He is doing video on MMT pog.The video is great. However, it skips one point that is balance of payments. There are Global south countries like Pakistan, India, South Africa etc which have their own currencies but they are limited by colonialism/imperialism. They can’t raise deficit because doing so would result in speculative attacks against their currencies and bond rating downgrades by western credit rating agencies (the same ones who were responsible for 2008) which makes it difficult for these countries to borrow foreign exchange (mainly dollars) from international markets. U.S. is in a special position because of the dominance of the dollar as the reserve currency, it doesn’t have to worry about balance of payment and as everyone else uses the dollar, there are no such problems. However, America is a shithole and it still doesn’t do basic shit.
This is why reducing import dependence and obtaining modern tech is so important for the third world.
That said I love his focus on real resources as what determines a country’s capabilities.
Don’t forget the influence of the petrodollar. Everyone uses the dollar not necessarily because they want to, but because the US has taken actions to ensure that oil can only be traded in dollars. This is part of why BRICS is seen as such a threat to US hegemony. If Saudi Arabia, Russia, and China are all agreeing to trade oil in something other than dollars, then suddenly the solvency of all of the economies of the world are far less reliant on the solvency of the dollar itself.
Yes & yes & yes. To understand the international aspects, my go-to is Michael Hudson.
Yeah look at what happened to Zimbabwe when they tried to print more money. The currency got devalued to the extreme, people’s entire pensions could only buy a carton of eggs.
Usually countries only print a shit ton of money like the way Zimbabwe did when they are forced to because of internal instability or currency speculation attacks. Sri Lanka was forced to do the same last year when its forex reserves were almost completely depleted. They couldn’t borrow dollars from IMF because IMF likes when global south suffers (easier to control when the country is weaker) and to pay for essential expenses, it was forced to print currency (without issuing any bonds).
If Global south countries want to attain greater currency sovereignty, they’ll need to reduce import dependence and partially decouple from the capitalist markets.
There are other ways to do trade as well. USSR had a local currency settlement system with its allies like India where trade is done at fixed exchange rate set by a deal. This has some problems if trade balance is constantly skewed towards one side. However, as USSR had a giant economy, this wasn’t much of a problem.
Yeah, I’be been saying this since before Covid. During trumps trade war on China, there was a massive increase in monetary supply. The government was printing money like crazy, but there wasn’t any increase in inflation.
I didn’t know there was already a theory behind it. But I kind of figured I shouldn’t be the only one to have figured this out.
Something did inflate, actually: the price of assets, meaning stocks, bonds, real estate. In other words, the rich got richer.
Technically true, but it would have inflated a lot faster if not for the trade war. There was also an adjustment 4Q2018 because there was no deal with China and things would have escalated the next year. When the next year came around, the US capitulated because businesses were losing too much profit.
Typically socialist governments are much more resilient against recessions, so a fair economic attack was never winnable anyways, especially on a country that’s mainly self-reliant. The Soviet Union was doing well during the 1930’s Great Depression as well.
I tried to explain this in Gov class last year and the teacher was just like “well, that’s too complicated for everyone to understand, let’s just pretend taxes pay for stuff.”
You know who drives me up a wall in that regard? Richard Wolff of Democracy at Work. I suspect he actually knows what’s up, but refuses to stop talking about [federal] taxes that way. Maybe he finds it to be rhetorically useful, but I think he’s
hisunderestimating his audience and doing them a deep disservice.
Governments with monetary sovereignty, anyway. Eurozone countries are S.O.L.
Great video, I learned a lot. But I’m confused about taxes now, I don’t really understand why they are needed if a government can just make all the money it needs. Can someone explain like I’m a dumb baby?
Taxes exist to give value to money. Basically, when a government prints money, that piece of paper has no inherent value. You can conduct your business in seashells if you so decide.
However, at the end of the year, you’re going to want to convert your seashells into your government’s currency in order to pay your taxes. And that is what gives the currency value. The amount that is taxed depends on how much liquidity there is in the economy. If there’s too much money around, higher taxes would reduce that.
This is a fairly poor explanation of how it is, you could read “Macroeconomics” by Mitchell, Watts and Wray for a more in-depth explanation including historical examples using “sticks” for taxes.
Thanks, I’ll add that book to my reading list.
Taxes are imposed by the central authority on the working population to get them to start working and producing real, tangible goods and services, which generates the value of the currency.
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As far as I understand, taxes are used to finance services that capitalists refuse to provide, but more importantly, taxation is used to I think limit the supply of money. The government can print all the money it wants and nothing is inherently wrong, but that would devalue the currency. Be aware that I could be totally wrong.
taxes are used to finance services
I don’t think this part is the case, as explained in this video and in the 1Dime videos in this video’s description.
Money is necessarily created by the government to finance goods & services first, otherwise there’d be no money to collect via taxes from those who the government (directly or indirectly) pays to provide said goods & services. There is no money except that which the government 1) creates itself or 2) creates through the private banks it deputizes to create money through the writing of loans (which always create them as a 1:1 credit-to-debt).
They maintain demand for the currency. We can’t pay our taxes with anything but fiat. Bastards wouldn’t take my dozen head of cattle 😢
They also tax to manage inflation and wealth inequality.
As long as others believe that you have credit, your money will not run out.
Countries that possess monetsry sovereignty can always print their own currency. But I do agree that the currency will be deemed undesirable if it’s not backed by the sufficient quanity and quality of goods and services.
Theoretically, yes, but there is a country that can force others to accept it by military means
JT MMT Find out what it means to me
This really only applies to countries that can exert their will on the global economy. If a country like Venezuela, South Africa, etc tries to just print money, their currency will be devalued and become worthless. Zimbabwe is probably a good modern example of this.
I don’t think that’s entirely accurate, but I’m not knowledgeable enough to address it directly. Instead I’ll quote from Michael Hudson’s book J is for Junk Economics.
Hyperinflation:
Nearly all hyperinflations have stemmed from trying to pay foreign-currency debts far beyond an economy’s ability to earn enough foreign exchange by exporting (see Balance of Payments). (An exception is the case invoked by today’s budget-deficit scaremongers: Zimbabwe’s practice of simply printing domestic money without taxing it back.)
John Stuart Mill explained in 1844 how paying foreign debt service (or military spending as occurred during Britain’s Napoleonic Wars) depreciates the currency. This makes imports more expensive and increases the debt burden as measured in gold or “hard currencies” against domestic currency.
After World War I, Germany was obliged to pay reparations beyond its ability to export. The Reichsbank simply printed marks to sell on foreign exchange markets to obtain the dollars, sterling and other currencies needed to pay the Allies. The plunging exchange rate that ensued raised the price of imports, and hence domestic price levels.
This phenomenon later became a chronic condition for Third World debtors, most notoriously in the hyperinflations of Chile and Argentina to pay for their trade deficits and ensuing foreign debt treadmill. The resulting currency depreciation invariably involves paying extractive foreign debt, not spending public money for domestic social programs or to increase employment. (See Implanted Memory and Inflation.)
Hyperinflation can be stopped by new borrowing (as in the case of U.S. loans to German municipalities in the 1920s and Third World bond-buying in the 1970s), but the cure ultimately requires a Clean Slate to write down debts that exceed an economy’s ability to pay. That is what occurred in 1931 with the moratorium on German reparations and inter-ally debts, and again with Argentina’s default in 2002 and subsequent debt write-downs.
I’ll add that, if a country has relatively self-sufficient domestic production to provide for its own people, then I don’t think foreign exchange rates would be so impactful.
So while it is true that you can’t simply print infinite money (without taxing that money back out of the system), it is so regardless of how large & powerful a country is.
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