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A repository of #MMT resources by @ActivistMMT.
1/ The intricate details of how the United States federal government really, *really* spends. [A layperson tutorial to v.1] First, here is a birdseye view of reserve accounting, which provides good background for this tutorial.
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A repository of #MMT resources by @ActivistMMT. Apr 23
Replying to @MMTResources
2/ New federal spending is most often in response to a new law. A law written & passed by Congress, & signed by the President. The new law has new spending defined in it, which is for the purpose of activating the resources (labor & stuff) necessary to make that law a reality.
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A repository of #MMT resources by @ActivistMMT. Apr 23
Replying to @MMTResources
3/ Let’s use a simplistic example: Medicare For All was just rammed through by the brave Democratic Party & signed by President Trump. Let’s pretend it has $1 trillion in new spending for the purpose of building new wings onto hospitals across the country. What does this imply?
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A repository of #MMT resources by @ActivistMMT. Apr 23
Replying to @MMTResources
4/ New hospital wings must be built, which requires architects, construction workers, building materials, not to mention lawyers, zoning, and other kinds of planning. They then must be staffed and run going forward.
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A repository of #MMT resources by @ActivistMMT. Apr 23
Replying to @MMTResources
5/ Here are some of the companies that will make these new hospital wings happen. The (new!) money is in exchange for the work and resources (obtaining and processing) that company will provide, as specified in their federal contract, as specified in the law.
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A repository of #MMT resources by @ActivistMMT. Apr 23
Replying to @MMTResources
6/ The federal government creates new money (issues currency) and gives it to each of the companies as specified. The companies hire workers and subcontractors and eventually the workers get paid.
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A repository of #MMT resources by @ActivistMMT. Apr 23
Replying to @MMTResources
7/ Those workers then spend that money elsewhere in the economy, at companies that don’t have government contracts. In other words, this is how workers that *support* the workers that implement the law, get some of that money into their own pockets.
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A repository of #MMT resources by @ActivistMMT. Apr 23
Replying to @MMTResources
8/ That paycheck is a **net financial asset** for each of these workers. It can be spent or saved as they wish, not unlike a grant. They paid their debt in advance of receiving the money. Their liability was the work they did in service of the public good, as defined by the law.
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A repository of #MMT resources by @ActivistMMT. Apr 23
Replying to @MMTResources
9/ Now, the details of how that spending works its way from the new law and into the hands of individual Americans. (Buckle up.) First the bill is written, passed, and signed into law. This **instructs the Treasury to spend**. In our example law: $1 trillion.
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A repository of #MMT resources by @ActivistMMT. Apr 23
Replying to @MMTResources
10/ The Treasury then determines how much it already has in its Treasury Spending Account (TSA), and how much it still needs to reach the required new spending. In this case, it needs $200 billion more. The Treasury’s TSA is at its own bank: the Federal Reserve (or "the Fed").
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A repository of #MMT resources by @ActivistMMT. Apr 23
Replying to @MMTResources
11/ The Treasury then makes a deposit into its own account for $200 billion. This is just like you and I do at our own local bank branch: with a deposit slip and some financial assets.
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A repository of #MMT resources by @ActivistMMT. Apr 23
Replying to @MMTResources
12/ When we make a deposit, we give the bank teller coins, bills, checks, & bonds (usually in amounts less than $200 billion). The Treasury gives its bank, the Fed, its tax & securities "revenue,” platinum coins, & newly issued (but currently unfunded!) Treasury securities.
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A repository of #MMT resources by @ActivistMMT. Apr 23
Replying to @MMTResources
13/ When we make a deposit, our bank account is marked up by the exact amount we gave them. No questions asked. No controversy. The Fed must, too, mark up the size of the Treasury’s account in the same way. Just change the "8" in $800,000,000,000 to "1,0": $1,000,000,000,000
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A repository of #MMT resources by @ActivistMMT. Apr 23
Replying to @MMTResources
14/ Finally, the Treasury uses these newly created funds in their Treasury Spending Account (TSA) to mark up the accounts of all those companies as specified in the law. Their own account is marked down by that same amount and, eventually, returns to zero.
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A repository of #MMT resources by @ActivistMMT. Apr 23
Replying to @MMTResources
15/ This is the **very nature** of how the federal government spends (issues its currency). The Treasury is the only federal agency allowed to mark up bank accounts in the real economy (where you and I have, spend, and invest our money).
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A repository of #MMT resources by @ActivistMMT. Apr 23
Replying to @MMTResources
16/ These companies, and eventually us through our paychecks, now have net financial assets. We’ve paid our debt (done our work) and now the money is ours to keep, no strings attached. Net financial assets are quite different than bank credit.
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A repository of #MMT resources by @ActivistMMT. Apr 23
Replying to @joefirestonephd
17/ Finally, there is an alternative to the messy details as described above, of the Treasury "topping off" its account by making a deposit at the Fed. It is a two sentence proposal by , as detailed in this article:
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A repository of #MMT resources by @ActivistMMT. May 18
Replying to @MMTResources
18/ These 2 sentences would require the Fed to blindly mark up Treasury’s spending account by the full amount ($1 trillion in our example), immediately upon the law’s passage. Joe calls it Overt Congressional Financing. Thanks to Joe for the assistance in learning these concepts.
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A repository of #MMT resources by @ActivistMMT. May 18
Replying to @MMTResources
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A repository of #MMT resources by @ActivistMMT. May 18
Replying to @grahamelwood
20/ A conversation with where we discuss the above concepts and much more.
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A repository of #MMT resources by @ActivistMMT. May 18
Replying to @MMTResources
21/21 To in general, here is a good place to start.
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