Thread by @SamHLevey

I made a few diagrams representing some Modern Monetary Theory concepts. Here they are, explained in more detail below...

The first is a simplified world that you might argue is MMT's theoretical 'base case.' The government only issues currency, not bonds, and it hires anybody who wants to work, i.e. a Job Guarantee. In this case, gov spending will be determined by the markets, according to 2/8

the need to obtain currency from the government in order to pay taxes (for which the gov only accepts its own currency) plus the desire to save, accumulating a stock of currency. 3/8

This model is more institutionally grounded, showing how monetary policy works in the Fed Funds market on a corridor system. It shows that gov spending/taxing affect the level of bank reserves, which factor into the implementation of a Fed Funds Rate target. 4/8

The mainstream likes to point to "central bank independence," to argue that the Treasury's budget constraint is similar to anybody else's, so this image shows what happens if the job of 'debt management' is split up, so that both the CB and Treasury sell bonds. What we 5/8

argue though is that in practice, the end result is the same either way. That's why this distinction can be ignored for most policy discussion purposes, and we can just treat all gov spending as creating money and taxes as destroying it. 6/8

Finally, this one combines the first and second, showing a Job Guarantee along with monetary policy implemented using a corridor system. Notice that instead of a demand for currency specifically, gov spending is now determined by the demand for 7/8

government liabilities in general, which is labeled as "net financial wealth" since it is a financial asset for the private sector but not a liability. /Fine

** Note, I did leave out paper currency in this one and how that process works, because the diagram was getting too busy 😅