Comments on: If the U.S. stopped issuing treasuries, would it go broke?

By: Anonymous

Anonymous — Thu, 19 Nov 2009 22:56:00 +0000

Thanks Edward. No, I do not think you are missing anything. When you submit your 10 pound note to the queen for redemption she will either hand you another 10 pound note, or if you prefer she will reduce your tax liability to her by 10 pounds. I would emphasize the second as the more important–that is what “drives” modern monies. Legal tender laws (requiring the private sector to accept govt notes in private transactions) is nothing but a “pious hope” in the words of Knapp. That is why Euroland does not ever bother with them. So long as Eurogovts accept euro notes in payment of taxes, that will drive them without legal tender laws.

By: dansecrest

dansecrest — Thu, 19 Nov 2009 22:32:00 +0000

I’ve been intrigued with this Chartalist perspective ever since I first ran across it a month or two ago, possibly via a reference from this site. I don’t have anything to add right now, other than I appreciate your attention to this perspective…

By: everson

everson — Thu, 19 Nov 2009 20:52:00 +0000

So from a technical, how the system works, point of view this is correct. The question I have for the MMT crowd is how would all of the market participants who do not believe in MMT react to this? Since the non-believers are the majority I suspect it would end poorly.

By: hbl

hbl — Thu, 19 Nov 2009 18:57:00 +0000

That’s the gist of it, I think (i.e., government bonds and reserves are all just financial assets, with the bond uses you mentioned). Bill Mitchell (another modern money theory blogger for those not aware) covers this frequently and suggests if he were running Japan’s policy the last two decades he wouldn’t have bothered with much bond issuance. Of course the other interesting MMT observation is that opting for more reserves vs bonds (e.g., via QE) is net *deflationary* since it deprives the non-government sector of that extra interest income!