AusMMTFeb 29, 2024

Introducing #Sectoral Balances

Think of the economy as having different buckets where money flows in and out. In the context of MMT, we often talk about three main buckets: the government sector, the #private domestic sector (which includes households and businesses), and the #foreign sector (which includes all transactions with people and businesses outside of the country). #MMT

Show threadAusMMTFeb 29, 2024
Now, if we focus on a sovereign currency #issuer, like Australia, the government has its own bucket where it can put in as much of its own currency as it likes because it creates the currency. When the #government #spends, it is like adding water to the economy's pool. 🏊
Show threadAusMMTMar 6, 2024
Imagine the #economy as a game where there are different players. Some players can #create points out of thin air (sovereign currency issuers), and others have to #earn points by playing the game (currency users).
Show threadAusMMTMar 6, 2024
Sovereign currency #issuers are like the game masters who can create points whenever they want. They don't need to #earn points by playing because they can just #generate them.
Show threadAusMMTMar 6, 2024

This is like countries such as Australia or the United States, which issue their own currencies.

They can always create more money to pay for things like #healthcare, #education, or #infrastructure.

Currency users, on the other hand, are like the players in the game. They have to earn points by completing tasks or trading with other players. They can't create points on their own. #mmt

Show threadAusMMTMar 8, 2024
This is like #households, #businesses, and even some countries that use a currency they don't control, such as the nations in the #Eurozone or countries that use the US dollar like Ecuador.
Show threadAusMMTMar 8, 2024
In the game, if a player spends more points than they have, they go into #debt and might eventually run out of points. But the game master can never run out because they can always #create more points.
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However, the game master has to be careful not to create too many points too quickly, or the points might become less valuable. This is similar to how a #government must be careful not to create too much money too quickly. it could lead to #inflation in a variety of ways. We will get to that later.
Mar 8, 2024 at 12:21amWeb
Show threadAusMMTMar 8, 2024
In #MMT, we say that the #government should use its power to create money to make sure #everyone in the game can play as effectively as possible.
Show threadAusMMTMar 8, 2024
This means using #money creation to ensure there are enough #jobs and #resources for the players, rather than worrying about having too many or too few points in the game master's bucket.
Show threadAusMMTMar 8, 2024

So, the key takeaway is that sovereign currency #issuers have a special ability to create #money and use it to manage the economy, while currency #users have to work within the limits of the money they can obtain.

This #difference is crucial when we think about how #governments should handle their #finances compared to #households or #businesses. #MMT