The Bond Market Doesn’t Control Anything; the Currency-Issuing National Government Does


The Gower Initiative for Modern Money Studies has the article The Bond Market Doesn’t Control Anything; the Currency-Issuing National Government Does by Ellis Winningham.

This means that the national government no longer must maintain a certain level of currency in circulation through taxation and borrowing, save for the consideration of the real production ability of the domestic economy, because there is no peg to defend.

As MMT folk are quick to point out that real production ability of the domestic economy is a very important limitation on what the government should do with the money supply. It is not just an after thought that can be easily dismissed from the conversation.

Next I want to comment on this Ellis Winningham statement.

Monetary policy is a blunt, ineffective tool, which relies on the manipulation of interest rates to “encourage” the economy whereas fiscal policy is a direct manipulation of the economy.

This is something Warren Mosler wanted to argue with me when I pointed this out. In my previous post, Warren Mosler: MMT Explains Taxes Are Needed to Prevent Private Sector Spending I quoted Mosler as saying:

Taxes are more powerful than spending.

To which I commented:

This is not always true. Taxes are more powerful than spending for reining in excess spending in the private sector. However, when there is insufficient spending in the private sector, government spending is more powerful than tax cuts.

You can give people all the money you want in order to get them to spend, but if there is a rational reason for them to want to save rather than spend, you cannot force them to spend. In that situation, the government has to do the spending.

I leave it to Ellis Winningham and Warren Mosler to argue it out and try to come to some conclusion that they both can agree on.

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