List of Illustrations viii
Preface ix
Box: Definitions xv
1. The Basics of Macroeconomic Accounting 1
1.1 The basics of accounting for stocks and flows 1
1.2 MMT, sectoral balances, and behavior 6
1.3 Government budget deficits are largely nondiscretionary: the case of the Great Recession of 2007 15
1.4 Accounting for real versus financial 21
1.5 Recent US sectoral balances: Goldilocks and the global crash 27
1.6 Stocks, flows, and balance sheet: a bathtub analogy 30
2. Spending by Issuer of Domestic Currency 39
2.1 What is a sovereign currency? 39
2.2 What backs up currency and why would anyone accept it? 44
2.3 Taxes drive money 47
2.4 What if the population refuses to accept the domestic currency? 52
2.5 Keeping track of stocks and flows: the money of account 58
2.6 Returning to real versus nominal stocks and flows 62
2.7 Sustainability conditions 65
3. The Domestic Monetary System: Banking and Central Banking 76
3.1 IOUs denominated in the national currency: government and private 76
3.2 Clearing and the pyramid of liabilities 83
3.3 Central bank operations in crisis: lender of last resort 89
3.4 Balance sheets of banks, monetary creation by banks, and interbank settlement 92
3.5 Exogenous interest rates and quantitative easing 97
3.6 The technical details of central bank and treasury coordination: the case of the Fed 98
3.7 Treasury debt operations 105
4. Fiscal Operations in a Nation That Issues Its Own Currency 110
4.1 Introductory principles 110
4.2 Effects of sovereign government budget deficits on saving, reserves, and interest rates 114
4.3 Government budget deficits and the "two-step" process of saving 120
4.4 What if foreigners hold government bonds? 126
4.5 Currency solvency and the special case of the US Dollar 133
4.6 Sovereign currency and government policy in the open economy 138
4.7 What about a country that adopts a foreign currency? 144
5. Modern Money Theory and Alternative Exchange Rate Regimes 148
5.1 The gold standard and fixed exchange rates 149
5.2 Floating exchange rates 150
5.3 Commodity money coins? metalism versus nominalism, from Mesopotamia to Rome 153
5.4 Commodity money coins? metalism versus nominalism, after Rome 159
5.5 Exchange rate regimes and sovereign defaults 164
5.6 The Euro: the set-up of a nonsovereign currency 169
5.7 The crisis of the Euro 173
5.8 Endgame for the Euro? 181
5.9 Currency regimes and policy space: conclusion 185
6. Monetary and Fiscal Policy for Sovereign Currencies: What Should Government Do? 187
6.1 Just because government can afford to spend does not mean government ought to spend 187
6.2 The "free" market and the public purpose 190
6.3 Functional finance 193
6.4 Functional finance versus the government budget constraint 198
6.5 The debate about debt limits (US case) 203
6.6 A budget stance for economic stability and growth 208
6.7 Functional finance and exchange rate regimes 211
6.8 Functional finance and developing nations 216
6.9 Exports are a cost, imports are a benefit: a functional finance approach 217
7. Policy for Full Employment and Price Stability 221
7.1 Functional finance and full employment 221
7.2 The JG/ELR for a developing nation 227
7.3 Program manageability 230
7.4 The JG/ELR and real world experience 233
7.5 Conclusions on full employment policy 236
7.6 MMT for Austrians: can a libertarian support the JG? 238
7.7 Inflation and the consumer price index 241
7.8 Alternative explanations of hyperinflation 246
7.9 Real-world hyperinflations 252
7.10 Conclusions on hyperinflation 256
7.11 Conclusion: MMT and policy 258
8. What Is Money? Conclusions on the Nature of Money 261
8.1 Is money a physical thing? 262
8.2 Propositions on the nature of money 264
8.3 Money is debt 269
8.4 Liquidity and default risks on money IOUs 274
8.5 Why are banks special? 279
Conclusions 282
Notes 283
Bibliography 284
Index 289