Monday, February 28, 2022

What MMT Means by "No Financial Risk"

Just to be clear, when MMT says that the federal deficit and federal debt pose no "financial risk", we mean simply that federal spending does not lead to federal insolvency or federal bankruptcy.

Why not?

Because the federal government incurs no financial obligation, that is, it incurs no debt when it spends or distributes US dollars. When it issues US dollars, the federal government creates those  US dollars from scratch, brand new. Those dollars carry no promise of convertability to any commodity like gold or silver, no obligation to be converted to some other currency, no obligation to pay anything else. Those dollars ARE payments, in and of themselves, from the federal government to the receivers of those dollars. And the US government, as the sole Constitutionally authorized creator of US dollars, can always create more dollars whenever Congress decrees that it do so. 

The US dollar is simply a US government issued tax credit. The government promises us nothing more when it spends those US dollars than that it will always accept those dollars back in payment of our taxes. That's it. It's that simple. 

Now, the federal government's spending more US dollars than there are goods and services available could, conceivably, result in inflation. But that is an entirely different issue than "financial risk", isn't it?

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