![]() ![]() ![]() Emerging markets often end up resorting instead to devaluation, default or inflation. In anticipation, borrowing costs spike. Put simply, the risk of government default in the face of an adverse economic shock is lower than for other would-be borrowers.Īdmittedly, there are limits, dictated largely by the political capacity of a government to raise revenues in difficult circumstances. A government can.Īrmed with this knowledge, creditors are understandably willing to accept mostly lower returns on government bonds than on other investments. A worker receiving a pay cut cannot force others to make up the difference. ![]() In the real world, however, taxes are crucial. The fundamental difference between government finances and those of companies and households is not access to a printing press but, instead, the coercive power to raise taxes. A company making a severe loss cannot reduce that loss by imposing taxes on everyone else. A government can. ![]() Taxes may serve other purposes - the redistribution of income and wealth, the discouragement of “sinful” behaviour - but, in the world of MMT, they serve no useful macroeconomic role. As such, all their spending could, in principle, be financed via the creation of cash. As Stephanie Kelton notes in her book The Deficit Myth, governments with access to a printing press are “currency issuers” (exceptions include, most obviously, members of the eurozone). ![]()
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