Warren Mosler

Seven Deadly Innocent Frauds of Economic Policy - Warren Mosler

Available here in PDF: https://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

Modern Monetary Theory (MMT) has a convincing answer to the question: "What gives fiat currencies their purchasing power"

Mainstream economists simply say that purchasing power of money commes from "confidence", but they don't explain where the confidence comes from. It is a circular logic: one has confidence in a currency if one beleives that others have confidence in it, ... whoever whas the first the "have confidence" must have been duped, ... or more likely the theory is flawed...

MMTs explanation of purchasing power is simply that in an economy there are mandatory transactions: taxes, and taxes have to be paid in the currency mandated by the state.
Money is not a commodity, it does not arise out of barter, it is (and always has) been imposed by states that required taxes be payed with their currency.

This has many consequences:

1. Taxes serve to generate and maintain demand for the currency (reduce inflation, or produce deflation).

2. Currency has to be spent before it can be taxed (how else can currency enter the economy?)

3. The debt of a currency issuing state is equal to the net financial assets (sum of all monetary assets, minus sum of all monetary debt)

4. Markets are monetary in essence, they are a side effect on the enforcing of money on a population. In a market, participants all purchase money with goods…

Your view is also antiquidated. Banking is moving target, the technicalities of the reserve system change frequently.

In modern banking the act of depositing is completely severed from the act of lending. Banks lend based on capital ratios, availability of borrowers, and the Fed's interest rates. Deposits and reserves no longer matter.

Effectively, when you deposit money, you deposit in a 100% reserve account with the Fed. The Fed as a completely separate action lends money to the banks.

Thus last year when people panicked and decided to hoard more, the result was deflation, (not lower interest rates on business loans and mortgages as your model would predict).

For further reading:
http://www.winterspeak.com/2009/09/loans-create-deposits-how-banks.html

http://www.moslereconomics.com/mandatory-readings/soft-currency-economics/

http://reservedplace.blogspot.com/2009/04/easing-understanding.html

And the comment thread between RebelEconomist and JKH here:
http://blogs.cfr.org/setser/2007/05/11/rising-deficit-in-the-us-rising-surplus-in-china/#comments

These folks actually work in banking, and make their living understanding how the system works. They are very much worth reading.

Steve Keen is a heterodox economist(Circuit-ist I think) with close ties to MMT Modern Monetary Theory (born and raised on blogs). MMT intellectuals predicted the great recession, the European Crisis, and the Recession of 2001. I've become a believer. They are basically hyper-keynesians. The basic Tennats are
1) As a point of logic Government must spend dollars into existence(or loan out) before they can tax them back.
2) Therefore Fed Government funding is independent of taxation.
2) Taxation creates demand for currency and unemployment in the currency of record by definition.
3) Government is not funded by borrowing either.
4) Because of 1) 2) 3) Policy should be to proactively spend counter-cyclicly until economy reaches full capacity.
5) Banks create money ex-nihilio
6) Banks are effectively agents of government because of deposit insurance and membership in the Federal Reserve System.

Its pretty fascination stuff b/c MMT says that the mainstream has everything backwards.

http://moslereconomics.com
http://neweconomicperspectives.org
http://www.amazon.com/Currency-Economics-Modern-Monetary-ebook/dp/B009XDGZLI

Nearly every hyperinflation example (there are very few, in fact) has something additional to that stuff.

In the case of Weimar Germany, there was the little matter of THE VERSAILLES TREATY that required them to endlessly pay war reparations and punitive payments in gold. Britain told France to cut it out, but France was mad enough at the Germans that they continued. This led to the rise of the Nazis and WW2.

https://www.history.com/news/treaty-of-versailles-world-war-ii-german-guilt-effects

You should read more economic viewpoints, such as Walter Mosler on hyperinflations:

https://moslereconomics.com/wp-content/uploads/2020/11/Weimar-Republic-Hyperinflation-through-a-Modern-Monetary-Theory-Lens.pdf

Oh, and meanwhile there was a "free money miracle" going on in nearby Austria, and clearly did not lead to hyperinflation, quite the opposite: everyone paid off their taxes due to the demurrage of the free money... keep in mind this was while all around them there was a growing depression... even Mises institute grudgingly agrees!

https://mises.org/library/free-money-miracle

Disappointing that the article doesn't have any links to the original comments and discussions, even if archived.

Wikipedia[1] has a link to the original article, but the comments are gone[1]. Archive has the comments[2]. There are lot of comments by beowulf, and there's one by someone else referencing the trillion dollar coin, but I haven't found the original comment by beowulf inventing the idea yet.

[1]: https://en.wikipedia.org/wiki/Trillion-dollar_coin#Emergence_of_the_concept

[2]: https://moslereconomics.com/2010/05/14/marshalls-latest/

[3]: https://web.archive.org/web/20100604051310/https://moslereconomics.com/2010/05/14/marshalls-latest/

In real reality, Danish banks are charging 0% interest for mortgages and making their money off of closing fees[1]. Also the natural rate of interest is zero[2].

Just because you've been raised from birth to believe usury is necessary for the payment system (not the economy!) to function doesn't make it so.

[1] https://au.finance.yahoo.com/news/danish-bank-introduces-new-20-year-0-per-cent-mortgaes-012823441.html

[2] https://news.ycombinator.com/item?id=16414199 http://www.moslereconomics.com/wp-content/graphs/2009/07/natural-rate-is-zero.PDF (link is broken in the HN post)