Reinterpreting Modern Monetary Theory: Generating Liquidity and Issuing Fiat Currency

Abstract

Modern monetary theory (TMM) point out the alternative view of the fiscal deficit. Tax spending never results in a break for the government. The TMM economists in the United States and Japan focus on the TMM theorem of how fiscal spending produces additional assets in the private sector with an equal balance.

Wray (2014) explains that transactions between less liquidable liabilities and other more liquidable liabilities generate liquidity, and this mechanism directs the fiat money fee (by decree). This causal relationship must be understood in the same line as the theorem of the TMM. One identifies the condition that the theorem and the causal relationship of liquidity to the monetary quotation are (in) compatible using the adjustment model between investment and time. The studio based on the matrix of consistent stock-flow theory does not help to understand the effect of tax expenditure on investment, profits, and interest payments and company dividends. The relationship between fiscal expenditure and increased assets in the private sector is not identified in the equivalence, so that the expanded fiscal deficit is not necessarily compatible with the growth of the private sector's assets.