1 Ikus https://www.unibertsitatea.net/blogak/heterodoxia/2015/11/16/aplika-ote-dakioke-dtm-euroguneari-1/.

2 Ikus Friday lay day – Is MMT applicable to the Eurozone?: http://bilbo.economicoutlook.net/blog/?p=32284.

3 Honela segitzen du Mitchell-ek, ingelesez: “It is an eccentric account from a person who has worked within the top echelons of the US financial system and used his sharp mind to get to the bottom of how that system operates.”

4 Izan ere, “MMT draws on a number of previous theoretical approaches – the ‘standing on the shoulder of giants’ – is clearly applicable here.

It is a system of thought that allows us to understand how a fiat currency monetary system operates and the central role that government can play in a modern monetary economy.

Modern monetary economies use money as the unit of account to pay for goods and services. An important notion is that money is a fiat currency, that is, it is convertible only into itself and not legally convertible by government into gold, for instance, as it was under the gold standard or later versions of the gold standard.

What is mostly ignored in mainstream economic commentary is that in August 1971, the monetary system agreed at the famous Bretton Woods conference in July 1944, which required the central banks of participating nations to maintain their currencies at agreed fixed rates against the US dollar, collapsed.

The system proved unworkable and when President Nixon abandoned the convertibility of the US dollar into gold, most nations moved to a fiat currency system.”

5 Ingelesez: “Most of Europe did not as the operation of the convoluted Common Agricultural Policy would have become unworkable under a system of floating exchange rates within Europe.

The nations of Europe were in a bind. The long debates on European monetary integration were always distorted by the obsession with maintaining fixed exchange rates among the European economies, despite history and repeated experience, making it evident that such a system could not be easily maintained, given the trading disparities between the mercantilist Germany and the other major European economies.

Various systems after the collapse of the Bretton Woods system were tried in the 1970s and 1980s (for example, the ‘snake’, the EMS) and all largely failed and imparted a recessionary bias to the nations that were running trade deficits.

For those nations that had adopted the fiat currency system and allowed their exchange rates to domestic policy to target domestic outcomes.” (Ikus Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – I provided a detailed analysis of the evolution of the EMU from the end of the Second World War and an appraisal of its performance and possibilities.)

6 Ingelesez: “Within a fiat currency system, the government has the exclusive legal right to issue the particular fiat currency.

Further, given that this money is the only unit which is acceptable for payment of taxes and other financial demands of the government presents the government with a range of options. Mosler’s book eloquently articulates many of these options.”

7 Ingelesez: “We know that the government is not just a ‘large household’. The latter is the user of the currency and must finance its spending beforehand, ex ante, whereas government, the issuer of the currency, necessarily must spend first (credit private bank accounts) before it can subsequently debit private accounts, should it so desire (raising taxes).”

8 Ingelesez: “Clearly, a fiat-currency issuing government is always solvent in terms of its own currency of issue.”

9 Ingelesez: “MMT also teaches us that the purpose of State Money (fiat currency) is to facilitate the movement of real goods and services from the non-government (largely private) sector to the government (public) domain.”

10 Ingelesez: “Government achieves this transfer by first levying a tax, which creates a notional demand for its currency of issue. To obtain funds needed to pay taxes and net save, non-government agents offer real goods and services for sale in exchange for the needed units of the currency. This includes, of-course, the offer of labour by the unemployed. The obvious conclusion is that unemployment occurs when net government spending is too low to accommodate the need to pay taxes and the desire to net save.”

11 Ingelesez: “This analysis also sets the limits on government spending. It is clear that government spending has to be sufficient to allow taxes to be paid. In addition, net government spending is required to meet the private desire to save.”

12 Ingelesez: “If the Government doesn’t spend enough to cover taxes and the non-government sector’s desire to save the manifestation of this deficiency will be unemployment. The basis of this deficiency is at all times inadequate net government spending, given the private spending (saving) decisions in force at any particular time.”

13 Ingelesez: “The ‘Innocent Frauds’ that Warren Mosler identifies are also used in policy debates within the Eurozone to justify, first, the flawed design that was finalised during the Maastricht process, and second, the crippling austerity that has seen millions of people rendered jobless unnecessarily.”

14 Ingelesez: “The neo-liberal policies of deregulation and the demonisation of the use of discretionary fiscal deficits (government spending greater than tax revenue) created the crisis in the first place, and now the same sorts of policies are prolonging it. The current policy approach has institutionalised economic stagnation, widespread retrenchment, and the deterioration of working conditions and retirement pensions.”

15 Ingelesez: “Millions of European workers are now unemployed, youth jobless rates are around 60 per cent in some advanced nations, inequality and poverty rates are rising, and massive daily losses of national income are being endured.

The dramatically high youth unemployment rates will ensure that the damage will span generations and undermine future prosperity as a cohort of jobless youth enter adulthood with no work experience and a growing sense of dislocation from mainstream societal norms.”

16 Ingelesez: “The national government (whether in a federal or non-federal system) has the fiscal authority to spend and tax to regulate overall spending such that the economy can avoid recession. Such a government can never go broke and can always honour its liabilities as long as they are denominated in the currency of issue.”

17 Ingelesez: “The central bank sets the interest rate and works within the national government structure to ensure the currency on issue is sufficient.”

18 Ingelesez: “The exchange rate floats to absorb fluctuations in trade and capital flows.”

19 Ingelesez: “In the earlier years after World War 2, the discussions of economic and monetary union were along the lines that a federal fiscal authority with the capacity to provide public spending buffers to help nations facing asymmetric negative demand shocks would be an essential part of any effective design.”

20 Ingelesez: “The Werner Report of 1970 deemed the development of this federal capacity to be essential to the success of any plans to move to a common currency.”

21 Ingelesez: “The conclusion of the 1977 MacDougall Report was that the state of European politics, especially the unwillingness of France and Germany to truly cede their national fiscal capacities to such a federal authority in such ways that the latter could function effectively, was such that an economic and monetary union should not proceed.”

22 Ingelesez: “It was not until the onset and emerging dominance of University of Chicago-style Monetarism that the debate on European integration veered off onto its disastrous course marked, initially, by the passing of the Single European Act in 1986, then the release of the Delors Report in 1989, which paved the way for the Maastricht Treaty in 1992.”

23 Ingelesez: “The surge in Monetarist thought within macroeconomics in the 1970s, first within the academy, then in policy making and central banking domains, quickly morphed into an insular Groupthink, which trapped policy makers in the thrall of the self regulating, free market myth.”

24 Ingelesez: “Keynesian-type policies, which empowered government to stimulate domestic demand and reduce unemployment were inconsistent with the rigid European Monetary System (EMS) which was dominated by the mercantilist policies of Germany. Accordingly, the nations like France had to engineer on-going domestic recession to maintain the agreed exchange rate parities.”

25 Ingelesez: “By the time Maastricht came along, the European debate was firmly aligned with the inflation-obsessed German position that strict fiscal rules were necessary to reign in the freedom of the individual nations.”

26 Ingelesez: “So while the EMU created a system-wide European Central Bank, that sets the interest rate and can issue the currency without limit, the design eschewed the creation of a federal fiscal capacity, principally as an ideological expression of the growing disdain for government fiscal interventions.”

27 Ingelesez: “The national governments not only surrendered their currency sovereignty and now use a foreign currency (the euro) but also accepted the harsh fiscal rules which constrain them from responding in an effective way to a major economic crisis.”

28 Ingelesez: “The surrender of their own currencies meant that the Member States were now at risk of insolvency and thus dependent on the on-going funding from bond markets should they wish to spend more than their tax revenue.”

29 Ingelesez: “A pure fiat currency nation such as the US is not dependent on the bond markets for funds. It can always access the currency that it issues through appropriate arrangements with its central bank.

The Eurozone nations, cannot access the ECB in this way, because the Treaty deliberately banned any notion of ‘bailouts’ or the direct purchase of the Member State debt by the ECB.”

30 Ingelesez: “So a key source of financial stability and economic prosperity – the capacity of government to use its currency-issuing capacity to advance public welfare – was deliberately denied to the Eurozone Member States by the political process.”

31 Ingelesez: “This denial reflected the dominance of the ‘free market’ Monetarist ideology, which wanted smaller government and less restrictions on the private sector. It reflected a shift away from government for the people to government for capital.”

32 Ingelesez: “The Member States of the Eurozone thus became more like the states in a federation – such as California or New South Wales. They could raise taxes but their spending was limited by their revenue and the fiscal rules that were introduced.”

33 Honela segitzen du Mitchell-ek, ingelesez: “In the Eurozone, the concept of internal devaluation entered the narrative, which is the other way that external imbalances can be dealt with in theory. So a nation that wants to lift is export competitiveness can either allow its exchange rate to depreciate (as in Australia or the US) or cut wages and prices domestically with a fixed exchange rate.

The former mechanism is not without costs but promotes a boost to exports and internal dynamics that are usually beneficial (for example, import substitution). How much adjustment exchange rate movements offer is a matter of debate but they are typically more effective than attempting to lift competitiveness through austerity and harsh cuts to wages and working conditions.

That approach can reasonably be seen to be a ‘race-to-the-bottom’ as it fosters a low-wage-low-productivity mentality which undermines future prosperity.”

34 Mitchell-ek hauxe gehitzen du: “While the institutional arrangements in the Eurozone are eccentric, spending still creates the incentive to produce and create income, which also leads to employment growth. A shortfall of non-government spending will cause recession unless it is offset by an expansion in net government spending (deficits).

Artificially limiting government deficits opens up the likelihood that the government becomes incapable of offsetting declines in non-government spending.

We have seen that demonstrated throughout the Eurozone.”

35 Ikus https://www.unibertsitatea.net/blogak/heterodoxia/2012/05/21/warren-mosler-en-proposamenak/.