maastricht, The Netherlands.
   Mr. L.Randall Wray, Professor of Economics at the University of Missouri – Kansas City.
   Mr. Paul Davidson, Professor of Economics at the University of Tennessee.
   Mr. James K. Galbraith, Chair in Government / Business Relations, University of Texas.
   Mr. Warren Mosler, B.A. in Economics, University of Texas. Author of “The Seven Deadly Innocent Frauds of Economic Policy” (free on the internet).

9. Don, I would be careful to offer Alan Greenspan as authoritative voice on any matters of economics. The man is a long-standing acolyte of Ayn Rand, which should put everyone on high alert.

   Also, he did admit to getting it wrong. After the conclusion of his tenure as chair of the US Reserve Bank.

   As for substantiating my criticisms of MMT, there’s a thread on The AIMN, following an article by Denis Hay in July this year making essentially the same points that he reiterated here.

   He certainly comes across as a fervent believer and persistent preacher, I have to give him that!

   Unfortunately that doesn’t make him any less wrong.

10. Just a simple thought for readers who seem not to be able to digest currency issuance.

    At a given point in time (today?) assume total funds currently in our economy add up to one trillion dollars. Also assume population during the next 12 months will increase by one hundred thousand as a result of births and deaths. If a surplus of say one billion dollars occurs, (actual announced figure was 16 billion) this then means that the number of residents has increased by 100,000 but there is $1,000,000 less circulating in Aus economy.

    Because voters seem welded to the idea of a Fed Gov’t surplus, imagine having a similar surplus every year for 10 years. Using the figures above means our population has increased by one million but there is $10,000,000 less circulating in the Aus economy.

    As a further consideration, ask yourself what has happened to the Trillion dollar deficit from the Morrison years? It was supposedly going to bankrupt our children and grandchildren. It has not been mentioned since the change of Gov’t federally. And that’s because it doesn’t exist. It was basically created by computer keystrokes to add funds into our economy.

    Another interesting side topic is how Bank Loans are funded – certainly not done the way you would think. Check it out.

    These paragraphs above are very simplified in the hope that you research the topic. I know it’s hard to get your head around sovereign currency. It’s not a trick, it’s simply how it works.

    Please, please, please watch the link left by Denis in the 2nd comment. Also, try to read or listen to anything by Dr Steven Hall (or Stephanie Kelton) on the subject of currency issuing.

    Happy researching.

11. Re previous: …..the number of residents has increased by 100,000 but there is $1,000,000 less circulating in Aus economy.

    Should be ….the number of residents has increased by 100,000 but there is $1,000,000,000 less circulating in Aus economy.

    And previous: ….our population has increased by one million but there is $10,000,000 less circulating in the Aus economy.

    Should be ….our population has increased by one million but there is $10,000,000,000 less circulating in the Aus economy.

    Sorry. Senility!

12. Truth Teller, thanks for your “Simple thought for readers who seem not to be able to digest currency issuance”, but things aren’t all that simple.

    For starters, under the principles of fractional reserve banking, individual retail banks “create” and bring into circulation plenty of money.

    As well, businesses and even private persons “create” currency simply by writing a cheque, or even buying things on credit. This process is starkly illustrated when considering the procedures employed by Local Exchange and Trading Schemes.

    There are numerous other complicating factors that immediately push the analysis and critique of MMT way beyond your “simple thought”. I did raise some of those factors in the discussion thread linked in my former post.

    And, sure, I can see the ” Money for nothing” attraction of MMT for the average mug punter – but how trained economists like Mitchell and Kelton can fall for that stuff is truly baffling.

    Then again, and as I keep getting reminded with rapidly increasing frequency, Bell Curves do have thin, but long tails.

13. @Arnd, thank you for replying. My main interest is educating voters to see that it is a conscious decision by our Federal Gov’t to fund or not fund Health, Education, Social Security, Public Housing, Apprentice Training, etc. It is almost totally unrelated to how much tax is collected.

    Kelton, Mitchell, Hall, etc are not advocating “Money for nothing”. Their main push (and mine also) is that Fed Gov’t deficits aren’t something to panic over. The critical issue is whether there are workers and resources to absorb the funds as they are released.

    As I have written here before, an example of clever deficit spending was the Fed Gov’t GFC response in approx 2008/2009.
    An example of throwing money willy nilly all over the place (Money for nothing??) was Fed Gov’t spending in response to Coronavirus challenges in 2020/2021 – we are still dealing with the resulting Inflation now.

    Cheers.

14. I don’t know why it’s so difficult for some people to understand what a fiat currency system is. A sovereign currency issuing government can always afford to buy whatever is for sale in its own currency. Services such as health, education, childcare and social security are all affordable and should be provided as a matter of course. Those who appear to have some hangups about the realities of sovereign spending simply display their own ignorance about how money works.
    As for our so-called national debt, it doesn’t exist. It’s a number in a computer that tells us how much the RBA is holding in bond receipts. It can cancel that number at anytime.

15. Andrew Smith, I have no idea what you are talking about.

16. Truth Teller, thanks for your reply to my somewhat terse post.

    Maybe it is helpful if I point out that I look at MMT not from any of the more usual conventional angles, but specifically from a Marxist one.

    Kelton, Mitchell, Hall, etc are not advocating “Money for nothing”.

    True! But that is also exactly the point where MMT reveals itself as nothing more than “Now you see it, now you don’t” fin-tech trickery.

    The basic idea of conventional fiscal understanding is that governments must raise funds through taxation and taking out credits, which it then uses to pay for its expenditure.

    MMT turns this on its head: governments issue fiat money to pay for expenditure – but in order to maintain and stimulate demand for its currency, must then take it back in taxes. Failure to provide adequate demand stimulation through taxation will result in inflation.

    Hence, in both cases, government supply of fiat money and government demand for its fiat money must remain somewhere within coee of balance. So what exactly is the advantage if MMT over conventional approaches to fiscal policy? To me, it looks mostly like some inverted managerial procedure, not entirely unlike how in the old days I used to pay for my train ticket BEFORE departure, but now simply swipe my Opal card, and have the fare deducted AFTER arrival. I still have to pay the fare.

    So far my – starkly simplified – deconstruction of MMT.

    However, if I may be allowed to add a few layers of complexity at once, the inversion of fiscal procedure that Kelton, Mitchell, Mosler et al conjure as solution to our “common weal” problems actually does echo a key insight of the Marxist analysis of capitalism, namely that at a certain point of its development, the original commercial circle of c-m-c inverts into m-c-m, and that that inversion has important and far-reaching implications.

    Now, you, Truth Teller, may have no idea what this is (supposed to be) all about (and I don’t see how I could explain it in a single AIMN post) … – but I was once lead to understand that Bill Mitchell originally was quite sympathetic to the Marxist description, analysis and critique of capitalism. Meaning that he can’t really plead ignorance.

17. John Kelly

    Those who appear to have some hangups about the realities of sovereign spending simply display their own ignorance about how money works.

    John, as long-standing anarchist, I can provide deep reflection on a very extensive range of questions (hangups?) about the whole idea of “government fiat” and “sovereignty” in general (and not just “sovereign fiat money”) – questions that most people seem never to have realised even exist.

    As to my vs your understanding of fiscal and commercial reality – let’s examine your apprehension of c-m-c inverting into m-c-m. For starters!

    Also: what can you tell me about Commodity Fetishism – of which, in my closely reasoned opinion, MMT is merely the last and most insidious manifestation.

18. Arnd

    Is English your first language ? Just asking.

19. No, it isn’t! May I ask what prompts your question?

20. Arnd, I’ll answer that.

    A lack of respect.
    A childish put-down concealed in courteous language.

    It’s quite extraordinary the number of commenters here who cannot control their emotions.

21. Arnd, Steve Davis said it all. A fool is known by his discorse, a wise man by his silence.

22. There’s just one problem John.

    I was referring to you.

23. Denis Hay, if MMT is credible then surely you can rebut and counter my response and not shoot messengers or some sources?

    Still no credible evidence outside of opinions and PR eg. models and exemplars to support MMT for <1% who like neither taxes nor public services/delivery; much cynicism towards the ‘other’.

    Argued with someone related to SusPopAus (who trolls around Crikey comments section to denigrate & shoot messengers) who was arguing against undefined ‘immigration’ claiming fee paying international students are a cost (strategically like Mont Pelerin ‘economists’ at MacroBusiness do) ignoring and misrepresenting temporary residents’ budget contributions and support.

    Their response (via SusPopAus) was this and says it all

    Why Modern Monetary Theory is good news for population policy

    OverPopulation Project is part of the US based nativist anti-immigrant Tanton Network, in US shares donors with faux free market ‘segregation economics’ of Atlas Koch Network; right wing libertarian trap win win proposition, no or low immigration and taxes, leading to isolationism and autarkist economies, for the <1%.

24. Hi Andrew Smith, here’s a breakdown of the key points of your posted comment:

    MMT Misunderstanding: You seems to believe MMT is associated with far-right economic theories and anti-immigration sentiments. MMT is a heterodox economic theory focused on the sovereign ability of countries like Australia to issue their own currency. It argues that governments can create money to fund essential services without needing to rely on taxes first, unlike the neoliberal models from the Mont Pelerin Society or the Austrian/Chicago School of thought.

    Migration and Taxes: Your references migration as essential for generating tax revenue (through GST), suggesting white nativists use MMT to argue against immigration. This misrepresents MMT, which explains that tax revenue isn’t a requirement for government spending in a currency-issuing country, regardless of immigration policy.

    Claims About Exemplars: You dismiss MMT for lacking “working exemplars” and peer-reviewed modelling, mentioning North Korea in a confusing way. However, countries like Japan, the U.S., and Australia can apply MMT principles due to their sovereign currencies, and there is extensive peer-reviewed work on MMT.

    Linking to Far-Right Libertarianism: Your comment conflates MMT with far-right and libertarian groups like the Koch-funded IPA, which oppose government intervention—while MMT advocates for proactive government spending on services and social needs.

    So, I thank you for your comment. It seems there’s some confusion about MMT. Modern Monetary Theory isn’t about far-right economics or anti-immigration sentiments. It’s an economic framework that explains how sovereign currency-issuing governments, like Australia’s, can fund essential services without needing to raise taxes first. MMT argues for more, not less, government intervention to address social needs like healthcare, education, and public infrastructure. Unlike libertarian or neoliberal models, MMT focuses on using government spending to ensure full employment and a healthy economy. I’d be happy to discuss further if you’re interested!”

25. Steve,

    “I was referring to you.”

    I was myself wondering whether John actually didn’t get that. What’s called a “Whoosh” moment.

    And the petty silliness of his trying to pass off his vacuous condescension as reticence motivated by wisdom. It’s probably just as well that he won’t grace us with any further contributions to this “discorse”.

    I hazard a guess that English is his first language, what with a name like John Kelly. I’d hate to look at any of his utterances in his second language.

    The thing that bothers me most, though, is that he’s obviously possessed of sufficient mental dexterity to show up on The AIMN in the first place – but then won’t bother to back himself.

    If that’s the level of disco(u)rse we have to contend with, the road towards our anarchist utopia promises to be veeery long, steep, windy, dusty and pot-holed indeed.

    But we knew that already.

26. Arnd / Steve, the discorse typo was pretty amusing given that the Gravatar bio references “a Bachelor of Communications degree majoring in Journalism,” which would, one would naturally tend to assume, lend a certain level of sensitivity towards the construction of prose wrt the usual suspects; correct spelling, appropriate tense, lexical coherence etc.

    As for the maxim that contained the howler; I think my dog – Mùyáng Gǒu in Pinyin, Mooie for short, Kelpie x Rough Collie – could come up with a better set of similes, smart and unassuming creature that she is.

27. Denis Hay,

    I do note that you studiously refrain from responding to any of my posts – which is just as well.

    But your reply to Andrew Smith once again reminds me how closely the “real existing socialism” in the former East Germany seems to have come to MMT in action. They certainly had and kept control of their “sovereign fiat money”. Only problem was that the “Ostmark” was not convertible, because nobody wanted it.

    Of course, their own “sovereign fiat money” wasn’t the only thing the “socialist” government kept under tight and jealous guard. The whole country was a steadily worsening case of ham-fisted, control-freakish petty oppression during its existence, and as you know, it did eventually falter and end with a pathetic whimper.

    MMT strikes me as one of those mental constructs that, just like the famous drawings of M.C. Escher, look highly, perplexingly, plausible on 2-dimensional paper. But when you actually try to build it in in 3-dimensional reality, you will find yourself scratching your head in ever more frustrated confusion.

28. Canguro, Kelpie x Collies are the best – although I can’t help thinking that my Willow might have a little cat in her as well. She certainly can affect imperious disdain. For other dogs, mainly. But unlike John Kelly, she doesn’t stoop to condescension.

    Picking on other’s typos is fraught business, as I am sure we all can personally attest to the validity of Muphry’s Law. But sometimes, exceptions must be made.

29. Arnd, that Muphry’s Law got a chuckle out of me.

    I’m meticulous in checking before posting, and still make the odd mistake, so I don’t refer to those of others unless I’m quoting them.
    That’s when a (sic) comes in handy.

30. Denis Hay, I wasn’t suggesting more qualitative explanation, but links to credible academic sources on modelling and exemplars of MMT?

    Surely they must exist somewhere?