Economics

While the usual assumption is that current account deficits lead more-or-less directly to currency depreciation, the evidence for this effect is not clear-cut. Implications of this depend on the currency regime. According to the well-known…

The US can run budget deficits that help to fuel current account deficits without worry about government or national insolvency precisely because the rest of the world wants Dollars. But surely that cannot be true of any other nation.…

It is beginning to look like a Greek exit is ever more likely, which means that the end of the EMU could be near. Even if exits and a break-up are not inevitable, countries should have a plan on the shelf. It is clear that Germany is…

when government deficit spends, some of the claims on government will end up in the hands of foreigners. Does this matter?

This post is intended to be a hopefully brief synopsis of how the monetary system works using an Austrian framing with MMT terminology. If you don’t know what that means, you’ll see what I mean as I proceed. MMTers like to say that money…

Last week we showed that government deficits lead to an equivalent amount of nongovernment savings. The nongovernment savings created will be held in claims on government. Normally, the nongovernment sector prefers to hold that much of that…

Recipients of government spending can hold receipts in the form of a bank deposit, can withdraw cash, or can use the deposit to spend on goods, services, or assets. In the first case, no further portfolio effects occur. In the second case,…

Each time the treasury spends or taxes, a complex series of steps is required that involve the treasury, the central bank and private banks. The central bank and the treasury develop such procedures to ensure that government is able to…

Paul Davidson argues that a theory is the way humans describe real world observations on the basis of a model that starts with a few axioms. An axiom is an assumption accepted as a universal truth that does not need to be proved. From this…

My friend Rob Parenteau doesn’t think it will. His argument against it is similar to the one I have been making about the origins of this crisis. Here’s what I said.