Thread by @robert_cauneau

The #MMT analysis shows that public debt is not a problem, ever. This analysis also applies to the Member States of the Eurozone. The fears that public debt arouses are the result of a profound ignorance of the underlying mechanisms.
Thread⬇️

1. With a fixed/convertible national currency, the “monetary base” does not include government securities, as these are claims on government reserves (gold, foreign currency, etc.), which are part of the so-called "national savings".

2. With fiat currency (floating/non-convertible exchange rate), government securities (held outside the government) are increases in the "monetary base", because the notion of reducing the reserves of the State (gold, foreign currency, etc.) is inapplicable to fiat currency.

3. The national currency can only be created by public expenditure. It corresponds to “Net Financial Assets”, i.e. what the private sector receives when it receives a payment from the State, which does not have to be reimbursed.

4. Public debt is the national currency created by public spending that has not yet been used by the private sector to pay taxes. It represents the cumulative (stock) of past fiscal deficits (flows).

5. In other words, the public debt corresponds to the currency created by public expenditure but which the State has not yet withdrawn through taxation. It therefore represents the net financial wealth of private sector agents.

6. Thus, when a State seeks to reduce its deficit by increasing taxes and/or reducing its expenditure, private sector savings are reduced. The fact that the state withdraws more national currency through taxes than it creates through expenditure creates austerity.

7. Public debt is therefore assimilated to everything that represents the liabilities of the State: namely the sum of cash + bank reserves + government securities. This definition is similar to that of central banks, as well as that of the ECB under the Maastricht Treaty.

8. When the State issues securities, there is no "monetary creation", but only a change in the form of the currency, from "reserves" to "State securities", such as a simple transfer of a deposit account which does not pay interest, to a savings account which does pay interest.

9. And, when government securities mature, there is not a "repayment", in the sense used for private debt, but an inverse change in the form of the currency, from "government securities to “reserves”, therefore without decreasing the quantity of currency.

10. The above analysis also applies to the Member States of the Eurozone, it being specified that the financial limits which constrain these States are not technical. They are fundamentally political, therefore in reality self-imposed.

11. MMT analyzes interests not only from the perspective of the public accounts, but from that of the economy. From this angle, they are seen as contributing to the public deficit, albeit in a socially regressive way, because only benefiting the rentiers.

12. If interest is to be seen as a burden, it should be not from a financial perspective, but as a societal burden (social justice), as it only benefits those who have already money.

13. It is important to understand that if interest increases, it is because the ECB decides to let it increase. Interest rates are completely under the control of the ECB. These are political choices.

14. Draghi's Whatever it takes in 2012, as well as the situation that has prevailed since the start of the covid crisis are sufficiently eloquent as to the fact that the level of interest rates is fundamentally a political variable.

15. Neither the level of public debt nor that of interest constrains the fiscal space of States. Indeed, the ECB can decide, when it wants, whatever the level of indebtedness of a country, that this country can continue to spend, or must default.

16. With regard to Greece:
- 2010: Public debt problem with a ratio/GDP of 130%
- Today: no public debt problem with a ratio of more than 200%
The sustainability of public debt is not an economic issue, but a political one, in the hands of the ECB.

17. The financial markets are only at work if the ECB decides so, letting them. Thus, all the rhetoric that the Eurozone Member States' ability to spend depends on the mood of the financial markets is unfounded.

18. No scientific publication has ever been able to demonstrate a causal link between a country's level of public debt in its currency and fiscal space. It is only a view of the mind, without any concrete basis, and/or the expression of an ideology in favor of austerity.

19. Some economists have tried it, notably Reinhart and Rogoff, with the ridiculousness that we know, because of an error in their calculation sheet, discovered later by a doctoral student...

20. There is therefore no “straightjacket” or “wall”. Public debt is not synonymous with “cancer”, but with net financial wealth of the private sector. The use of this semantics is only the reflection of a profound ignorance of the system.

21. The public deficit and the public debt should not be perceived as “bads”, because in reality they are absolutely indispensable instruments for achieving the objectives of the real economy, in particular that of full employment.

22. Public debt is not a problem, never, unless we decide that it is... And any attempt to reduce it, whether it is held by private agents or by the ECB, is a logical error, because one does not destroy something which does not pose a problem.

@threadreaderapp unroll, please.