Finding the Money

This film looking at modern monetary theory (MMT) is making the film festival rounds now. I hope it shows up on one of the film networks or PBS soon. The link is to the press kit.


Incredible that the current inflationary experience hasn’t deep-sixed the bone-headed MMT for good!

Wendy (shaking head incredulously)


You have never read Kelton’s book ‘Deficit Myth’ have you?

If you haven’t, at least read one chapter from it.

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Everyone can denounce it but that does not change things.

We have an anti-tax, anti-infrastructure, anti-CHIPs push going on right now. That does not mean we cut the deficits. Quite the opposite.

The money supply is not just the deficits. The federal government and FED play a role in MMT. Currently, the money supply is being cut by higher rates which are really a normalization, and by retiring debt.

Inflation has been a problem because of Covid, not because of MMT. Covid was an expensive proposition that was only productive in a few ways.

We have imbalances in our economy.

The biggest of those imbalances were created by supply-side economics.

Demand-side economics demands a tighter monetary policy where production expands the GDP instead of monetary policies alone.

That is the reason MMT has been argued supply-side economics does not expand the GDP by much. Without MMT during the last 20 years of the supply side period, we would have seen the depths of a Great Depression. Supply-side economics is $33 trillion of heinous economic mismanagement.

Today we finally have an industrial policy enacted. The policy is still being attacked.

The first this country saw of supply-side economics was coming from Virginian plantation owners who were in debt. Should tell you not only how sick they were but how lazy they were for not pushing their own damned plows.

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Unless, of course, it was the pandemic which was the primary driver of the inflation, and the increase in money supply was secondary. Considering that inflation has abated but the money supply is nearly the same, it’s a proposition worth considering.

As for the film which started this thread, for those who didn’t click on the link, here are a couple of relevant paragraphs from the Press Release (copyright notice: it’s intended to be quoted, at length if desired. It’s a PRESS RELEASE!)

FINDING THE MONEY follows Stephanie Kelton on a journey through the controversial Modern Monetary Theory or “MMT”. Kelton provocatively asserts the National Debt Clock that ticks ominously upwards in New York City is not actually a debt for us taxpayers at all, nor a burden for our grandchildren to pay back. Instead, Kelton describes the national debt as simply a historical record of the number of dollars created by the US federal government currently being held in pockets, as assets, by the rest of us.

MMT bursts into the mainstream media, with journalists asking, “Have we been thinking about how the government spends money, all wrong?”
But top economists and politicians from across the political spectrum condemn the theory as “voodoo economics”, “crazy” and “a crackpot theory

A take from the film director is interesting:

This is where the story we tell about money matters. Where does money come from? Who creates it? And who has agency over it? An alternative story of money will revolutionize our conception of what we as a society believe we can afford and can achieve. That is why I set out to make this film.

Although I believe money is inherently political, I also believe the story of MMT has the ability to bridge and blur dangerous partisan divides in the US and around the world with regards to taxing and spending, especially now with the polarization of climate change after the Trump era and Covid-19. Politicians continue to tell the old story that in order to pay for welfare for Peter, the government must take tax dollars from Paul. However, the whole is greater than the sum of its parts in terms of what we as a society can do through collective mobilization with a goal towards increasing public well-being, health, and happiness, rather than simply the production of GDP growth.

For example, seen from a conventional angle, the Green New Deal looks like an expensive use of taxpayer dollars that will take money out of your pocket and thus decrease your well-being. But instead, the kind of transformative investments in public transportation, energy, housing, healthcare, food, education, and infrastructure, could lead to much more affordable energy, and healthcare, and housing and transportation- literally putting money in your pocket, leading to a higher standard of living and quality of life; not to mention saving enormous sums on the costs of pollution and ill-health, compared to the current state

Perhaps an example?

Let us assume the only source of fresh drinking water for a nation was contaminated by a mining development, and the only way to restore clean water is to restore the forest and wetland needed to filter the water. Let’s say this nation has everything they need to restore these ecosystems- they have thousands of unemployed people ready to work, they have the scientific know-how, and they have the seeds and nurseries ready to propagate— but all of this will take a lot of money to pay all of the laborers, and the nation simply does not have enough bitcoins [gold] [dollars] [Goofy adds] to do it, nor do its citizens hold enough bitcoins to raise taxes. Do they go extinct? Should the nation excavate more mines to export metal to nations who have bitcoins, in order to pay citizens to restore forests?

This is clearly preposterous, but it is exactly what the West asks developing nations to do today. Of course some countries must export goods, in order to get a foreign currency with which to import goods that the country itself cannot produce, such as high tech equipment or medicines; but a sovereign nation can afford to pay its own citizens and mobilize its own domestic resources with its own sovereign currency: credits which are needed by those citizens to in turn pay taxes

There’s some interesting stuff here, including a new way to think about “money”. At one time people had to transition from barter to “money as a store of value”, likely with things that actually had value: shells, food, eventually gold coins, etc. Then came non-concrete “money”: printed bills, eventually digital ones and zeros. Along came Keynes, Friedman and a host of others opining on “what money is”. Right or wrong, I’m finding the new discussions of “money” interesting, to say the least. Possible world changing.


A few thousands of years ago, when money was invented, it was a record (accounting) of the debt between people, John gave Jack six cows, or text to that effect, inscribed on clay tablets. Money was the wealth created by trade not yet settled.

Fast forward a few thousands of years and people who kept gold safe for customers discovered that they could lend out part of the gold on deposit without the customers being any the wiser. That’s how fractional reserve banking was born.

A few centuries later governments discovered they could print fiat money without any backing beyond the ‘full faith and credit’ of the printer.

How is MMT any different from fractional reserve banking? Both issue money backed by nothing real (no cows traded) beyond the credence of the public. As long as people trust whatever is used as money, it’s money.

When people no longer trust money it can be used to make origami

The Captain


Well, I look at it this way. Did you ever hear about the broken windows fallacy? MMT, at least in part, is an embodiment of that fallacy. Fractional Reserve Banking is the process of lending out money, more money than you have at the moment in cash. But you lend out that money with the expectation of receiving it back WITH some interest. And then you do it all over again ad infinitum. Sometimes it doesn’t work out perfectly, but overall it seems to work in most cases. MMT is very similar in the sense that it allows government to spend money, more money than they actually have at the time, ad infinitum. BUT, it is much different on the other end. Sure, sometimes government spends money on stuff that returns the money plus even more, for example, most infrastructure. But government also spends a lot of money on things that never ever return anything at all (“broken windows”). For example, missiles, bullets, most other items related to warfare. Not to mention the 20-30 miles around DC full of civilians suckling off the defense expenditures teat. Other examples even include some infrastructure items, for example the billions and billions spent to add 2 stops on the NYC Second Ave subway line. And of course there’s also the millions of people who work for the government (directly and as contractors) managing/regulating everything else, sure some of that regulation is absolutely necessary, but a lot of it is overkill, way overkill.



You make it sound like bankers are angels but they brought us 2008.

One thing is comparing the mechanics of the systems and another the misdeeds of the perps.

The Captain


I suspect it doesn’t matter. Like “supply side economics” and giving vast amounts of loot to the “JCs”, “MMT” serves a use, for someone. Anytime anyone has the bad form to point out to that someone that past experience with that policy does not support their claims, the proponents simply claim that the policy was not pursued with enough vigor, and the claimed benefits will surely materialize, if the policy is pursued further.


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It is quite a bit different. Let me say upfront so there is mistake what I’m saying: I’m not advocating for MMT. I’m just explaining it as best I understand it.

As we all know, fraction reserve lending creates money out of thin air which can lead to inflation. But according to MMT, when the government issues bonds, it is removing cash from the private sector. So from the point of view of the private sector, no new money has been created. The private sector has less cash, but a bond equal in value to the cash. The balance sheet is the same. So that’s not like fractional reserve lending.

According to MMT, inflation isn’t caused by excess government borrowing, it is caused by excess government spending. We can do a sanity check to see if that is plausible. The Bank of Japan starting doing QE in 2001 and Japan has enormous national debt. Yet no inflation, even bordering on deflation. The Fed started in QE in 2008 and a lot of people thought–including many on this board—this would lead to inflation and even hyperinflation. In fact, what happened was a period of record low rates of inflation.

Some politicians are using MMT as a reason to increase spending and pay for all kinds of pet projects. That’s also not quite correct. MMT says there is an upper bound to spending before inflation occurs.


MMT = Magic Money Tree

Like all other magic things it only exists in imagination.


Why would the government or anyone else borrow except to fund spending in excess of tax revenue? Does the government have a piggy bank for borrowed money like it does for oil? Sounds like a sophism to me.

The Captain

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Again, I’m just the messenger, but you asked specifically how MMT was different from fractional reserve lending. That’s the difference.


Not really. It is all based on the same fundamental premise of insurance. Specifically, not everyone makes a demand at the same time for ALL their money. So some of the money will be available for investment pretty much all the time. If this was not true, then insurance companies wouldn’t be able to exist–and neither would most financial institutions–because they ALL rely upon the belief they will always have significant funds that will NOT be demanded be paid to depositors at the same time.

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I don’t see how this is the case. For example, let’s say the government issues $5T in bonds and sells them to the Federal Reserve. How much cash was removed from the private sector?

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That’s correct, but incomplete. When you borrow money, you have a credit on your balance sheet and the bank also has a credit in the form of your debt on their balance sheet. I use the money to buy a car, the dealer deposits my check, and the bank lends it out again to someone else who spends it, and it goes back in the bank. Now, there is more money in circulation than there was before, both on the bank’s balance sheet and in the hands of the public.

That’s not tin-foil hat stuff. That’s the mainstream explanation of how fractional reserve lending creates money.


Insurance creates float because the insured pay up front. Borrowers don’t pay up front, they do the exact opposite, take money up front . Borrowers put depositors at risk.

The Captain


They don’t do that. The Federal Reserve buys bonds from the public.


Where did the $5T in cash go? If for govt spending, then it went into the economy and was spent. ALL the cash is spent in the economy (one way or another). If it was NOT spent, then it becomes an infinite self-financing loop.

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