Modern Money Theory – Part 1 – Not a Theory, It’s a Description

BRADFROMSALEM

We all know that the US collects taxes and then uses those tax dollars to pay for whatever expenditures the US has. We also know that for nearly every single year of this nation’s existence, the taxes, tariffs, fines and fees collected were not enough to pay for those expenses, so the US borrowed money by issuing Treasury notes, to cover the difference. That is the annual deficit. Of course the deficit borrowing gets paid back with interest from taxes, tariffs, fines and fees [TTF&F] or new borrowing as each Treasury note matures.

All pretty well known and nearly universally accepted. Except, it does not represent fiscal reality. That reality is neatly described in an economic philosophy called “Modern Money Theory” [MMT] which posits that since all US Dollars originate from the US government (a legal fact, try to print your own US Dollars!) and all TTF&F must be paid in those same US Dollars. Then as those dollars come back to the Treasury where they were first created, each one of those dollars are effectively destroyed. That means that every dollar spent by the US is created by the Federal Reserve, an agency that was created for that purpose. The amount of money it creates is not in any manner solely dependent upon any part of the TTF&F collected. I suggest obtaining J.D. Alt’s book on Amazon that explains how this all works with simple language and drawings of bathtubs and other plumbing artifacts by clicking here.

But even though the US does not need your tax money to pay its expenditures, it still must collect taxes. In fact there are 5 reasons it needs to levy and collect taxes. I will cover those 4 of those reasons in a blog to be published in the next day or two, followed by a blog covering the 5th reason a day or two after that.

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3 thoughts on “Modern Money Theory – Part 1 – Not a Theory, It’s a Description

    1. This is not a Liberal vs. Conservative issue. There is a spreading of awareness of MMT, it’s power needs to be understood by everyone. Both Liberals and Conservatives want to constrain spending to taxes; MMT exposes that myth.

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  1. Pingback: MMT Discussion – Part 2 – Lessen the Burden on Taxes – Radically Sane and Rational

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