The Basics of Modern Money
A much better economy is within our reach.
Anyone can create money. The problem lies in getting it accepted.
The Big Things you need to know!
First, here’s what we’re NOT saying: We’re not saying currency-issuing governments can’t spend too much, or on the wrong things. We are not saying that our current monetary system is perfect, nor are we ignoring the very real problems related to rising inequality and concentration of economic and political power. And we’re not saying governments should pay for everything just because they can!
Our aim is to provide a basic understanding of how modern monetary systems work, dispel some common myths, and help us see how to use this powerful tool to better serve the public. We are saying that currency-issuing governments aren’t actually constrained in the ways we commonly understand. They have the power — and indeed, the responsibility — to use their sovereign currency to help develop the nation and improve the living standards of their citizens with the resources made available to them.
This makes a big difference! The sovereign issuer of a nation's currency can and should behave very differently from users of its currency, like households, businesses, or state and local governments.
Have you ever wondered if the budget rules that apply to a household or business probably shouldn't be imposed in the same way on the government that creates your nation's money?
Despite what we might hear politicians say on the campaign trail, when a country issues its own sovereign currency it can never run out. Japan can never run out of Yen, nor can England run out of Pounds.
Money is created effortlessly every day on computers in large numbers. It’s our access to real resources that is limited. Could we use our ability to create money to do more with the resources we have?
Governments spend by crediting bank accounts, creating currency in the process. Governments tax by debiting bank accounts. Taxes remove or delete some of the currency they previously created. So taxes cannot “give” the government “money” to spend; rather government spending actually gives us its currency so we can later pay our taxes. We have it backward!
How are you able to pay your federal taxes with the government’s currency if the government hadn’t first spent its currency into the economy?
No amount of prior government deficits or future government promises to retirees or medical patients can prevent the U.S. government from being able to make every single payment that comes due in U.S. dollars. This is equally true for other nations like Japan or New Zealand.
What kind of financial challenges might face countries like Greece that stopped issuing a sovereign currency?
China saves dollars because it sells more to the U.S. than the U.S. sells to China. Countries save the currencies of nations that buy their goods. “Made in China” is not something you’ll ever see on a U.S. dollar! Currency-issuing nations can’t “borrow” the currency they, alone, create. What we call the “National Debt” is not a debt in any normal sense; government bonds are there for savers, not as a form of government borrowing.
If Argentina borrows U.S. dollars, it has a real debt since it doesn’t issue U.S. dollars. But if China saves dollars gained from trade in U.S. Treasury bonds, what does the U.S. really owe China that it can’t “pay” using a computer?