MMT’s Opening


New Economic Perspectives has the article MMT’s Opening. It is a mish-mash of insights and blindness. I’ll pick just one blind spot that I have thought a lot about.

What makes the treasury bond even more magical, however, is that if, say, a big opportunity comes along to invest real sovereign fiat dollars in a killer profit-making venture—no problema! The secondary market for U.S. treasury bonds—other folks who can’t imagine, right now, what to do with their private commerce profits—provides instantaneous liquidity: the treasury bond can be traded for the real sovereign fiat dollars needed to make the killer investment.

Given this transparent and virtually seamless interchangeability between U.S. fiat dollars and U.S. treasury bonds, it is clear the treasury bond represents something fundamentally different than the government’s “borrowing” of dollars from private commerce. The fiat dollars supposedly “borrowed” are, in fact, replaced with another kind of fiat dollar represented by the treasury bond.

When the treasury bond is sold early to the market, the seller takes a loss over what he or she would get if held to maturity. The loss is either bigger or smaller depending on how the current interest compares to the interest rate on the bond. Depending on the size of the killer profit making venture, the bond holder may decide that the loss on the sale is worth taking to free up really, immediately spendable cash. There is no such loss occurring when converting really spendable cash into really spendable cash. In the author’s mind, the bond may be another kind of fiat dollar, but the two kinds have a significant difference as I just described.

Sometimes, some MMT proponents have an annoying habit of glossing over differences that are essential parts of how the economy works. They should not try to correct misunderstandings by injecting their own misunderstandings.

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