Daily Archives: December 30, 2012

Functional Finance and the Debt Ratio—Part I

By Scott Fullwiler

[…] [Part 2] [Part 3] [Part 4] [Part 5]

This five part series will explore at length (warning!) and in detail (another warning—wonk alert!) the MMT perspective on the debt ratio and fiscal sustainability.  While the approach suggests a macroeconomic policy mix and strategies for both fiscal and monetary policies that most neoclassical economists currently believe are unsustainable, ultimately the MMT preference for a significant role for fiscal policy in macroeconomic stabilization is shown to be consistent with traditional neoclassical views on fiscal sustainability.

This first part defines the correct measure of the national debt and then looks at the mathematics of debt service and the debt ratio. Continue reading