List of Figures viii
Preface to the Second Edition ix
Definitions xiv
About the Author xvi
Introduction: The Basics of Modern Money Theory 1
1. The Basics of Macroeconomic Accounting 9
1.1 The basics of accounting for stocks and flows 9
1.2 MMT, sectoral balances, and behavior 15
1.3 Stocks, flows, and balance sheet: a bathtub analogy 20
1.4 Government budget deficits are largely nondiscretionary: the case of the Great Recession of 2007 23
1.5 Accounting for real versus financial (or nominal) 28
1.6 Recent US sectoral balances: Goldilocks and the global crash 34
2. Spending by Issuer of Domestic Currency 41
2.1 What is a sovereign currency? 41
2.2 What backs up currency and why would anyone accept it? 45
2.3 Taxes drive money 48
2.4 What if the population refuses to accept the domestic currency? 51
2.5 Record keeping in the money of account 55
2.6 Sovereign currency and monetizingreal assets 59
2.7 Sustainability conditions 62
3. The Domestic Monetary System: Banking and Central Banking 71
3.1 IOUs denominated in the national currency 71
3.2 Clearing and the pyramid of liabilities 76
3.3 Central bank operations in crisis: lender of last resort 81
3.4 Balance sheets of banks, monetary creation by banks, and interbank settlement 83
3.5 Exogenous interest rates and quantitative easing 89
3.6 The technical details of central bank and treasury coordination: the case of the Fed 90
3.7 Treasury debt operations 98
3.8 Conclusions on the central bank and treasury roles 101
4. Fiscal Operations in a Nation That Issues Its Own Currency 103
4.1 Introductory principles 103
4.2 Effects of sovereign government budget deficits on saving, reserves, and interest rates 106
4.3 Government budget deficits and the "two-step" process of saving 111
4.4 What if foreigners hold government bonds? 117
4.5 Currency solvency and the special case of the US dollar 123
4.6 Sovereign currency and government policy in the open economy 129
4.7 What about a country that adopts a foreign currency? 134
5. Tax Policy for Sovereign Nations 137
5.1 Why do we need taxes? The MMT perspective 137
5.2 What are taxes for? The MMT approach 141
5.3 Taxes for redistribution 145
5.4 Taxes and the public purpose 147
5.5 Tax bads, not goods 149
5.6 Bad taxes 153
6. Modern Money Theory and Alternative Exchange Rate Regimes 158
6.1 The gold standard and fixed exchange rates 158
6.2 Floating exchange rates 160
6.3 Commodity money coins? Metalism versus nominalism, from Mesopotamia to Rome 162
6.4 Commodity money coins? Metalism versus nominalism, after Rome 167
6.5 Exchange rate regimes and sovereign defaults 172
6.6 The Euro: the set-up of a non-sovereign currency 176
6.7 The crisis of the Euro 180
6.8 Endgame for the Euro? 187
6.9 Currency regimes and policy space: conclusion 191
7. Monetary and Fiscal Policy for Sovereign Currencies: What Should Government Do? 193
7.1 Just because government can afford to spend does not mean government ought to spend more 193
7.2 The "free" market and the public purpose 196
7.3 Functional finance 199
7.4 Functional finance versus the government budget constraint 202
7.5 The debate about debt limits (US case) 206
7.6 A budget stance for economic stability and growth 211
7.7 Functional finance and exchange rate regimes 214
7.8 Functional finance and developing nations 217
7.9 Exports are a cost, imports are a benefit: a functional finance approach 218
8. Policy for Full Employment and Price Stability 221
8.1 Functional finance and full employment 221
8.2 The JG/ELR for a developing nation 229
8.3 Program manageability 232
8.4 The JG/ELR and real world experience 235
8.5 The JG and inequality 240
8.6 Conclusions on full employment policy 243
8.7 MMT for Austrians: can a Libertarian support the JG? 244
9. Inflation and Sovereign Currencies 248
9.1 Inflation and the Consumer Price Index 248
9.2 Alternative explanations of hyperinflation 253
9.3 Real-world hyperinflations 258
9.4 Conclusions on hyperinflation 262
9.5 Quantitative Easing and inflation 263
9.6 Conclusion: MMT and policy 266
10. Conclusions: Modern Money Theory for Sovereign Currencies 270
10.1 MMT got it right: the Global Financial Crisis 270
10.2 MMT got it right: the Euro Crisis 272
10.3 Creationism versus redemptionism: how a money-issuer really lends and spends 276
10.4 Growing recognition of the need for Job Guarantee 281
10.5 MMT and external constraints: to fix or to float, that is the question 286
10.6 A meme for money 290
Notes 293
Bibliography 295
Index 301