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Money From Nothing and your MMT

Modelling how the Treasury of a money-issuing government can kick start an economy from zero by running a deficit--spending more than it taxes--selling bonds to the banks, which the banks buy using the reserves created, and paying interest on the bonds, while borrowing from the central bank to cover the interest payments on the bonds--and these interest payments create positive equity for the banking sector.

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Modelling how the Treasury of a money-issuing government can kick start an economy from zero by running a deficit--spending more than it taxes--selling bonds to the banks, which the banks buy using the reserves created, and paying interest on the bonds, while borrowing from the central bank to cover the interest payments on the bonds--and these interest payments create positive equity for the banking sector.
Steve Keen
Steve Keen (born 28 March 1953) is an Australian-born, British-based economist and author. He considers himself a post-Keynesian, criticising neoclassical economics as inconsistent, unscientific and empirically unsupported. The major influences on Keen's thinking about economics include John Maynard Keynes, Karl Marx, Hyman Minsky, Piero Sraffa, Augusto Graziani, Joseph Alois Schumpeter, Thorstein Veblen, and François Quesnay.


  1. I can see how the numbers workout but where does the actual stuff come from?

    Like cars, buildings, etc., food.

    • In these models a macro production function is written, like Leonteif. The purpose of these model is to obtain qualitative macroeconomic dynamics, not to forecast how much corn or steel will be produced. So the real output is nominal. We are only looking at the balance sheets. So you are free to imagine what type of goods or investments have been made given a balance sheet for C and I for each sector, the composition of these are political, social and culturally determined.

      A macro model has to be robust (insensitive) to changing the composition of goods, but sensitive to the ratio C/I obviously.

      So if you were modelling an predominantly agricultural country you would take Y(t) to be composed mainly of food stuffs, but not so for an major oil producer. With similar numbers and a similar Y(t) (so GDP roughly, less imputed income from rents and non-productive goods) you would assume roughly the same ratios of goods grow or scale with Y(t) but we are not aiming to predict what the exact composition of goods will be, since business cycles and the seasons create natural fluctuations of course (there are no stable equilibria). So you would not be using Keen's Goodwin-Minsky models for forecasting particular commodity prices.

    • The point of MMT is that money is not being made based off of real physical assets, but out of thin air, to then buy and make goods and services. The magic trick happens first. To be fair, this would not be possible in an economy or state that has no credibility, whether national or global, such as failed states or particularly impoverished developing countries. MMT works in the West because these governments hold soft and hard power that provide some sort of "credibility" and trust, and from that create the most sophisticated pump and dump the world has ever seen. This is how the US (+UK and EU to a lesser degree) have taken their military strength and other forms of global influence (usually in the form of remnants from previous colonisation and imperialism) and used it as the backbone for MMT.

    • Not sure you can make those assumptions in your closing remarks. A country with assets such as gold or silver can have money without government creating it. Seems like a jump in logic to assume there are no other approaches that result in a similar outcome.

    • @James C yes but at some point the people stop making the stuff and all work in finance.

    • @Adrian Goris currently happening. Also consider that making stuff is terribly bad for the environment while debt and debt growth is close to carbon neutral. Some good hints are offered in the latest climate agreement as to what their plan is.

  2. Ey you took my advice and added assets, good for u. Still need some currency exchange if it's going to apply to any country other than USA…but your getting closer.

  3. Where is Venezuela'a situation depicted in this model? How would they salvage their current monetary situation using these principles? How does the modeling account for a complete collapse in confidence of Government fiat currency? Who would purchase a Venezuelan bond?

    • V has very little to no monetary soveregnty, they have current account deficit and cannot produce the basic items of the economy (food, fuel, medicine). MMT is a model that explains economies with monetary soveregnty, and suggests the developing economies to achieve their soveregnty. There no such thing as "confidence in fiat" in MMT perspective, confidence is coming from monetarism perspective that believes the currency has value bc users believe it has! MMT says the currency is used bc the gov imposes tax on it, so you cannot tell the gov i dont believe in your money and i dont pay my tax! About bonds, it is a tool to support the interest rate, it is a swap of bank reserves with another digital financial wealth, it has nothing to do w the gov capability to spend.
      MMT advicates true full employment with a JG program, and states the limit of spending is inflation, V under heavy sanctions, negative current account, and with 50% unemployment is not a case to refute MMT, but a case to get help from MMT

  4. MMT work because the US military says so, should they fail then MMT will be an Emperor with no clothes period. Unfortunately for anyone holding "their" debt when that happens will lose all of the assets they though they owned. Johan von Goethe had it right with this, "I revere mathematics but I cannot approve the desire to use it to abuse in areas outside its domain where this noble science seems absurd. As if there existed only that which could be demonstrated mathematically!"

    • @Shaahin I take it that you are one of those that hasn't noticed the plane in Kabul was a carnival float that didn't have windows but representations painted on in black paint. Its all an illusion, the "ONLY" real money is human energy and you have been duped. PERIOD !

    • @gibbo675 this is why MMT puts the true understanding the money in the center of its explanations. Def the ultimate issue is conversion of the fiat money to actual goods and services, as once Greenspan stated in the senate. Gov can hire directly and indirectly the real resources to produce the "real wealth". MMT differentiates real from financial wealth. And if you in US is now enjoying coming out of the pandemic recession is bc of gov spending, the lack of such spending caused US economy to remain in recession from 2009 to 2015.

      Fiat money can put the real resources at work, it is not the work itself, it is not a real wealth itself

    • @Shaahin Look at my avatar, you are the "little man" running along side the carriage, I'm not even in the picture. You and millions of others have been duped, stop arguing and open your eyes. The windows on the plane in Kabul are not glass they are painted on it is there to see !!!!

    • @gibbo675 why are you so sore and salty?
      I explained you the MMT perspective, and highlighted where you were wrong. You can think about it, and formulate counter-arguments based on the real world, not nonsensical metaphors and illusions. But you got angrier and saltier. I guess it is bc of having no counter-argument against a sound explanation, but still this is awful for you. It makes you pathetic.

    • @Shaahin I know full well how MMT works, I looked into many years ago along with all sorts of other monetary systems that all contrive to enslave YOU and millions of other gullible souls. Religion is just the same, its all black magic mumbo jumbo wrapped in fancy words designed to bamboozle and confuse, that is all. The arguments I have provided are philosophical and yet you don't seem to have noticed, unfortunately that is the only PATHOS in our exchanges so far !!!
      Good day sir, and do enjoy the rest of your life.

  5. Fascinating. How can we get this software? I'd like to model an economy based on pure private debt growth and spending on services and imported goods, all attached to asset inflation.

  6. गंगेश उपाध्याय

    Government puting money in people's bank account, if consider GDP then this is much more fundamental error to what the GDP is. this way we can make GDP infinity and everyone should have lot to consume but it is not the case. economy is going down the drain.

    • There is a limit to spending, and it is based on the real resources of the economy. In advanced capitalist economies, the production is constrained by the aggregate demand, i.e. the system underperforms bc of lack of enough demand, so gov spending can put the idle resources at work. This happened by Trump’s tax cut – the part related to income tax cut, not corporate-, happened under Biden relief packages, and many other historical cases. So as far as there is idle capacity, there is room to spend.

      So nominal gdp can increase unboundedly, but the real gdp doesnt, and MMT recognizes that.

  7. Thank you for the video! Always interesting to see these models. Now I do have a few questions regarding this topic hoping somebody could offer some ideas 🙂

    Where does QE fit in this model? Somebody suggested to consolidate the central bank (QE) balance sheet with Treasury's and add/transform it into government debt. Would that make sense to do, would it be chaos? Doing so would probably require large political action, lets forget about feasibility (LOL) but if we focus on just the financial point of view..?

    • As far as I know, QE is expansion of bank reserves, to keep interest rate super low, in the hope of increasing the number/amount of loans/ in the hope of increasing spending in a recessed economy. And it doesnt work, bc you cannot force people to get a loan and spend. MMT advocates direct spending especially via JG program to stabilize the economy.

    • Government creates reserves and deposits in the banking system by making payments – enabled by the central bank in its role of ensuring the payment system clears efficiently and effectively at its target interest rate. The banks and deposit holders use those reserves and deposits to buy bonds from government. The central bank then buys the bonds back from the banks and deposit holders restoring the reserves and deposits that were there in the first place. 

      It's a silly dance based upon a belief about how interest rates work that has never been the case.

  8. Prof Keen this is very simple and concise intro to MMT. May I request on CBDC where public can deposit directly at CB. Also please help addressing Lacy Hunt argument on debt as deflation. How CBDC can help taming inflation and avoid the looming deflation due to massive debt. Thank you for making this accessible for non specialist.

  9. When is the version with also the banking system creating bank money 🙂

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