Deficit Owls | MMT: Taxes/Borrowing DO NOT "Pay For" Government Spending @deficitowls5296 | Uploaded August 2016 | Updated October 2024, 9 hours ago.
Professor L. Randall Wray discussing government spending and taxation. From a point of logic, a government that issues its own currency must spend before it taxes, or else there would be no currency to collect. Therefore, taxes don't pay for spending, but rather spending allows the government to collect taxes.
Cash is basically an IOU from the government: if you present a dollar at tax time, they agree to redeem it, and extinguish your tax obligation. When the government spends, it is the same as you writing an IOU, except that most of the private sector accepts the government's IOU and circulates it as money, while very little of the private sector accepts your IOU.
This means the government can't "borrow" dollars. Borrowing your own IOU doesn't even make sense in terms of accounting. IOUs can either be created/issued or redeemed/destroyed, not borrowed by the person who issued them. The purpose of government "borrowing" is actually to sell bonds to drain reserves from the banking system, in order to allow the Fed to hit its interest rate target. More on that here:
youtu.be/pex89N9Oqog?list=PLZJAgo9FgHWZzhpkjtMxIwZns26A0OdFz
All of that only applies to a government that issues its own currency. State and local governments do not, and neither do the national governments in the European Union. They are all (basically) users of a foreign currency, which they must get before they can spend.
See the whole video here: youtube.com/watch?v=-KRi9nF8BiA
Like Deficit Owls on Facebook: facebook.com/DeficitOwls
Professor L. Randall Wray discussing government spending and taxation. From a point of logic, a government that issues its own currency must spend before it taxes, or else there would be no currency to collect. Therefore, taxes don't pay for spending, but rather spending allows the government to collect taxes.
Cash is basically an IOU from the government: if you present a dollar at tax time, they agree to redeem it, and extinguish your tax obligation. When the government spends, it is the same as you writing an IOU, except that most of the private sector accepts the government's IOU and circulates it as money, while very little of the private sector accepts your IOU.
This means the government can't "borrow" dollars. Borrowing your own IOU doesn't even make sense in terms of accounting. IOUs can either be created/issued or redeemed/destroyed, not borrowed by the person who issued them. The purpose of government "borrowing" is actually to sell bonds to drain reserves from the banking system, in order to allow the Fed to hit its interest rate target. More on that here:
youtu.be/pex89N9Oqog?list=PLZJAgo9FgHWZzhpkjtMxIwZns26A0OdFz
All of that only applies to a government that issues its own currency. State and local governments do not, and neither do the national governments in the European Union. They are all (basically) users of a foreign currency, which they must get before they can spend.
See the whole video here: youtube.com/watch?v=-KRi9nF8BiA
Like Deficit Owls on Facebook: facebook.com/DeficitOwls
