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Dirk Ehnts Profile picture
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7 Oct, 3 tweets, 2 min read
Greece 10 Year Bond yield running at 0.876% now and there are still some (US) economists arguing that only the US cannot run out of money. Greece "public debt" stands at about 210 precent of GDP. With support from the ECB (PEPP) no default is possible. cnbc.com/quotes/GR10Y-GR
Mainstream economists have gotten it wrong again and again. #MMT wins this one, too:
"Countries that borrow in their own currency should not worry about government deficits because they can always create money to finance their debt."
- Yes!
igmchicago.org/surveys/modern…
Having said that, the question itself is phrased in a way that shows the author does not understand MMT. Countries don't borrow & don't finance. They spend and then they tax and sell bonds to take back what they spent.

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More from @DEhnts

Dirk Ehnts Profile picture
5 Aug
@PIMCO writes: "In addition, so long as policymakers are committed to balancing their budgets in the long run, helicopter money and modern monetary theory (MMT) are not inflationary per se."

Some quick comments...
It is correct to note that MMT is not inflationary. It is a monetary theory and understanding it does not drive up the rate of inflation just as understanding the theory of gravity does not make the apple fall down.
It would not be correct to say that central banks or the Treasury is *applying* MMT. The US monetary system has not been changed. It's just that leading politicians are framing deficits and debts in a different way. c-span.org/video/?512625-…
Read 7 tweets
Dirk Ehnts Profile picture
14 Jun
"Former U.S. Treasury Secretary Lawrence Summers said he didn’t expect the recent fall in bond yields although he maintained his view that the economy is overheating."

The recent development of bond yields can be explained. Here is my take [thread]:
bloombergquint.com/global-economi…
The US government has to "pre-finance" its spending. Political rules force it to issue and sell t-bonds before it spends. This usually does not matter much in terms of effect on yields because the US government sells t-bonds and receives deposits at the @federalreserve ...
... only to then spend those deposits, which means that the banks receive them back (as reserves). The overall level of reserves (=clearing balances) in the banking system stays the same when government has spent. It does not, however, when the US government sells many t-bonds...
Read 9 tweets
Dirk Ehnts Profile picture
1 Feb
"Historically, populism has encouraged monetary financing of public debt, followed by a descent into inflation. This is deeply troubling."

There is no such thing as "monetary financing" and it is deeply troubling that the FT does not understand it.

ft.com/content/91efe8…
There is only one way a modern government spends. The central bank credits the central bank account of the bank of the receiving party, which then creates bank deposits for the receiving parts.

Government spending is always a monetary phenomenon.
A government when it taxes or sell bonds is taking back reserves (central bank deposits) that it has spent or lent into existence in the past.

These are not "financing" operations.
Read 14 tweets
Dirk Ehnts Profile picture
18 Jan
@NZZ bestätigt #MMT: "Zumindest in einem Punkt stimmt das Konzept: Ein Staat, der sich in seiner eigenen Währung verschulden kann, wird theoretisch nie zahlungsunfähig. Denn er kann seine Schulden [..] immer [..] begleichen."
nzz.ch/nzz-live-veran…
Der Rest ist dann wieder falsch:

"Doch diese Rechnung geht nur nominal auf, nicht aber real, also bei Berücksichtigung der Kaufkraft. Denn bei einer Monetisierung der Staatsschuld würde das Geld immer weniger wert."

Eurozone 2021: Monetarisierung hoch, Inflation=-0,3%
"Und niemand wäre noch bereit, das Defizit zu finanzieren, weil er wüsste, dass das dereinst zurückbezahlte Geld weniger Wert hätte."

Was ist mit der Zentralbank? reuters.com/article/ezb-la…
Read 5 tweets
Dirk Ehnts Profile picture
18 Jan
The @FinancialTimes is still wrong about fiscal policy. It apologizes for the austerity-craziness in the 2010s, but it misses the point that governments cannot run out of their own money. The discussion ends there.

ft.com/content/7b6242…
I have written up the full argument for @GowerInitiative here: gimms.org.uk/2020/12/12/ris…
See also my new article with Michael Paetz on the Eurozone here: link.springer.com/article/10.100…
Read 4 tweets
Dirk Ehnts Profile picture
18 Jan
Our brand-new article is available online now:

Ehnts, D., Paetz, M. COVID-19 and its economic consequences for the Euro Area. Eurasian Economic Review (2021).
rdcu.be/cdH5c
doi.org/10.1007/s40822…
While in the short-run national governments are able to do whatever is necessary, there is the risk of a quick return to pre-crisis austerity policies that would lead to yet another lost .. decade. Hence, .. policy makers should .. bring forward the following reform proposals:
Read 7 tweets

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