Government Always Pays Using Real Fiat Money

Advocates of the Modern Monetary Theory (MMT) emphasize that government never needs to default on it's obligations because it can always pay by using fiat money. What they intend to convey, although they may not realize it, is that they expect that government can pay using real fiat money that government itself creates. We will outline a conventional ontology, typified with a descriptive phrase, so that we can better understand the mechanics of MMT when making policy decisions..

Why is this important? MMT proposes government spending unburdened by limits of taxation, funded as necessary by the creation of money. We need a standardized way of describing the MMT vision of creating money, We'll propose a common sense catchphrase that starts the user down a pathway of common understanding.

Shockwaves from a Lumberman

Years back, a wealthy lumberman came into a small western valley and decided here would be a good place to start a large cattle ranch. There being no large cattle ranches in the area, he decided to buy up small farms. He proceeded to do this and built a ranch big enough to be noticed but not big enough to be self-perpetuating. Today the ranch is being subdivided for housing. Part has been sold back to the state for wildlife enhancement.

Money Creation and Pricing Signals

In the last post, we postulated a money creation event and then lightly explored responses from decision makers who had two different theories of money positioned in their minds. Disruptions to otherwise stable work patterns and resource allocations were found. Here we focus more carefully on the financial and economic forces at work when money is created.