Your lesson on double entry bookkeeping is very much appreciated. Economist Richard Werner used it to explain and verify how bank loans create money that adds to the money supply, disproving the loanable funds theory, et al models.
This explanation gives me a chance to review it several times to better understand how important it is to the money creation process.
Can it also explain in detail how taxes are destroyed upon receipt? I would very much like to understand what happens to all the different types of taxes, fee, etc in the Treasury's General Account Fund at the Federal Reserve. I am not quite sure the explanations offered on the different financial websites are accurate and in accordance with MMT's explanations and proofs.
Looking forward to your next installment and answer to my inquiry.
The "taxes are destroyed upon receipt" trope is MMT's way of characterising that taxes don't fund spending. It also emanates from their failure to develop a tool like Ravel to show the interlocking accounts of different sectors of the economy, which led them to amalgamating the Treasury and Central Bank as "the government", rather than treating them as separate and interacting sectors within the government.
When you separate the Treasury and CB, as I have done here, you can see that taxes (and, when I introduce them in the next installment, revenue from bond sales) are an inflow to the Treasury's account at the CB, without which the account would go massively into overdraft. As MMT says, they don't finance government spending; they instead stop the government's account at the Fed from turning negative.
Good to know. Taxes, then, are still not used for revenue and govt spending, but to prop up the Treasury's acct and prevent an overdraft for them. Kind of a convenient accounting tool for modern day govt bookkeeping?
According to Randall Wray's research, in the old days, the govt burned the taxed back revenue and the govt and the taxpayer were then both redeemed -- govt debt was burned and taxpayer no longer owed taxes.
Like everything that comes out of the TRIGGERnometry Youtube channel, it's staged propaganda. Notwithstanding the tedium, It is necessary to occasionally counter it, but important not to anticipate changing the minds of the propagandists themselves- this will never fail to frustrate. Take heart in the fact that these presentations are largely staged for the entertainment of angry young men who have already fallen victim to the pantheon of right-wing propaganda.
Although interest and defence spending both sit in the low-to-mid single digit percents, creating a "Fergusson's Law" undermines Niall's credibility by bringing into question his judgement in 'playing to the audience' in a place where more intelligent observers might also be watching.
Does anyone remember 'Trigger' from 'Only Fools and Horses'? Presenters Kisin and Foster are a great fit for the archetype- they clearly didn't consider the parallel when they named the channel!
This video also landed in my feed -- from literally the first sentence I knew it was misguided. That said, I did learn some interesting history, particularly about the Rothschild's - but your point the monetary economics is all wrong.
Full disclosure...I'm a trained accountant who used to audit banks, so when I watch your explainers on the mechanics it all makes sense to me. However, I had to endure hundreds, if not thousands of questions before the "penny dropped" and double entry finally made sense. I wonder, is it fair to label those who don't double entry booking ignorant? Chancellor of the Exchequer, for sure. Historian in Ferguson, perhaps. The layman...arguable not. I wonder if the way to get through is by powerful story-telling rather tables and (very simple) equations. A-L-E=0 is so obvious to you and I, however to the man-on-the-street I get the feeling hieroglyphics make just as much sense.
I'm not labelling ordinary people as ignorant William, but the self-professed experts who are unwittingly violating DEB with everything they write.
I agree that the math can look like hieroglyphics to the man in the street. But until the math is built, the experts who get it wrong will have the only mathematical models that are built. Ordinary people weren't stupid to believe the Ptolemaic model of the Universe, but Ptolemaic astronomers were stupid not to look down Galileo's telescope to see that their Heavenly Spheres didn't exist. I think we're at a similar stage with economics.
Keen is right about how new money is created...not the neo-classicals. But thats just the tool. What really needs to be realized and communicated however is what are both the present and the new monetary paradigm concepts. Why? Because #1 paradigms create and enforce the temporal universe realities of the system(s) under analysis and #2 new paradigms resolve the anomalous realities of the present paradigm.
Professor, If a bank loans 100 units to a borrower, why in ravel does the entry for the borrower only show 90 units as the loan amount on the borrower's asset side and 90 units as a deposit on the bank's liability side with the equity side of the balance sheet of the bank @ 10 units and the borrower at -10 units? In other words appears the equity amounts for the bank and the lender appear to be a plug in number so ravel balances both for the bank and the borrower. What am I missing?
You are missing history Greg. That's what initial conditions give you. I made that model as simple as possible by not including interest payments to banks, or spending by banks. Over time, the difference between those two flows generates the ratio shown in the initial conditions.
Your lesson on double entry bookkeeping is very much appreciated. Economist Richard Werner used it to explain and verify how bank loans create money that adds to the money supply, disproving the loanable funds theory, et al models.
This explanation gives me a chance to review it several times to better understand how important it is to the money creation process.
Can it also explain in detail how taxes are destroyed upon receipt? I would very much like to understand what happens to all the different types of taxes, fee, etc in the Treasury's General Account Fund at the Federal Reserve. I am not quite sure the explanations offered on the different financial websites are accurate and in accordance with MMT's explanations and proofs.
Looking forward to your next installment and answer to my inquiry.
Thanks Sandra!
The "taxes are destroyed upon receipt" trope is MMT's way of characterising that taxes don't fund spending. It also emanates from their failure to develop a tool like Ravel to show the interlocking accounts of different sectors of the economy, which led them to amalgamating the Treasury and Central Bank as "the government", rather than treating them as separate and interacting sectors within the government.
When you separate the Treasury and CB, as I have done here, you can see that taxes (and, when I introduce them in the next installment, revenue from bond sales) are an inflow to the Treasury's account at the CB, without which the account would go massively into overdraft. As MMT says, they don't finance government spending; they instead stop the government's account at the Fed from turning negative.
Good to know. Taxes, then, are still not used for revenue and govt spending, but to prop up the Treasury's acct and prevent an overdraft for them. Kind of a convenient accounting tool for modern day govt bookkeeping?
According to Randall Wray's research, in the old days, the govt burned the taxed back revenue and the govt and the taxpayer were then both redeemed -- govt debt was burned and taxpayer no longer owed taxes.
Like everything that comes out of the TRIGGERnometry Youtube channel, it's staged propaganda. Notwithstanding the tedium, It is necessary to occasionally counter it, but important not to anticipate changing the minds of the propagandists themselves- this will never fail to frustrate. Take heart in the fact that these presentations are largely staged for the entertainment of angry young men who have already fallen victim to the pantheon of right-wing propaganda.
Although interest and defence spending both sit in the low-to-mid single digit percents, creating a "Fergusson's Law" undermines Niall's credibility by bringing into question his judgement in 'playing to the audience' in a place where more intelligent observers might also be watching.
Does anyone remember 'Trigger' from 'Only Fools and Horses'? Presenters Kisin and Foster are a great fit for the archetype- they clearly didn't consider the parallel when they named the channel!
This video also landed in my feed -- from literally the first sentence I knew it was misguided. That said, I did learn some interesting history, particularly about the Rothschild's - but your point the monetary economics is all wrong.
Full disclosure...I'm a trained accountant who used to audit banks, so when I watch your explainers on the mechanics it all makes sense to me. However, I had to endure hundreds, if not thousands of questions before the "penny dropped" and double entry finally made sense. I wonder, is it fair to label those who don't double entry booking ignorant? Chancellor of the Exchequer, for sure. Historian in Ferguson, perhaps. The layman...arguable not. I wonder if the way to get through is by powerful story-telling rather tables and (very simple) equations. A-L-E=0 is so obvious to you and I, however to the man-on-the-street I get the feeling hieroglyphics make just as much sense.
I'm not labelling ordinary people as ignorant William, but the self-professed experts who are unwittingly violating DEB with everything they write.
I agree that the math can look like hieroglyphics to the man in the street. But until the math is built, the experts who get it wrong will have the only mathematical models that are built. Ordinary people weren't stupid to believe the Ptolemaic model of the Universe, but Ptolemaic astronomers were stupid not to look down Galileo's telescope to see that their Heavenly Spheres didn't exist. I think we're at a similar stage with economics.
Keen is right about how new money is created...not the neo-classicals. But thats just the tool. What really needs to be realized and communicated however is what are both the present and the new monetary paradigm concepts. Why? Because #1 paradigms create and enforce the temporal universe realities of the system(s) under analysis and #2 new paradigms resolve the anomalous realities of the present paradigm.
Professor, If a bank loans 100 units to a borrower, why in ravel does the entry for the borrower only show 90 units as the loan amount on the borrower's asset side and 90 units as a deposit on the bank's liability side with the equity side of the balance sheet of the bank @ 10 units and the borrower at -10 units? In other words appears the equity amounts for the bank and the lender appear to be a plug in number so ravel balances both for the bank and the borrower. What am I missing?
You are missing history Greg. That's what initial conditions give you. I made that model as simple as possible by not including interest payments to banks, or spending by banks. Over time, the difference between those two flows generates the ratio shown in the initial conditions.
Please use your model to explain the Russian financial crisis of 1998.