Sovereign Currency Issuers Are Always Solvent

By Joseph Hykan

Another great video developed for Eric Tymgoine’s modern money course.

23 responses to “Sovereign Currency Issuers Are Always Solvent

  1. Thomas Bergbusch

    I’m sure I am making mistake — I can see no link to the video itself (if I click on the link above, I get Prof. Tymoigne’s course list; if I click on his name I get his professional website; if I click on his blog I am directed back to New Economic Perspectives, if I click on the Modern Money course link I get the course syllabus). Where is the video? Obviously I am missing something.

    • @TB: You can click on the “play button” in the video -OR- hover over the top left of the video frame, and when the video title appears (“No budget constraint”), click on it. This will cause the video to open up in a new browser window/tab. If you’re not seeing the video frame inline, it means you don’t have Flash enabled in your browser.

  2. Dan Kervick

    Excellent video. Nice, patient clear exposition – and the section on Fed-Treasury interaction is especially useful.

  3. RoswellJohn

    Could these be published on YouTube? It would be wonderful if they went viral. Maybe in other languages too! Like Greek, Italian, Spanish, Icelandic, Portuguese, French and German?

  4. Samuel Conner

    I think that it might be useful to have a video with a graphical illustration
    of what happens when Treasury spends, illustrating your point that UST
    spending is via electronic crediting of accounts without the prior necessity
    of having taxed or borrowed. This is an assertion of the current video that is
    likely to be received with disbelief or incomprehension.

    • Samuel Conner

      Specifically, showing the various transactions that MMT researchers
      have documented in their researches into the details of the operations of
      the US monetary sovereign. There is a post in the MMT primer that
      discusses this at an intermediate level of detail. An accessible explication
      of this might be helpful.

  5. Keith Harrington

    I don’t know that this video really helps make this material more accessible or enjoyable. It’s actually just kind of distracting since they talk like robots.

  6. I give it a B- , mainly for effort.

    In its favor, yes, it explains the fact of penultimate importance, that there is such a thing as monetary sovereignty, and also that every sovereign nation, even Garistan(sp.), has the power to issue its currency as it sees fit, so that it is born capable of not only avoiding insolvency, but employing its people.
    There IS a Money System Common.

    On the other hand there is the pretense of what monetary sovereignty actually IS. And from that pretense, there is the mis-statement of how the Treasury interacts with and affects the nation’s supply of money.

    I know its complicated, but…….

    By the definitions of sovereign and sovereignty, a government that is monetarily sovereign is a government that has a supreme, unlimited, absolute, independent political power over its monetary system and therefrom its currency.

    So Garistan and the USA on day one ARE and will always be monetarily sovereign. As are France and Greece.
    Nothing in the MMT bibles will ever change that.
    MMT, in its search for a defining term of a clear set of conditions that it says frees government from a myriad of self-imposed constraints, has decided to call that set of conditions “monetary sovereignty”.

    But the clear political economic fact is that EVERY one of the actions that constrain the operation of the national monetary system from meeting the needs of the people ARE acts of the sovereign.
    The gold standard.
    Pegging exchange rates.
    Limiting public money creation.
    The GBC.
    The EMU.
    Garistan and the USA can do all of those, as they ARE sovereign in their money.
    These are acts of a monetarily sovereign government.
    The governments remain monetarily sovereign despite these acts.
    The government, being sovereign, has the curative power to reverse each and every one of those acts, and undoubtedly, at some point, it will.

    Secondly, it is incorrect to say that the government spends by issuing its own currency.
    While I think the more descriptive term, were it correct, would be to say that the government creates money by spending, neither of them are true, and cannot be shown to be true.
    Except maybe theoretically.

    I’ve asked every MMTer I know to show me the guy in Treasury who agrees that the Treasury is not prevented by statute and regulation from spending money that it does not have in the TGA. Now, it may be true that this is a travesty for a sovereign government, to disempower its people from enabling a properly functioning monetary system, but it is nonetheless the law of the land.
    As long as it IS the law of the land, it CANNOT be true that the government spends BY printing or creating money, or that the government creates or prints money BY spending. Government collects Trillions from private checking accounts and pays Trillions into private checking accounts.

    In fact, government creates none of the supply of money in the national monetary system except the coins, functional finance notwithstanding.

    In reality, the private banks have been empowered, in the government’s largest abrogation of sovereignty, to create all the nation’s money by issuing debts to private persons.
    I don’t understand why MMT does not engage that reality.
    For the Money System Common.

    • Eric Tymoigne

      Yes it is true that a government decides to be an issuer or user of currency so in that sense it is monetary sovereign, but that is not the definition used by MMT: monetary sovereignty is about being the issuer of a currency (non conv, non-pegged, etc.). Government can choose to be or not to be a monetary sovereign.
      Regarding the Treasury having funding constraints, this is addressed in the video. Treasury indeed does have funding constraint and cannot issue currency (well it can, it just decides not to: we have coins indeed, but not too long ago there were also United States notes) but there are two points here. One, central bank and Treasury always bypass self-imposed constraints when they are too bothersome. Two, Treasury and CB interactions now go through banks as stated in the video. How this is done is not addressed in details but this goes through OMO: T-bond issuance drains reserves so reserves have to be provided to maintain FFR on target.

      • Eric

        I understand that MMT uses its own definition of monetary sovereignty. That self-defined sovereignty describes what John B. Goodman, author of Monetary Sovereignty: The Politics of Banking in Central Europe describes more correctly as “monetary autonomy”. My point here is that a government cannot choose to be or not be monetarily sovereign, but can choose at any time to be autonomous in operating its money system.

        The second point is more fundamental. Having the private bankers issue all of the nation’s circulating media is not merely about Treasury – CB interactions going through those banks. It is more directly a contradiction of the basic claim made in the video, that the government “spends” by creating money, or vice-versa.

        Either the private banks create the circulating media as a private debt at issuance, or the government creates the money, debt-free via public spending. MMT not only avoids any distinction, but joins the two in a way that obscures the reform path that is needed.

        I have been hoping for several years to have the intelligent, progressive and public-purposed MMT authors address REALLY having government control the national money system by creating the money via spending as a permanent exchange media without the issuance of debt.
        For the Money System Common

        • Eric Tymoigne

          Hey Joe

          Ok in your sense of monetary sovereignty indeed you are correct. We just need to remind ourselves that we define it differently: MMT monetary sovereignty = MSC monetary autonomy.
          Regarding the second point, yes everything works through banks indeed. When treasury spends it does leads to the crediting of bank accounts in the private sector (liability side of banks) and to the crediting of reserves at banks (asset side of banks). This is true no matter what the funding constraints are, and all this is done mostly electronically (no printing). Taxes do the reverse. Bond issuance change the mix of reserve and bond (work purely on the asset side of banks).
          The CB offsets the impact of G and T on reserves through OMOs with T-bonds. It does this because of a self-imposed constraint (CB cannot grant advance to T).


          • Eric
            The question remains why MMT describes what IS monetary autonomy as monetary sovereignty. MMT fixes upon post-gold-exchange money operations and the fact that EMU countries separated from ‘something’ when they adopted the common currency for their debts in place of national monetary units.
            MMT’s “sense” of what happened is they gave up sovereignty. When they take back their national money, it will be because they have remained monetarily ‘sovereign’ throughout, a condition that is not situational in nature. Nations ARE monetarily sovereign.

            Regarding the second point, a very significant matter for people trying to understand MMT is who creates the money, how, and why, and how those factors affect our ability to cure the ills of our society. Any dialogue about the money system is political-economic in nature, and not merely a functional accounting, discussion.
            Either the government spends by creating money (creates money by spending), or it doesn’t. Treasury – CB operations are only important if they determine that point.
            Taxation in excess of spending is an excellent money-supply management tool. Purposeful spending in excess of taxation does the reverse, as proposed by Congressman Kucinich, providing increased exchange media to accommodate growth in demand.
            Providing more exchange media is creating money, a true governmental function.
            But today, the only impact on the money supply from government spending is the temporary balances in the TGA account. Today, government spending, unfortunately, does not create money.


  7. I think that you will find that the creation of money by private banks is the main focus of MMT’ers (please read Steve Keen), there was a blazing row between keen and krugman about this a few weeks ago -how did you miss that one?????
    I really don’t understand how you can discuss MMT without nowing this really basic fact.

  8. On review of the video I liked the previous one better, mainly because there were scene changes so this conversation whilst standing for 10 minutes in a home does come across as monotonous despite the factual exchange.

  9. While MMR is correct that banks dont care about public purpose, its really a dirty little secret.

    I’d love to see what would happen if Dimon, Blankfein and co were to stand up on television and say;” Hey, US citizens! Listen up! We control the money in this country for OUR purposes. Its about us making huge profits off the activities going on world wide. None of this stuff would be happening without us, so we think we deserve this! Stop whining about public purpose…… THERE ISNT ANY PUBLIC PURPOSE!! Now go to bed and get a good night sleep. Your bosses are expecting you to show up ready to produce tomorrow. If you dont they’ll find someone else! Good night!”

  10. Pingback: Yes, sovereign currency issuers can always be ‘solvent’ – but don’t be so damned blasé about it | the ecoptimist