Modern Monetary Theory Explained | Steve Keen and Lex Fridman
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- Опубліковано 29 сер 2024
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Steve Keen is a heterodox economist and author.
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I'm sure this is a common saying, but I can still remember sitting in a lecture hall in one of my undergrad economics classes and hearing the prof say "if you took all of the economists in the world and laid them end to end, they wouldn't reach a conclusion."
lmao
@@NightmareCourtPictures Thanks for commenting, I didn't realize that should say "wouldn't reach a conclusion." I corrected it
@@jonwalter6317 np, i think you had it right the first time bro (with would*) 👍
In USAID we had a joke: A physicist, an engineer and an economist are stranded in the desert. They are hungry. Suddenly, they find a can of corn, but no way to open it. Physicist says “Let’s start a fire and place the can inside the flames. It will explode and then we will all be able to eat”.
“Are you crazy?” says the engineer. “All the corn will burn and scatter, and we’ll have nothing. We should use a metal wire, attach it to a base, push it and crack the can open.”
They both turn to the economist and ask for his solution.
"Assume a can opener" he said.
Not the best joke but if you've been around these guys it's kinda spot on.
What if you laid them front to back?
Modern monetary theory: You are Lex Fridman and still renting home.
I don’t believe that. He’s probably renting it from a company he owns. His top priority is security, not looking wealthy.
@@highbrass3749 If he owns the company then he owns the assets of said company, therefore saying that he is renting if it were the case would be wrong
Money creation is "good" if you're the one creating it, or the one getting it first...
Throughout history all money was created by some power broker(government)
Yup. When you create money, you're actually stealing off the people who are holding that type of money.
"...so money is fundamentally a 3some, and everybody gets fucked"
I'll teach my children exactly that
Most people believe that money is real wealth. Yet, everything we spend money on requires energy to mine, create, deliver, run, maintain, and dispose of. In this way, money is ultimately a direct claim on energy and resources.
Our economic stories assert that with more money we can create more of anything. The truth is we cannot create energy. We both extract and burn it faster by using technology and printing money.
Natural capital -particularly energy-is the true foundation of our monetary systems. As we create more money we don’t create more resources, we merely access them faster.
.... by the banks.
Damn it, I'm dumber now.
But more aware.
Thank God I'm not the only person who didn't understand it either. Lol. I
*ua-cam.com/video/mezZsfkj55k/v-deo.html*
Asking questions is ok
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Introduction to The Minsky Models of Modern Monetary Theory #TMMOMMT #MMT .
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The Minsky Models of Modern Monetary Theory 01 #TMM0MMT
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The Minsky Models of Modern Monetary Theory 02 #TMMOMMT
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The Minsky Models of Modern Monetary Theory 03 #TMMOMMT
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The Minsky Models of Modern Monetary Theory 04 #TMMOMMT
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The Minsky Models of Modern Monetary Theory 05 #TMMOMMT
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The Minsky Models of Modern Monetary Theory 06 #TMMOMMT
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The Minsky Models of Modern Monetary Theory 07 #TMMOMMT
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The Minsky Models of Modern Monetary Theory 08 #TMMOMMT
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The Minsky Models of Modern Monetary Theory 09 #TMMOMMT
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The Minsky Models of Modern Monetary Theory 10 #TMMOMMT
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The Minsky Models of Modern Monetary Theory 11 #TMMOMMT
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The Minsky Models of Modern Monetary Theory 12 #TMMOMMT
Money Printer go BRRRR ...
Make new theory for to keep money printer going...
Exactly... Is this wealth? Nope is this an accounting exercise Yes.. But it's not only that.. Most people believe that money is real wealth. Yet, everything we spend money on requires energy to mine, create, deliver, run, maintain, and dispose of. In this way, money is ultimately a direct claim on energy and resources.
Our economic stories assert that with more money we can create more of anything. The truth is we cannot create energy. We both extract and burn it faster by using technology and printing money.
Natural capital -particularly energy-is the true foundation of our monetary systems. As we create more money we don’t create more resources, we merely access them faster.
Somehow he took a topic I knew well and made it totally confusing
Classic intellectual. Their knowledge surpasses their understanding.
And he’s wrong, one need not MUST use double entry method. One could use single entry. And I’ve seen triple and quadruple entry methods successfully applied.
@@newagain9964 “the US financial system operates in terms of double entry bookkeeping, such that all the debits equal all of the credits-and this has real word implications”
is not equivalent to
“There is no other possible type of bookkeeping in existence”
@@007SuperSoldier what’s your point? That not what I said and that’s not what I said that he said. Do you like making up nonsensical and non factual debates?
@@newagain9964 “he’s wrong, you don’t have to use double entry bookkeeping”
When did he say it’s forever impossible to use anything except double entry bookkeeping? Timestamp
@@newagain9964 The reason we use double entry bookkeeping in the US financial system is because we keep track of assets and liabilities, which are two things. Hence, “double”.
The fact that the US system *does* operate this way is not the same as saying “it’s impossible to use any other kind of bookkeeping”.
It’s a silly sideshow argument that you made up in your head because the other points about how our monetary system functions on a daily basis would probably be too difficult for you to interact with at this stage (I can only assume).
Lex needs to have Richard Werner on to talk banking and money creation!
Yeah, Werner explains it the best
MMT is a scam. Steve Keen is confused about Marx.
Ray Dalio.
As a person with 10+ years of banking/accounting experience thought that Steve explains that well. Not sure if others would agree. Think that what MMT is missing is that the Treasury uses Third party investors when selling their debt obligations. Only a fraction of the borrowing is done through the Fed. So deficits do add liability to the aggregated economy. It isn't a zero sum.
It is a transfer of wealth to the investor class. You forget interest.
Well, not about class. It is about who is buying the Treasuries. Insurance companies, money markets, and other financial institutions are the biggest lenders. They theoretically would make more with other investments that would pay higher rates, so don't think they are making out in any way. The real problem is the deficits borrowing. That is what everyone knows, but no one wants to talk about.
You're living proof that it doesn't mean anything to be a banker, even finance guys with years in the market get the topic wrong. First of all the treasuries are sold in the primary market at auction. That's where the financing happens. In this stage the FED does not participate. Also retail investors and so on can not participate. Participants are only certified banks, because only them can actually pay the currency needed: reserves. Since the bank can only create book money but not reserves, the ultimate creator of reserves and therefore money for the government, is the fed. Because if the fed doesn't create new reserves, the bank will not have those reserves to buy the bonds. Now that's why MMT doesn't miss anything. Even when the bank pais the money to the government, it's still money that the fed creates beforehand. Whatever happens later on the secondary market is irrelevant. There you and me can buy bonds with bank created book money but that's not contributing to the governments financing.
Not sure I get your point. The way that reserves are created is the Fed purchase treasuries (debit assets) and create reserves (credit liabilities). Part of what MMT is saying is why not fund all of the government expenditures using this rather than having taxes at all. What they don't seem to want to acknowledge is that currently what the Fed holds in treasuries is a fraction of the national debt. If they were to do what they suggested, it would require us to increase the Fed's reserves many times over. If that were to happen, the money supply too would increase many times over. MV=PT. Unless there is a dramatic drop in the velocity of money or increase in productivity, there will be inflation. Hyperinflation, actually. That is what MMT is ignoring. The question is, on purpose or not? You decide.
@@scottcincinnatikid9804 you're still getting it wrong. On various levels. Let's clear one thing out first. MMT NEVER suggested to finance all debt by the FED buying up all the bonds.
In fact the MMT is an accounting explanation and does not intrinsically give recommendations on acting. It sais: "let's see how the system actually works, so we can take the best educated decision on this fundament, rather than taking decisions based on wrong assumptions like debt is evil"
Also if the MMT would give advice, it would never ever give the advice to buy up all the bonds in the market but for a completely different reason than the wrong reason you gave. The reason is the financial system NEEDS treasuries. Banks and pension funds and whatnot can not survive without the riskless bonds generating interest income. Buying them up would kill the system.
Now to the last point. You claim it would creare hyper inflation if the fed printed money and bought all the bonds. Still wrong. Imagine you invest 100$ in apple stock. Now I print money and give you 100$ but obviously take away your apple stock. Are you richer than before? No. Your wealth stayed exactly the same. That's what happens when the fed buys bonds. The banks has 100$ in treasuries, which are highly liquid and are considered the same as cash by the bank, let's say that's the only position in their B/S. Their B/S is 100$. Now the fed buys the bond. Their B/S changes from 100$ in bonds to 100$ in cash. It's still 100$. WHERE THE F IS THE INFLATION COMING FROM?
In fact the opposite can happen: taking bonds out of the systems means reducing interest income which actually increases the amount of money.
“Money should be a commodity, but it’s not.” This guy is a treasure lol
Isn’t a commodity turned into money monetization? Once the commodity is “monetized” it no longer acts as a commodity, but instead as a money. The third party in the 3some is not a bank, but instead a market on that commodity. Supply/demand governs the commodity money as an asset, rather than a fixed promise by a bank. The default on that promise for the commodity money is determined by the free market, where as the default on bank money is based on the bank. Usually the bank never fails if it’s chartered and backed by the central bank. This means the liability is transferred from one bank to another. The other bank like the federal reserve, can have infinite liability backed by the reserves. The reserves are made up of other assets like government bonds which are claims on the government and other things. It’s all a game of accounting with no real limits. The limit that is imposed by commodity money is what makes commodity money useful to keep a market honest (as in non-fraudulent). Without honesty, the system can by gamed to favor some accounts within the accounting musical chairs.
Yes, there is always a 3some, but in one scenario there is fair foreplay, but in the other you’re being taken advantage of.
Isn’t a commodity turned into money monetization? Once the commodity is “monetized” it no longer acts as a commodity, but instead as a money. The third party in the 3some is not a bank, but instead a market on that commodity. Supply/demand governs the commodity money as an asset, rather than a fixed promise by a bank. The default on that promise for the commodity money is determined by the free market, where as the default on bank money is based on the bank. Usually the bank never fails if it’s chartered and backed by the central bank. This means the liability is transferred from one bank to another. The other bank like the federal reserve, can have infinite liability backed by the reserves. The reserves are made up of other assets like government bonds which are claims on the government and other things. It’s all a game of accounting with no real limits. The limit that is imposed by commodity money is what makes commodity money useful to keep a market honest (as in non-fraudulent). Without honesty, the system can by gamed to favor some accounts within the accounting musical chairs.
Yes, there is always a 3some, but in one scenario there is fair foreplay, but in the other you’re being taken advantage of.
Nearly 50 years ago, my college metaphysics professor said, “If you cannot clearly explain a concept in simple terms then you don’t really understand it.” His point appears well-illustrated here. Lex seems puzzled… I am not sure Professor Keen is not also puzzled, as he attempts to teach Lex; e.g.- “Money is the anti-proton…” “Wait, wait.”
Simplifying quantum mechanics is probably a little different than simplifying an explanation of long division. Do you think a Metaphysics prof really thinks everything is simple? What he says to students whose essays, or impromptu digressive conversations he has to deal with is different than the broader reality of the world. The reality is that anyone who has an IQ lower than 127 doesn't belong at University, that is the top 3.5%, which is who used to go when the reputation of what a University degree meant, was being solidified. Today in some western countries we have 50% going to University. One just can't make some stuff simple enough.
This is very closely tied to keynesian economics in general when you think that you can make an equation to simply make anything work .
Money is a commodity. FIAT money exists because it is ENFORCED, not because it is REQUIRED. Many, many people choose to opt out of their countriy's fiat money because THEY PRINT TOO MUCH MONEY.
Printing money impacts prices in general. It has been proven time and time again. Theres current day examples. And people gravitate to different currencies (can be "better" fiat currencies too).
I hate that you can ignore all of that simple because "oh no but if we take it as liabilities vs assets it sums 0"
listen again. he just explained money is NOT a commodity. money is created when banks loan you something, and destroyed when you pay it back. It's a bookkeeping tool.
for sure fiat money exists because it is enforced, but if it wasn't around people would still require some form of money to facilitate exchanges. humans have used stones, shells, bits of metals, etc.
@@feandil666 i know what he explained, im debating that premise. Money is a commodity. Moreso, the entire analysis he does applies ONLY to fiat money.
A quick look at the monetary policy of even the past decade proves him wrong and the entire mmt wrong.
@@blackmage567 Exactly. MMTers somehow think that fiat currency IS money, when in fact fiat money has a horrendous track record for surviving contact with reality over even modest time frames.
Isn't it implied that when he says money he means FIAT money, it's the only kind of money the past few dozen generations could use till recently
@@3omar3aysha what do you mean? The US$ which is arguably the strongest fiat currency lost 99% of its value in the past century. Just cause people still use the same name for those papers doesnt mean its the same.
In Argentina we lose 90% of the value of the currency every 3 or 4 years. Its unusable. Using a commodity instead is better. At some point credit becomes unsustainable for everyone, its impossible for the average worker to get a mortgage or a relatively small business to get a loan to buy machines here.
House of Cards*
Greatest house of cards ever conceived!
Someone told me longtime ago that asset is anything that puts money into your pockets, whereas a liability is something which takes money out of your pockets.
You might be able to get away with this definition if you replace "money into/out of pockets" with "adds/negates utility". They just don't think forms of transportation or shelter are assets.
So the dollar is liability for us, as it continues to be deflated and also a liability for the bank as it shows as a deficit so the banks don't want dollars... so the bank.... it benefits from inflation. So in this paricular case we see that the zero sum game, where everything on both sides goes to zero and is balanced is broken by the very misuse of the unit of measure $$. How strange 🤔
6:56 The issue with Steve Keen's explanation is that , while he dismisses barter he doesn't bring several parts of the argument to its furthest conclusion. Questions such as ... if each transaction is between Party A, Party B and the bank that issues money, what stops the bank from issuing ∞ money, and using Cantellon effects to be on the pillager's side of inflationary effects??
Another Australian economist, Steve Kates, keeps banging on about Say's Law, and that money lubricates barter but does not replace it: ultimately people don't want to trade money, they want to trade goods.
Thank you for mentioning Cantillon. I am reading his Essay on Economic Theory for the third time. Going back to the classics is a fine antidote to the bloviations of these academics such as Keen.
@patrickgrengs7594 Always good to get to the source before Wealth of Nations.
@chalermako you are naive to think the bank would not issue x if it could get away with it... its part of the Tragedy of Commons which, if I recall, Adam Smith mentioned in the wealth of nations.
That is what banks actually do.
Modern economic theory assumes that productivity (which underpins our wealth and material progress) is a product of labor and capital. Energy is assumed to be just another input with its unit price representing its contribution to economic output. One barrel of oil represents almost 5 years of human labor, and human economies only pay the cost of its extraction (currently around $50 in 2022), not the tens of millions of years of natural processes to create it. We have underpaid for the main input to human economies - and economic texts do not recognize this fact.
I get his explanation, maybe, but the thing that worries people is whether the creation process he describes devalues money. Most of what he is describing just sounds like an outline of basic economics principles about how the money supply is created, so there must be a lot more to the MMT aspect of it.
_”Modern Monetary Theory_ is accounting.”
Thanks Steve.
MMT is a scam. Steve Keen is confused about Marx. Money is not debt or "liability". Real money in circulation must always represent the value of the Wealth owned.
("Money as debt" is the same as money as hope ,or money as wishful thinking, or money as faith., or money as signal, etc aka nonsense, make belief)
Lol. I know right! You're the only one in the comments who thought that was funny too.....the dude has no clue what he is talking about. Peace ✌️
@@Gordon87Gekko it is tho... mmt is applying double-entry bookkeeping to the whole economy and seeing where everything balances
@@johnsonMcdaniels It is easy to tell you don't have a degree in economics, an accounting designation or CFA; you just gabble by rote. Double entry acounting is a product of transactions...Assets=Liabilities+Equity. MMT is a communist Economic theory in which persistent deficits and fiscal and monetary policy recklessness create disastrous consequences for economies; including inflation. The end product being a country's balance sheet, income statement, and cash flow statement being left in ruins.
@@johnsonMcdaniels 😆 🤣 😂 It is easy to tell you are not an Economist, do not have an accounting designation or CFA; you just gabble by rote. Double entry accounting bookkeeping is an end product….Assets=Liabilities+Equity. MMT is a flawed economic theory where governments run persistent deficits and their reckless fiscal and monetary policy lead to disastrous economic consequences including persistent inflation; leaving a country's balance sheet, income statement and cash flow statement in ruins.
Having learned business accounting prior to consumer access to computers I am often startled by widespread ignorance of that wonderful invention of double-entry accounting.
Yeh if your ledgers and journals didn't match up you knew there was a missing or incorrect entry.
Possibly the most confusing and incoherent explanation of fiat currency and double entry bookkeeping I have ever heard.
It was an interesting interview but he never really answers the questions.
@@mkuc6951 He does if you are familiar with the terminology and a lot of ground that’s not covered in this video. But there is a more coherent way to speak about it for lay people
Exactly, its heterodox neokeynesian stuff, quantitative easing... On Mankiw's blog there is an nice article overview...
That is because Keen does not understand accounting in operation in the economy and also does not understand that money in the modern world is fiat credit money created out of debt. It is purely a financial asset and therefor has an equivalent amount (equal value) of debt without which it could not exist. He is totally confused about it.
That’s the point of MMT. Keep the ppl confused so the politicians and elites and raid the treasury.
$6 gas and skyrocketing prices across the board are a good thing.
Back to academia sport.
Guys like this caused this, they should pay for this
The current global inflation is caused by supply shocks in key industries, such as logistics and energy, not monetary policy.
@@solinvictus8769 It's hard to say, but I do think modern monetary theory is dangerous. What if they are wrong, and money is actually closer to a commodity? Then the massive amounts of debt will ultimately be a bad thing. This modern notion is also trickling into people's private lives, as they live more and more indebted, to the point they will never be able to pay back their liabilities within their lifetimes. My take is that debt is burdening the future, because debt is supposed to be paid. Who will continue lending with no hope of recompense? And what happens when the artificial growth built on debt stops?
@@solinvictus8769 Absolutely this
@solinvictus8769 ah yes. The we can print as much as we want and there is no problems crowd lol
@@solinvictus8769lol, the US increased their money supply (M2) by 30% in 3 years during Covid. You think that’s not driving inflation? You must be dreaming.
it does create money for the private sector, but it does so to the benefit of certain parties, at the expense of others: usually, it helps the rich and the politically connected, and it hurts anyone on fixed income, and anyone who earns a wage. That's the cantillon effect.
Gold is money btw. Why else would the fed (and every central bank on the planet) hoard the stuff?
I'm hoarding it too... because I want to own a monetary asset that is quite literally not anyone else's liability. If an asset I hold is someone else's liability, and that someone is the govt, they have every reason and ability to deprive me of that asset or to minimize their liability by minimizing the value of my asset. They can't do it with gold.
True, I had a dilemma of going for gold or Bitcoin and chose latter as the movement of gold is easily controllable by governments in totalitarian scenario. Bitcoin is more difficult to control and you can buy it without disclosing your identity. I don’t think you can do that with gold.
@@sevaderiushkin555 no you have it backwards. I can buy gold with cash at my local coin shop. Bitcoin is hard to use without triggering a digital thumbprint that's attached to an identity.
Most money today is created by private banks when they lend with the remainder created by the reserve banks when they lend to the government. It is al fiat credit money created out of an equivalent amount of debt obligation in the hands of the borrower just like when you get a loan to spend money and also incur the obliged debt to pay back.
@@sevaderiushkin555Your bitcoin is going to be 100% useless if the violent conflagrations now springing up across the world ever escalate into nuclear war. It’s already 100% useless in every Ukrainian, Israeli, and Palestinian town & city that’s recently had it’s electricity and/or internet bombed out of existence.
Bitcoin and gold will be ultimately controlled by the government because they will tell you how and when it can be used and disposed of. They will take it away when they see fit and want to. That includes Bitcoin or anything else like it. Gold in times past was, and has been money, but it is more so used as a storage of wealth for more than a few hundred years now. And that's the way bankers and governments want it; for now, anyways.
Lex get Stephanie Kelton on your show she's a 100x better at explaining things so lay people can understand. Steve Keen uses big words quickly and makes people's heads spin.
The short of it all is that the individual gets a slice of the pie (chart) that's left over after the banks make money on debt. The individual mostly plays by different rules than the establishment. Those in power from government or wealth. Huge teams against the individual.
Didn't learn anything about MMT. Did learn that Steve Keen doesn't know much about economics, e.g. differences between credit, money, currency and commercial paper. Did get a basic intro in double entry bookkeeping...
MMT explained simply: Goodfellas print counterfeit money in a basement to increase the money supply and stimulate commerce, which is good. But there is a risk of increasing inflation, so they use a racket to extract the money from the supply as a form of charity.
This guys not even good at explaining basic economics terms to a layman. Whats that one saying that if you cant explain something in terms to a 10 yr old you dont understand it very well
Argentina, Venezuela and Zimbabwe should be the three biggest economies following this theory. What a load of crap
Government debt is a claim on all future earning through production, growth and or higher taxes. If robot add to GSP this effect should be lessend but the new problem of human productivity might become a burden.
It helps if you consider that another way to look at money is as a promissory note from the government to the holder of that note. For the holder of that paper, the US treasury owes assets equivalent to it.
Except they don't.
If this is the thought process of people in charge I’m betting on hyperinflation
Debt creates money. Broken system.
It´s called inflation, you have more demand (which is translation for money) for essentially the same supply (goods).
HIm being pro China kinda makes sense, the guy is a pundit.
How can it be any other way? Money is simply a promise to others; so money is debt by nature.
Gold or Bitcoin can be money and it’s no-ones liability. Money is not debt by nature.
@@manuelpujol8355 The existence of gold or bitcoin would just be a competitor to other forms of money. Private individuals can create private currency just from agreements.
I think the confusion that MMT advocates have is they call things 'money' that are actually only 'fiat money'. As long as you can confuse those two different things you can spin an endless tale of how debts don't matter and you can print 'money' without worrying about deficits or bankruptcy. But this is magical thinking.
Exactly... Their theory it's lack of any rationale
@@KoDeMondo
There is plenty of rational. I am in the uncomfortable position of understanding how MMT works but not liking it. The problem is the centralization of power. However when people don't know that it is our money system its centralized even more.
Te rational is the debt is a myth . They print money. When they print it indiscriminately then it destroys economic incentives and cause inflation.
I went from thinking I knew a bit about money and the economy to realising I know nothing.
Learn unlearn relearn applies here?
No, this is nonsense. You're confused for a good reason.
When you deposit to a bank, their liabilities go up, not assets.
No both liability and asset goes up on commercial banks books
no, both do. this is known as equity!
If you deposit physical cash, their physical cash balance goes up - that is an asset. Then they increase your bank account, which is their liability. Net 0.
If its a check from a gal at the same bank, the bank just increases your balance and decreases hers. No increase in liability or asset for the bank. Net 0.
If its a check from a gal from a different bank (let call it bank B), then reserves will need to move from bank B to your bank. This is done at the end of every business day. Your bank will have more Reserves. Your balance increases. Bank B's Reserves went down. The gal who paid you has their deposits decreased. Net 0.
It’s creating new currency, not new money.
It’s creating currency, not creating wealth. Big difference.
And putting more currency in peoples bank accounts by creating money out of thin air is the process of inflation, which is everywhere and always a monetary phenomenon.
Money is not the promise of a third party. That would be an asset by his definition. Money is something taken as actual payment. When you give gold or other hard money for payment , it’s not a promise it is actual payment.
Most people believe that money is real wealth. Yet, everything we spend money on requires energy to mine, create, deliver, run, maintain, and dispose of. In this way, money is ultimately a direct claim on energy and resources.
Our economic stories assert that with more money we can create more of anything. The truth is we cannot create energy. We both extract and burn it faster by using technology and printing money.
Natural capital -particularly energy-is the true foundation of our monetary systems. As we create more money we don’t create more resources, we merely access them faster.
Great explanations! At 6:24, Steve should have said Lex's rent is his liability and the landlord's asset (like a mortgage).
It's an asset except for 2008.
To me is not an asset because it's not Yours. Meaning you need to pay taxes to claim your property
@@KoDeMondo the rent is *owed* by the tenant, therefore it is the tenant's liability. The landlord holds the agreement/lease, which is an asset...double entry bookkeeping. The flow of funds runs from the tenant to the landlord. If the tenant cannot pay, the landlord can take the tenant to court to demand payment. It's just like a bank loan...the bank holds the loan agreement (asset), the loan recipient has contracted to pay the loan back (liability).
Keen has an unparalleled ability to make simple things difficult. Money (national currency) is a fiscal credit. The national currency is a monopoly of the Government and it has value because you can pay taxes with it. The national currency not reclaimed yet by the Government to pay taxes is what we call financial equity. If you want to know what modern monetary theory is you shouldn't ask Keen, but Bill Mitchell, Randall Wray or Warren Mosler.
No - Totally wrong statement about taxes having value because it is a monopoly of government.
It is Not a monopoly of government because private banks create most of it and they are Not government and do not create new money at the request of government.
Additionally if taxes put any value into money there would have been No currencies that failed totally by entire loss of value like what happened in the 30 or more countries in the past 80 years which all had taxes yet their money failed through loss of all value..
Again the additional reality to that is the fact that if taxes made value in the money then higher taxes would make money more valuable which is not the case at all.
Keen cannot address these realities and hides from addressing them when it is pointed out to him.
@@Rob-fx2dw Private banks are private franchises of the Central Bank. This allow them to create credit in national currency subject to debt, so the money they create is Government money. Taxes do modulate inflation when there are no row material crises. In the 1930s there were inflation crisis because there were row material crises. Taxes put value into money because they can and do make money scarce
@@carlosgarciahernandez7201 No. - You are frightfully ignorant of what franchises and private businesses are as well as the legal and factual reality of what private banks do.
Private banks do not get the money they create from the Federal reserve banks. They create it themselves when people decide to borrow and ONLY when people decide to borrow. They are merely licensed by government like any institution who has a license from government to perform a business operation.
Are car drivers franchised by the government because they have a license . NO ! does the licensing authority tell drivers where to go and when to drive their cars? No.
Your other comment about taxes putting value into money is equally made out of ignorance of facts and contrary to the historic reality that in countries was massive inflation that led to the money being worthless despite there being taxes.
There are over 30 examples of this in the past 80 years.
You can't argue against that factual history unless you are willing to be just a total fool.
@@Rob-fx2dw The one who decides to give a loan is the bank, not the customer. Those 30 examples of inflation are countries that mainly export raw materials and when those row material go down in price the countries suffer inflation because they typically import almost everything they consume. It is not nice talking to you. You are dismissive and deregulated. Bye
@@carlosgarciahernandez7201 Grow up - reality is not "nice". Firstly prices going down is not inflation. Where did what you say happen. Where did the currency fail totally because the price of exports went down? Nowhere.
Where is the support for your statement of taxes putting value into money? You can't answer because you can't admit to it being wrong.
I notice you can't address the things I asked you and that is the real reason you say "Bye". Not for any other reason than you can't answer with your theory.
Your comment about not being 'nice' talking to me" is nothing other than a cover for you not facing the reality of what is fact.
Facts are not nice or otherwise. If you want someone "nice" go and get ripped off by someone telling you you are right when in fact you are wrong.
With his logic any governmental deficit is good for the private sector? At what point does a deficit/ printing become a liability for the private sector?
With his logic, never. They way he explains it it sounds like he thinks the government is a bank?
Mmt doesn’t say you can just print with impunity. Read
@@crane4515 Irony
A surplus takes money out of the real economy. The point of running deficits is to use that money as a force that adds DOWNWARD pressure on inputs in order to help make running a business/ starting a business less expensive. And as far as consumers go, imagine having an extremely cheap high speed rail of which the costs are absorbed by the GOVERNMENT (not you) since they have the right to create money (although private banks create a lot if not the most right now). What’s wrong with anything I just typed? Isn’t this good for you and business. Inflation will always be there. So please spare the inflation argument since what everyone advocates for is better economics for everyone (inflationary) but just has different ways of getting there (capitalism or socialism or communism).
@@thatisabsolutelykooooge2211 Yep. But it's very hard for people to understand the abstract of money because they have had a consumer view of it for a long time. And it's not taught in schools unfortunately. Stupid labour force schooling.
So what i understand is that money is some sort of social relations, and it's like accounting divided on two things assets and liabilities, and the total sum of this accounting thing that is based on social relations is zero, that's why gold or other commodities aren't money because anyone can have more by mining in the gold example, and money creation happen through loaning by the banking sector and a deficit by the government, so he first said that the total sum of money which is the social relations and the accounting thing is zero, and then said that the total sum of money isn't zero, the total sum of the accounting thing is zero, which makes us ask what is money (according to his definition) ? then he said that money is the positive thing in the equation not the negative, and at the end said that money is an exchange of promise of a third party which is the banking sector which is basically the government it is the one who control it (interest rates, loans conditions, reserve requirements...), so if money is the positive side of the equation, and you first said that it is the social relation and the accounting thing which its total sum is zero, and the government and the banking sector are the one who can create money (deficit, loan), so it should be there a negative side of the equation to end by zero, which is the people!! by inflation (decreasing the purchasing power), so first he refuses gold as money because anyone can have more of it by mining, but fiat currency is money because he change the definition making money the positive side after it was according to him a zero sum, what a contradiction!!!
You explain well thank you. Yup basically it’s blind trust at this point 😂
Money is a medium of exchange based on an accepted and saleable commodity. Money is a creation of the market, not government (law).
Why should money be a commodity? It seems to me like you want to restrict government spending which is okay, but conflicting with your point of view that money creation is a good thing?
What if your house price goes down to 600k and your loan was 800k how do they balance out?
negative equity
@@denisignatovich5017 hmmm I think I get it. Thanks
@@icarium6031 The base equation is 'Assets = Liabilities + Equity'. If the loan (liability) stays the same, but asset value goes down (like in your example), then equity becomes negative
@@denisignatovich5017 I have a question for you Denis, if a Bank creates the funds for a mortgage, do they have a liability to any entity? I alsways hear the bank creates the money, but do they owe its creation to someone?
In my mind I see a mortgage being paid off after 30 years, you now have a house as an asset, but doesn’t the bank have all your payments and interest as an asset? Shouldn’t they have to pay back the original loan amount? How is it fair that they keep 100% of the payments?
When he said the sum total of all transactions equals 0, does that mean positive and negative equity produced by a transaction will always cancel each other out?
I.e, if my car blows up today my loss in equity will be equal to the banks gain?
Most convoluted "explanation" of MMT ever. Never even answered the question.
Mr Norman, what do you expect from a guy that doesn’t understand how foreign exchange works
If assets and liabilities were a net zero, that means that no one owns property.
Very educational . Although the concepts are simple for anyone who had economics 101 class at the college, it’s admirable how humble Lex is to ask basic questions so that average Joe can related to it. Well done
I had Econ 101. I'm familiar with double entry accounting (and its inventor Pacioli). I'm pretty confused by this explanation.
I might start to get it after a few listens.
@@grantcivyt Account for the movement of money from account to account using "T" accounts. Try it the next time you play the board game MONIOPOLY. Account for the movement money from Bank to Player & you will see the RED INK
@@grantcivyt he's overexplaining basic accounting so he doesn't have to explain that MMT is just printing money to debase currencies, to pay a countries debts. It happened already in history, see world war 2.
@@fishbrainLTD
For the record, MMT is OPPOSED to printing money.
They favor BORROWING.
From the Banks.
Who PRINT the money.
You know. The capital'.
MMT includes a huge cadre of former/present Post-Keynesian economists (sociologists, etc.) who seem to forget that the "mantra" of the originators of P-K theory
were to validate public sector direct involvement in activity in the economy, managing deficit spend by EITHER printing new money, or Borrowing it.
WHEN was the last time you heard any MMTer say to Print it?
Rather, Print the Money' is in fact the mantra of the monetary reform movement in this country for many decades - MMT denies it's real. Supports the bankers.
Whyzzat?
The Money Apprentice.
MMT is a scam. Steve Keen is confused about Marx.
Sounds like a pretty good explanation of a Ponzi scheme.
Keen explains liabilities and assets in the private sector but ignores that conceptual understanding in the government sector and falls into a belief that is what "government" does is somehow not subject to the same rationally derived concepts as what everyone else is forced by by law to act upon to maintain a workable economy.
The sum is absolutely not zero on a mortgage. You pay the bank much more than they gave you
The aspect that MMT economists tend to neglect is that no matter how much money is created, which they like to say has no limits, that money deflates on the asset side and requires interest expense on the liability side. At some point that is unsustainable leading to inflation.
It doesn't really require interest though. Interest is, ultimately, set by government fiat. The Central Bank governors set the interest rate by their own fiat, but, ultimately, are just using the powers delegated to them by congress: monetary interest is literally just an automatic appropriation dependent on the interest rate times the number of reserves spent into treasuries. Make the interest rate permanently zero and no money will ever be appropriated into it, thus making it incapable of being a vector for any sort of demand pull inflation.
Yeah maybe don't create infinite money just because
MMT economists consistently and repeatedly state that money creation does indeed have limits. Those limits are just not financial in nature, but real.
According MMT, they'll fix the inflation part with higher taxes.
Federal Reserve Notes are an IOU to pay your Taxes with, So an asset for the consumer of the currency but a liability for the issuer of the currency.
It's pretty hard for an average Joe to understand when you explain claims :) Make it simple. Assets are what you own (or something, that will bring you ownership in the future, your claim). For example, bananas. Do you have bananas? Or furniture? So put them on the left side of your balance sheet, it's your assets! Now, where did bananas come from? Oh! You have bought them from your bank account and paid with the card. So it was an A plus / A minus operation on the assets side. Your bank account value decreased and at the same time bananas value with the same amount of which your bank account decreased, increased. So the result is 0 :) Now, where did your bank account value come from? Yes! It was your initial investment to the company - own capital. So when you started your business, you put 10 000 USD in your bank account as a starting capital. So on liabilities, it was plus, and on assets, it was plus as well. A plus, L plus accounting operation. Your money on your bank account is your asset, and it came from your own capital (it's a liability of your company towards yourself - the initial owner). And that liability is a source, it "covers" the asset. Just read the book on basic of double-digit accounting and it will be all clear :)
The phrase "money creation is a good thing, because it's what allows commerce to happen" is an oversimplification that exemplifies the problem people have with MMT practitioners. What you want is the right amount of money. If you make too little money youre preventing commerce, if you make too much youre causing inflation.
There's nothing wrong with MMT, but MMT practitioners tend to forget that second part. Now that we have high inflation all the MMT people should be calling for higher taxes to decrease the total money supply.
I think it depends on how the printed money is used, and where it goes. If its just pumped into the economy, you might get inflation, if you use it to create jobs or a new industry, its a different story.
@@hansfrankfurter2903 Yeah I think that's a really good point, but I don't know that it's as simple as free money bad, more jobs good.
Wouldn't creating new jobs when the economy is already close to full employment just increase wages? And wouldn't those increase in wages result in higher prices? I think ultimately when an economy get driven into a state of overproduction it makes sense to for proces to go up.
But all these thing are pretty complicated and I dont think we'll really be able to get to the bottom of it on youtube 🙃
@@leviroberts1884 Right, its just that most economies don't really have full employment. And if you count the underemployment (part time, gig..etc), there's a large labor pool to tap into.
But either way, even if say hypothetically new jobs will push lets say food and gas up by jacking the demand. All the gov need to do is force certain industries into a certain price range.
I think Germany during the Nazi era did exactly that, to pull off the miraculous economic recovery. Hitler forced industries to hire up to full employment, and the prices were frozen. What ended up happening is that everyone gained, but wages went down slightly.
Actually this is how the system works and why we are in a deep trouble: Fiat money is not directly convertible into a physical commodity at a specified amount. It is a type of credit money through which a central bank issues notes in exchange for interest-paying bonds by the government. The interest on these bonds is paid by the government primarily through the process of taxation. That is to say, by you and me.
Since the interest plus the principle always exceeds the initial amount borrowed, the government must continually borrow more money, at additional interest, in order to repay the central bank, thus beginning an ever-increasing spiral of debt.
Little to nothing about the meat of actual Modern Monetary Theory in this 10 minutes which I’ll never get back.
That’s Lex Fridman for you.
Steve should not use the word 'asset' in terms of a call on someone else's liabilities, as you can own an asset free of debt, and thus, it will show in your personal balance sheet, but with no double entry.
Terms for this conversation about money should be 'money owed to me', and 'money owed from others'.
If I sell an asset for $500,000, and it is unencumbered of debt, and it arrives to me in cash, then it will not show as a double entry transaction in 'the system' that he describes, yet it exists in cash.
As an accountant, this guy in the video did a terrible job of explaining double-entry bookkeeping. However, even if you own an asset free of debt, it still requires a "double-entry" to record this on your financial records. In your example, half of the entry would be to remove the asset you sold for $500,000 from your financial records, and the other half of the entry would be to record cash for $500,000. Everything in modern accounting requires method of recording ALL transactions. That said, I have no idea what this guy is talking about regarding its relation to MMT.
@@theakountant8444 I agree with you if the asset was held in a business, however, I am talking about a personal asset, we don't do double-entry bookkeeping for personal assets in the UK, so like you, I am not sure what on earth he is talking about.
If everything was recorded as double entries, then I kind of get his point, but it is not.
The above aside, as far as I am concerned, he has not factored in growth, nor the country's attitude to ownership of assets, the ability to pay back debt from appreciating asset classes, and keeping the whole system in balance, hence why we had the 2008 crash and the run on money came fast and hard.
For every action, there is a reaction, (i.e. double-entries), however, if you sit on an asset for a long period of time, and it is never sold, then how does cash take that into account?
I actually think the guy is intellectually challenged, his simplicity is not the thing of a genius, as money is underwritten by a Government, which in turn is de-facto underwritten by that country's economy's perceived ability to be able to pay the bearer on demand that sum of money, (or perceived value to be purer about it)
All i hear is how Smart this Lex Friedman guy is but whenever I see him he always asks some dumb ass questions like “so is money creation good? “ like he doesnt know what an asset or liability is? Tf?
Genuine question,
At the end of the clip, Steve is saying that the concept of money forcibly needs a third party, trust and promises? Otherwise we would live under a barter economy system?
Why and How?
What benefits does that bring compared to have an token representing value which I can exchange directly with other peers for goods and services?
the token is only worthwhile if its trustworthy and widely acceptable. the trustworthiness and acceptability is ascertained by the third party - in this case banks.
The next time you are hungry ask yourself what you are carrying, aside from money, to trade for food? Then what you can carry 3 times a day for 365.25 days ?
Its all fun and games til there's no food on the shelves to buy.
It’s easier to start with the idea that cash is a central bank’s liability. It’s an IOU.
No- He is grossly wrong because the central bank has no liabiity when money is created. It is created by the central bank as credit and that credit is used to pay for treasury securities sold by the Treasury department of government.
It is the governmen's liability to the Federal Reserve bank because those treasury securities it sold all mature in time and the government must pay back the money that it intially got for those treasuries. The money to pay back those treasuries is from taxes that the public must pay. So that money that is created by the Fedreal Reserve for government to spend is the public's liability. The rest of the money in the economy (about 90% of it) is created by private banks as loans which are credit for their customers to spend and of course being credit it too must bepaid back.
This is the ONLY time I’ve seen Lex openly having difficulty keeping things straight. Like listening to the Marx Brothers “Who’s on First…”
So when your house is 'paid off' then it ceases to be an asset coz there's no claim on it
The house was never much of an asset. It just sits there doing nothing. It's dead wood really. If anything it needs maintenance all the time to even keep it up together. It could even be a liability if things were as they should be.
No. - When the house is paid off it is still an asset but not a financial asset since it is a real asset. The real asset becomes a financial asset if sold for money which is the financial asset. Ken fails to correctly distinguish between financial assets and real assets. Financial assets on their own are worthless unless they can acquire real assets in exchange .
Not really, Nja.
As far as any house goes, when financed to purchase, it is the Borrower's encumbered asset.
The residence can be listed as an asset on the owner's balance sheet, but must also list there the associated debt - but NOT ALL OF IT - only the principal. That way things don't LOOK insolvent.But, in reality, the Promissory Note obligation of the Borrower is for the Total Debt Service Costs over the life of the loan.
In reality, WAY more Debt than Asset.
EACH Payment generally includes Principal, Interest, Fees, etc.
Thing is, today, most likely your Mortgage has been sold and re-sold by the Banks.
It's a complicated money web we weave, indeed.
The Money Apprentice.
This is a dangerous academic proposal.
The government has printed fiat currency for many decades, and I see no improvement. The fallacies of MMT include that government employees or elected bureaucrats know how to efficiently deploy capital. They do not. They are some of the most corrupt people on the planet. Only the marketplace with hundreds of millions of decision-makers effectively allocates capital.
Another fallacy is that we rely on the confidence in the dollar as a stable value for trade (what happens when the world moves to other currencies or doesn't accept the dollar).
The problem with inflation (too much money pursuing the same goods and services) was discussed and is a huge problem. Presently, the US economy is running at full employment. In theory, all government procurement programs would need to shut down for as long as full employment occurred during these periods.
From an implementation perspective, it assumes that the government can buy what it needs domestically. However, a quick look at the trade deficit shows that's not the case. The argument for globalization and comparative advantages moved manufacturing offshore. What happens when foreign companies decide that US fiat dollars are worthless because you have changed policy to print wild amounts of currency? What happens if US citizens decide US fiat dollars are worthless and start using Bitcoin, precious metals, rare elements, or other currencies?
This is another academic telling us to reimagine the world to achieve Utopia. These people are dangerous for presenting half-baked ideas. No, thank you, I have enough Wesson oil.
How many years of this before we're Argentina?
Yes the banks have been involved in double entry book keeping for quite sometime. They've been doing it to us for so long it hurts.
Keen puts across a very poor understanding of the money in the economy. He quotes the situation of cash being the liability of the Federal Reserve.
The fact is he leaves out entirely the fact that in the economy the cash is only about 2% of money in the whole economy where as the entire remaining 98% is purely fiat credit money created by both the Federal Reserve and the private banks but mainly the private banks when they lend. This is massively significant because the proportions are so different. The other massively significant thing is which he also fails to understand and misleads others about is all of the money created by the Federal reserve is created at a cost to the private sector because it is created in order to buy treasury bonds which the private sector is required to pay off when the bonds mature.
Too funny. Ok just give everyone 10 billion and everything will be just peachy. The worst explaining of fractional reserve lending I have ever heard.
This stuff simply cannot be explained verbally. Luckily Steve explains gov money creation in a simple Godley-table format in his book: "The new economics", p.41
It was Luca Pacioli, the Italian monk, mathematician and friend of da Vinci who created double-entry bookkeeping. They never taught us that at Kingston University.
I'm disagree with Steve Keen on what is money! Modern economic theory assumes that productivity (which underpins our wealth and material progress) is a product of labor and capital. Energy is assumed to be just another input with its unit price representing its contribution to economic output. One barrel of oil represents almost 5 years of human labor, and human economies only pay the cost of its extraction (currently around $50 in 2022), not the tens of millions of years of natural processes to create it. We have underpaid for the main input to human economies - and economic texts do not recognize this fact.
For Keen seems everything to be accounting. Money creation may be a job of accountants, instructed by the bankers. But MMT is not accounting at all.
If you’re not understanding someone, it’s usually because they don’t want you to and/or they don’t know themselves.
Just say that a dollar bill is an IOU from the government to you. Those IOUs have perceived value so we trade our IOUs to the government for goods and services, because the other person values those IOUs and wants them.
The comment section here is hilarious. Because so many people have their simplistic incorrect model of money contradicted they become angry and disparaging of someone who knows what he’s talking about, and just call it confusing. The problem is not that it’s confusing but that it contradicts one’s own view. It’s harder to unlearn than to learn.
You seem to be making an hilarious comment yourself by backing MMT. MMT is full of fantasy claims.
If you think your comment is not then explain this :-
MMT, Keen himself uses the sectoral balance idea to support his claim that government deficits area surplus for the private sector.
That may seem on first glance to be the s case if one is ignorant enough to believe it is correct and unable to see the reality. That reality is that despite his claim the opposite is true since the delusion is derived from simply ignoring the fact that all deficits by government have to be paid out with interest by taxpayers when the treasury securities created to fund deficits finally mature.
That maturity date may be months or years but it is a certainty. The reality :- It is a debt for the private sector.
If you support MMT then for start explain why this is not so.
MMT also says that taxes drive value in the money (e.g. the dollar). Yet historical fact shows that in countries where inflation left their money worthless there were also taxes.
Can you explain why the MMT claim is valid given this historical fact?
P.S. there are many other fallacies that MMT relies on including denial of historical facts.
.
All of a sudden political narratives stop making sense when they try to incorporate realistic money models.
What he explains makes complete sense. The thing is that it is confusing without diagrams showing how the process works. The thing is though, I believe that this is only a type of "money" but not "money" in general. And I take "money" to mean "a medium of exchange" in a rather loose manner.
That's okay Lex, I don't understand it either but it makes dollars and sense. Nothing wrong with a little slang every now and then neither.
At the end he talks about promises being exhance by 3 parties. The only party not keeping their promise is the bank as the promise of the bank was to exchange that promise (money) for gold or another commodity. With fiat money the bank is no longer keeping its promise as instead of gold you will nothing.
This would be true if money was still backed by gold.
The bank is the only party that will get bailed out by government, tax payer money. Whilst the tax payer will be homeless in a recession like the one forecasted.
try taking a gold brick to Denny's and buy a grand slam breakfast.
@@paulmiles6437 I'm not against the existence of paper of digital money. Just not fiat backed by nothing that can be inflated infinitely by governments.
The bank only promises to exchange their deposits for federal reserve notes.
If you can get your hands on a “modern money mechanics” booklet from the Chicago Federal reserve you will understand this.
He kind of sucks at explaining it but at the essence of it all money is debt, private banks control the central bank, there will always be more money owed than available in the economy leading to the money printing death spiral we are in currently…
How do you that professor doesn’t know his subject well enough after being an academic for 35 years? You know it when he starts talking about talking about double entry booking, assets & liabilities, and when questioned about government debt, he says that’s government creating money, mentions broad money, reserves, and forgets to mention assets that are left on the government’s balance sheet. Because there are none. Because the government doesn’t create money, but also borrows it into existence from private entities.
And it would be interesting to hear his answer to how governments borrowing way more money than they collect in taxes is somehow beneficial for the public, because that’s exactly the reason of consumer inflation.
Bonus question would be how monetary system worked on a commodity backed currency before Nixon “suspended” gold standard, because is his mind money way a pure promise way before then.
Lex could you please have Randall Wray, Warren Mosler, or Stephanie Kelton on to discuss MMT? Would be great to get a more full perspective on this topic.
Still not buying it. We can say that the money isn't as simple as debits and credits on a ledger but you have to pay the piper somewhere down the line. You can't borrow money forever without people eventually wondering how you're going to pay for it. Who will loan money they know will never be repaid?
They create money to be loaned out which didn't exist before you loaned it. This is the part of inflation they don't like to talk about. When money is loaned into existence it isn't cancelled out when the pianist paid. Why do you think bank profits are in the billions when they don't actually produce anything...
Well, those lending simply create money out of thin air. Why should we borrow it from the international private banking cartel instead of doing it out of our own treasury.
Modern money is a contract is essentially what he is saying. It requires trust. That contract can be broken, betrayed. At that point, society starts to tear apart at the seams, lose all faith in institutions, and a (probably violent) return to “commodity money” happens. At least until humans start putting their faith in institutions again, then the cycle begins all over again.
@@_nebulousthoughts Banking is a service industry not a goods industry. They provide the service of safely housing your money and loaning out monetary surpluses to people with monetary deficits. That's what they get paid for.
Money have its own price, just see the exchange rates flowing up and down battling constantly. All fallen great countries all had their currency value collapsed first, with signs starting from them lose actual resources first.
Debt based banking. The guy is saying that new money is created as a debt. In the US it is the Federal Reserve that controls this monetary policy. This isn't a policy that gets voted on by Congress. The Fed is a private corporation with very little oversight.
One aspect of debt based banking is that there is never enough money to repay all the loans at interest. So you have to create more money as debt and loan it out so there is money to repay the old loans.
Debt based banking requires a growth economy. More and more people and consumption of everything all the time. The problem is that we are on a finite planet and are seeing some limits to growth. These would be things like peaks in commodity supply, land shortages, etc. So debt based banking can't continue forever.
Good Lord. Money is Freedom. Money was invented and refined by Free-men engaged in the mutually beneficial exchange of value for value. Money is made as the result of doing something well. Money is a Store of Value. Gold is Money. Gold, held by an individual, is not a liability on any other individual. This eloquent academic twit is describing Fiat Currency.
If you really want to see Lex confused, bring on Jeff Snider!
No god, please no, he even confuses himself.
His error: wealth is created by actually creating goods & services, not printing money. Money is simply the symbol of wealth, not wealth itself.
and that is all lovely except that the whole system requires liabilities to a third unneccessary party. Why on earth would it be preferable to be beholden to a rent seeker in order to transact betweem two parties?
Ah, but more money ≠ more value
On the old italian lira notes it was written something like "payable on sight to the bearer", which meant that anyone who went to the central bank could in theory exchange a note for its corresponding value in gold. In this sense I can agree that money can be seen as a government's liability. But why would it be that either in a fiat currency system, in which the state can print money "for free"?
Just a guess, but perhaps it's because the government now needs to loan out that money in order to make money/profit on it.
And if the government creates excess circulation of money, the interest rate investors are willing to pay for it goes down, Or the money stops being borrowed all together.
Mortgage comment is not true. If you paid back exactly the amount of the mortgage debt over time, it would be net zero. They charge more an interest than the the original amount of the loan. So the sum total would not be zero for all mortgages
MMT is not just accounting. They do not define banks' created money as money but as credit. But the money that the bank creates is money. It just performs differently. While the created money last as long as the debt because it is based on the promissory note, it is nevertheless laundered with interest and fees. These interest and fees amount to 1 trillion dollars a year. What Steve Keen explained is simplistic. He does not elaborate how it can hurt the economy
MMT, and this guy's explanation of money, provide marvelous examples of how far you can go if you build a logical argument based on a false premise. Money consists of a commodity or a claim on a commodity used as a MEDIUM OF INDIRECT EXCHANGE. Increasing (or decreasing) the quantity of a commodity or claim USED AS MONEY distorts the pricing mechanism of the market and causes a misallocation of resources. There's a lot more, but please examine this guy's argument very carefully.
The classic theory is clear...
Imagine a cartesian plan with y axis as the index of general prices of economy and the x axis as the quantity of money.
The demand for money will increase as the index of general prices increase, simply because people will need more money to buy thing. So, it is a line with a positive slope.
The money supply is defined buy the FED, so it do not depends on the genreal price, so it's a vertical line.
The intersection between these two lines gives us the prices in a economy and the quantity of money. It will work because the economy will trend to the balance in the long run.
If I increase the money supply I will shift the vertical supply line to the right side (increase quantity of money), so the new intersection will be in a point with more quantity of money and higher prices!
It's pretty simple to explain how the increase of money supply creates inflation in the long term.
(sorry for my english, I'm a english student yet).
mmt states that the creation of money beyond production creates inflation and diminishes the currency. the creation of money is not good unless it's balanced with production.
The father of modern monetary theory is alive - Warren Mosler. He can explain it.
5:00 The problem is the people think that just printing more money is a solution or will wait a minute strike that it's not actually printing money it's just simply adding numbers to accounts, but at any rate the problem is that people might have the misconception but that's all you have to do is just spend more money. There are times in spending more money makes perfect sense like in a deflationary depression or when you got to do something like fighting a war but too much of the time it can be inflationary and so maybe we should have a rule as far as government deficit spending that the deficits that are spent should correspond directly with an equal value of productive assets coming into existence whether that would be public assets that do a public good such as flood control power generation a interstate grid and a highways or more reserves to encourage banks to loan for purposes of creating more private assets as opposed to just simply buying up existing commodities and assets.
Most people believe that money is real wealth. Yet, everything we spend money on requires energy to mine, create, deliver, run, maintain, and dispose of. In this way, money is ultimately a direct claim on energy and resources.
Our economic stories assert that with more money we can create more of anything. The truth is we cannot create energy. We both extract and burn it faster by using technology and printing money.
Natural capital -particularly energy-is the true foundation of our monetary systems. As we create more money we don’t create more resources, we merely access them faster.
Makes sense that an italian invented MM and not a german.
Please stop with the comments that Stephanie Kelton explains MMT very well. If you actually pay attention to her, her operation of MMT requires an ability to have massive accurate economic information and the power to act massively upon it, and actually be able to predict the future to a large extent. In this MMT shares the same downfall as Keynesian economics, namely the requirement to know exactly what is happening in the coming periods because you have to precisely act at the start of the period to achieve the desired outcome. But the most idiotic thing about Kelton is her reasoning why we don't have to worry about deficits and the resulting inflation caused by creating too much money - we just have to believe it won't happen. Think I'm kidding? Listen to her TED talk, she actually says it at the end.
The real issue here is that the general public thinks that government accounts/accounting has the same rules and concepts as a households. This is where people get completely confused, as a government that issues its own currency does not have the same limitations as a household/business/state, as these entities are currency users, not currency issuers. So as Dr Keen points out deficit spending by a currency issuing government means that there is more money in circulation chasing goods and services. People need to realize that a government deficit can always be repaid by a currency issuing government and can always meet it’s interest payments. The deficit increasing size is a reflection of the growing amount of money in the economy. The real issue with deficits is inflation, which is related to the economies capacity to absorb these extra dollars. The government can never go broke as a household/business can if it spends more than it takes in. As it can always meet its financial obligations as it is the currency issuer.
Get Warren Mosler on the podcast!
Legally I know that that so called bank liability, if you like a promise to pay a depositer, has actually been loaned to the bank, it's a fact that we are all unsecured creditors to any bank that we have a deposit with and I wish this would also come into these types of conversations, because Steve Keen has obviously looked into this in a big way and who am I to question him, but why are these kinds of facts left out and why do so many of these promises end up eventually killing lots of people for profit?
Steve Keen missed this opportunity: when Lex said that he owned his house: that means that he has an unleveraged deed on his house, and that deed is a liability from The Government to Lex Friedman: the government owes Lex Friedman the right to live in his house, unmolested, assuming he doesn't break the law in his house, and there is freely obtainable probable cause that he does so. All actionable, enforceable notions of ownership are, themselves, debts, from the mechanism of enforcement, to the agent it is acting upon. Your ownership of a $500k house is The Government owing you the right to use that $500k house without arresting you for trespassing on what would otherwise be land that it owns, or which is owned by someone else who themselves have the same deed and deal with the government.
Printing dosen't exist it's a accounting ledger on the federal reserve's computer period! The amount of printed notes in the economy is minuscule compared to the number on the federal reserve's computer!
So the primary principle here is that, as Prof Hudson said about MMT Provisioning concept in the context of a Civilization guarding it's resource cycles in tune with the Calendar, and as Prof Keen just said Fiscal transactions are intended to be zero sum at the end of a Management period and a Debt Jubilee ensures.
The actual meaning of the word has been completely inverted to isolate the freedom from debt carry over to the Celebration of an actual Freedom from want.
Excellent Teaching video, thanks.