I have come to think about a nuance of MMT that I don’t hear being discussed by the proponents of the theory. They talk about doing sector balances to come up with some basic truths of MMT. The sectors are Federal Government sector and other sectors that are not the Federal Government. They show that the only way the other sectors can get a surplus of USA money is for the Federal Government to have a net outflow of USA money.

The fly in this ointment concerns Treasury securities that the USA treasury sells to the other sectors. When you buy a Treasury security, you own something of value, but you are letting the Federal Government hold your money for you. Your money that the Federal Government gave you by spending money into the non-government sectors, is not available to you to spend as long as you hold Treasury Securities instead of the money. In fact, during WW II, one of the means of controlling inflation was to encourage you to lend your earnings back to the Federal Government by buying war bonds.

If you wanted to spend an equivalent sum of money to what the Federal Government was holding for you, you had to sell your bond to someone else in the non-Federal government sector. Now the Fed was holding onto someone else’s money instead of yours, but it still was not outside the Federal government sector.

The sector balances may still be true if you are measuring wealth ownership, but is not so true if you are talking about spendable wealth. It seems to me, if you are assessing the stimulative effect of what we traditionally call Federal Government deficit spending, this effect is largely diminished by selling treasury securities in the amount of the deficit. The stimulative effect can come from where the government spends the money that it does not leave to you to spend. The Federal Reserve bank undoes some of the damage of Treasury security sales, when the Fed buys these securities on the open market and pays the money into the non-Federal Government sectors. If the Fed were allowed to just give the money to the Treasury without the necessity of the Treasury selling securities, the stimulative effect would be even higher.

This started out for me with a post by Naked Capitalism – Michael Hudson Discusses the Economic Winds of [Non] Change Under Biden on Radical Imagination.

Yves here. Michael Hudson describes the fealty of Biden and the Democratic party to neoliberal policies and how, as Biden himself said, nothing fundamental will change. Hudson agrees nothing much will improve for ordinary citizens as long as the current Democratic party is calling the shots. He lays out a way to tackle rentierism by promoting building of moderate-priced homes and setting strict terms for FHA mortgages.

Here is the video of the interview from The Radical Imagination | Imagining the Economic Winds of Change Under Biden.

This is a new high for Michael Hudson in telling us what he has been holding back for so long. He has been trying to tell us this for years with a certain amount of tact and diplomacy. Ether he has gotten tired of putting on the semii-happy mask, or this interviewer and this not very well known medum has finally set him free.