Kohler does Kelton does MMT

Nice poddy here on Stephanie Kelton’s new book The Deficit Myth:

Good job.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. Have you read book DLS? Any thoughts?

    I’ve only read a few chapters but already know it’ll be useful to pass on to friends/family who are less up the curve because it’s quite accessible.

  2. It is an interesting book but there are some important issues that get brushed over, time and time again..

    Kelton dismisses the significance of bond sales by describing bonds as merely “An interest bearing form of government money”.

    She then continues that dismissive approach when she later says that a Central Bank could just buy outstanding interest bearing form of government money and replace it with non interest bearing government money.

    This ignores that creating “interest bearing forms of government money” (aka selling bonds) is not an accident. It is absolutely fundamental to how our privatised system of public money operates. Getting the public to pay interest on government money is what the game is all about.

    The government bond market is how the public wealth is extracted and placed into private hands. It is not an accident.

    Replacing all the interest bearing bonds with non interest bearing government money is a fundamental change to our monetary model and guess what? Those institutions and individuals who hold interest bearing forms of government money like the current arrangements very much and are highly unlikely to agree to what Kelton proposes.

    Additionally, if a Central Bank really wanted to buy back all the interest bearing forms of government money it could only do so using one of these:

    1. Coins

    2. Notes

    3. Deposits at the Central Bank (aka private bank reserves)

    It would be impractical for the Central Bank to buy back bonds with either coins or notes as the last thing the holders of bonds will want is a pile of coins or notes. Plus to do so really would invite claims of money printing.

    That means the Central Bank would need to buy back the bonds with central bank deposits that pay no interest (but currently do ….the RBA currently pays interest on bank reserves at the RBA).

    The only way it could do that without compelling the holders of the bonds to sell would be to offer the sellers a price for the bond that provides the bond holder with a profit over what they paid for the bond.

    What would then be the end result of that?

    The private banks would now have reserves at the Central Bank equal to the price paid by the Central Bank to acquire all of the outstanding interest bearing bonds.

    Now i would have no problem with that because I have been arguing for a much larger Central Bank balance sheet for years (though I would prefer that everyone be permitted to operate an account at the RBA than just the private banks) with no interest paid on account balances but does anybody serious think this is just going to happen?

    Does anyone seriously believe that those who profit from holding interest bearing forms of government money are just going to give away that privilege and accept zero interest accruing central bank reserves?

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