Why Do Governments That Issue Their Own Currency Bother To Sell Bonds?

Professor L. Randall Wray on why a government with a sovereign non-convertible currency might choose to issue bonds. Bond sales are not a borrowing operation for the state. Logically, since the dollar is a liability (an IOU) of the government, it’s impossible for the government to borrow back dollars, just like it would be impossible for you to borrow back your own student loan debt, or for Pizza Hut to borrow back its own coupons. Rather, a bond sale is just a swap of one government-issued asset (cash) for another (bonds) which pays interest. It doesn’t change the amount of assets or liabilities out there, only the form.

A government that issues its own non-convertible currency does not need to sell bonds in order to spend. This is because it issues the currency every time it spends (and destroys the currency when it taxes). The main reason such a government might want to sell bonds is because of its effects on interest rates.

If the government is running a deficit, then it is creating more money than it destroys through taxes. This means that the banking system will have excess reserves, more than they need to settle inter-bank payments and meet reserve requirements. Normally, banks don’t want to hold excess reserves, they’d rather purchase some other higher-interest-earning asset.

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A collection of graphics

Via twitter and his YouTube channel, Sam Levey — aka @SamHLevey aka @DeficitOwls — has been collecting and sharing graphics for years. Sam has graciously shared them with me. Now we need to figuring out how to best share them with all of you, i.e. where to best put them. He notes: “if you want them stored as a teaching repository (as in, you want there to be a place for MMT-competent people to find the graphics as needed for conversation, then make a dedicated page. Or, if you want them to help actually teach people who are new, intersperse them in explanations.” I have both purposes in mind, and will do both. Grouping may be a challenge. Looking forward to Sam’s help and to subsequent additions from other folks. It’s going to take a little time…


Having noticed an uptick in commentary or explainers that come from and/or are about countries — other than the US — and may not be tracked by the MMT groups in those countries; and in hopes of being useful for the lay reader, macro-curious students and journalists; we offer this page of articles in English, organized by country and publication date.

Recently Added

Most mornings, I read through Twitter from a list of 24 trusted principal MMT sources. Mostly academics. List here. They are a busy lot. When they link to research, commentary, explainers, etc., I send myself an email as a reminder to add the material to the site. Sometimes, I appreciate their use of twitter as teaching tool noteworthy and capture a thread. What with the expanding body of content and work I’ve missed (see below) or didn’t think — or know — to include sooner, I’m always playing catch-up. It’s both exhilarating and a little daunting. Here’s what’s caught my attention over the last few days.

Added to page on Student Debt

Complete thread here from Marshall Steinbaum (@Econ_Marshall)

Warren vs. Sanders: Inside the Progressive Debate Over the Student Debt Crisis
• Their competing plans reveal a lot about how these White House hopefuls would govern.
— Kara Voght (@karavoght) Mother Jones (@motherjones) Jan 31, 2010

Student Loan Discharged in Bankruptcy – Just a Blip, or Something Bigger?
— Michael M. Krauss, James Park, National Law Review (@natlawreview) Jan 28, 2020 h/t @RaulACarrillo

Added to Debates & Controversies
Does Modern Monetary Theory Have Any Scholarly Validity?
— John Harvey (@John_T_Harvey) Forbes (@Forbes) Jan 28, 2020 Warning: he unfortunately evokes the household budget analogy.

Modern Money Theory 101: A Reply to Critics • Key words: Modern Money Theory, Price Stability, Full Employment, Financial Stability, Money
— Éric Tymoigne (@tymoignee) and L. Randall Wray Levy Economics Institute of Bard College November 2013

How the Economists Got It Wrong
James K. Galbraith The American Prospect (@TheProspect) Dec 19, 2001

MMT in 25 tweets

On May 28, 2019, Scott Fullwiler posted 25 tweets as MMT 101.

1. From the very beginning in the 1990s, MMT has NEVER argued that ‘printing money’ was necessary. Anyone saying MMT = “print money,” even if they (correctly) incorporate an inflation constraint, is getting MMT dead wrong.

2. The argument from the earliest days–@wbmosler ‘s “Soft Currency Economics,” Wray’s “Understanding Modern Money,” or @StephanieKelton ‘s “Can Taxes & Bonds Finance Govt Spending?”–the MMT argument is that ALL govt deficits are ‘printing money’ ALREADY (!).

3. These and other foundational, early MMT pieces argue that the choice to issue bonds or not is about monetary policy how to set the CB’s interest rate target, not whether to ‘finance’ a deficit or ‘print money.’

4. The argument across literally dozens of publications is consistent–whether or not govt issues bonds when it runs a deficit, the macroeconomic impact of ‘bonds vs. money’ is nil.

5. What matters for macro impact is the deficit itself, and how it is created (spending/taxing priorities), since the deficit is creating net financial wealth in the pvt sector (note I did NOT say ‘real’ wealth (!)).

6. The choice to issue bonds or not in the face of a deficit is simply about 1 risk-free govt asset (say, Tbills) vs. another risk-free govt asset of perhaps slightly longer maturity (but that’s also a policy choice).

7. This is also partly why we predicted back in the 2001 that Japan’s QE wouldn’t be inflationary, and predicted the same for the US in 2008. QE & ‘monetization’ of govt debt is about an asset swap–it’s the deficit itself that has the ‘quantity’ effect, not the financing.

8. Similarly, in the real world, CB’s are defending their national payments systems every minute of every day. This means they accommodate banks’ demand for CB liabilities always at or near their current interest rate target.

9. From an MMT perspective, it’s really weird that people believe a govt running a deficit via overdraft at the CB is inherently inflationary, but the current system, where govt runs a deficit while CB guarantees mkt liquidity for bond dealers to buy govt bonds, isn’t.

10. So, from the beginning 20+ yrs ago, MMT said the ‘choice’ to issue bonds when running a deficit was about how to set CB’s int rate target. W/ bond sales, CB accommodates banks at its tgt rate. W/o bond sales, CB sets rate at ZIRP or uses IOR=tgt rate to set tgt rate <> 0

11. This is just supply and demand from ECON 101. If you push out the supply curve beyond the entire demand curve, either the price falls to 0 or you have a price floor set at <> 0. Those are the only 2 possibilities when ‘printing money’ to run a deficit.

12. Neoclassicals actually agree w/ this, for different reasons. For them, if ‘monetize’ govt debt & CB rate = 0, ‘monetization’ isn’t inflationary. Or, if CB sets rate <> 0 via IOR=target rate, still not inflationary.

13. In both cases, CB’s reserves are considered effectively equivalent to holding, say, Tbills. So, ‘monetization’ or ‘printing money’ is effectively equivalent to ‘printing’ Tbills. IOW, if you blend neoclassical model w/ actual CB ops, ‘printing money’ isn’t inflationary.

14. Putting this all together . . . MMT has NEVER argued that ‘printing money’ as conventionally interpreted is necessary to carry out MMT policy proposals. All deficits create net financial wealth for pvt sector, regardless of ‘finance’ method.

15. Choice to issue bonds or not when running a deficit is about how to set CB’s target rate, not ‘financing’ a deficit. This means that interest on national debt is a policy variable, or at least can be (for monetary sovereign, of course).

16. So, choice to issue bonds or not is not about ‘quantity’ impact of a deficit, but about ‘how’ CB chooses to achieve its target rate. Hitting interest rate tgt by overdraft to govt & pay IOR=tgt rate=2% has no difference of macro significance from . . .

17. … hitting interest rate target by govt instead issuing tbills while CB ensures mkt liquidity at tgt rate = 2% to banks & bond dealers.

18. Now, there are places where MMT scholars argued for no bond issuance, govt gets CB overdraft, & CB sets tgt rate= 0 (permanent ZIRP). Note, tho, that this is (a) not arguing in favor of ‘printing money’ even in neoclassical view (it’s Krugman’s liquidity trap, actually) …

19. (b) and is therefore, simply a policy proposal for low interest rates on govt debt. It is also NOT arguing for ZIRP in a neoclassical world–Wray did his Ph.D. under Minsky. Minsky was against manipulating short term rates; instead favored credit regs/margins of safety.

20. That is, when MMT proposes ZIRP, it is proposing it for ONLY the govt debt, NOT for the economy overall as in a New Keynesian model. There are dozens of MMT publications on regulating credit, and more on the way. MMT was about macroprudential before that was a thing.

21. Minsky was adamant that manipulating short-term interest rates was actually destabilizing (he blamed the rise of money manager capitalism on Volcker’s high rates). Raise margins of safety to slow credit rather than raising the overnight, risk-free rate.

22. A benefit of margins of safety is that raising interest rates to slow credit leads to higher hurdle rates that can only be met by riskier projects, while raising margins of safety slows credit by favoring the LESS risky loans.

23. Particularly given that the problem of a debt bubble is that credit QUALITY is bad, it’s really weird from an MMT perspective that it’s mostly MMT arguing in favor of macro policy that target credit quality …

24. … while neoclassicals go to lengths to NOT talk about credit quality–use a Taylor rule to manipulate short-term rates, increase liquidity requirements, increase capital, but little to nothing about underwriting. (Shocker–we now have a corp debt bubble.)

25. So, MMT is NOT arguing for ‘printing money’ and ‘ZIRP’ in the conventional, neoclassical world. MMT is arguing for stabilizing demand side of the economy w/ a mix of govt’s budget position (at low rates, however ‘financed’) & credit quality/margins of safety.

Recently Added

To Op-Eds and Explainers: Alexandria Ocasio-Cortez is a fan of a geeky economic theory called MMT: Here’s a plain-English guide to what it is and why it’s interesting
Jim Edwards (@Jim_Edwards) Theron Mohamed (@Theron_Mohamed) Business Insider (@BusinessInsider) March 30, 2019

Six items and a new page: On Debt & Deficit

Side Bar Menu: New Economic Perspectives, Books, #GlobalMMT, Events

Added today

To News & Op-Eds
NO MORE ECONOMIC MALPRACTICE • African-American Faith Leaders Take on the Establishment
— Delman Coates (@iamdelmancoates), Sojourners (@Sojourners), Sept 12, 2019

To Green New Deal

Green New Deal 09.13.2019 (IRVINE AUDITORIUM) from Weitzman School of Design on Vimeo.

27:20 | Welcome and Opening Remarks from Wendell Pritchett, Penn Provost
36:34 | Beyond Hagiography—Mining the New Deal Legacy
Featuring Jen Light (MIT) Nancy Levinson (Places) Nicholas Pevzner (Penn) Raj Patel (Texas) Mary Annaise Heglar. Moderators Karen M’Closkey (Penn) Francesca Ammon (Penn)
4:16:23 | Radicalizing Pragmatism—The Nuts and Bolts of a Green New Deal
Featuring Rhiana Gunn-Wright (New Consensus) David Roberts (Vox) Leah Stokes (UCSB) Kerene Tayloe, Esq (WE-ACT) Moderators Allison Lassiter (Penn) Ellen Neises (Penn)
6:10:08 | Building Power—Bold Visions for a Green New Deal
Featuring Kate Aronoff (Type Media Center) Kate Orff (Columbia) Varshini Prakash (Sunrise) Stephanie Kelton (Stony Brook) Peggy Deamer (Yale/The Architecture Lobby) Moderators Daniel Aldana Cohen (Penn) Billy Fleming (Penn)
8:33:45 | Tools and Advocacy for Change
9:03:45 | Designing a Green New Deal
Featuring Jane McAlevey in conversation with Naomi Klein and Julian Noisecat

Warren Mosler: How we pay for it.

Note: Mosler wrote this speech — unsolicited — with Bernie Sanders in mind. I don’t know if Sanders or his campaign saw it; but imo it’s past time for every progressive candidate and their staff to make use of it. I thank Mr. Mosler for permission to share it with you.

I’ve proposed a lot of initiatives from Medicare for all to desperately needed infrastructure.

And in all cases the Federal Government will be paying for it. And each time the question that immediately explodes is “So how are you going to pay for it?”

I’m going to answer that question directly and definitively and in a way that everyone can understand.

And before I begin, I’d like to thank my chief economist, Professor Stephanie Kelton, a specialist in economic policy as well as Federal Reserve Bank monetary operations, for educating me on this critical question.

And I’ll tell you right now that what was once cloudy and shrouded in myth and mystery is now absolutely crystal clear.

So first let’s talk about how your government makes ANY and ALL payments.

Whenever the Treasury spends, it instructs the Federal Reserve Bank to add those dollars to the bank account of whoever is getting paid. So, for example, if you are getting a $1000 payment from the Federal Government, the Treasury instructs the Federal Reserve Bank to cause the number of dollars in your bank account to be $1,000 higher. In other words, if you had $2,000 in your bank account, and then got $1,000 from the government, your bank account would then show $3,000 in it.

More specifically, when the government spends, all it does is act to change the numbers in your bank account to higher numbers. As the former Fed Chairman Ben Bernanke testified:

“We just use the computer to mark up the numbers in the account”

Now this is not some new idea, or proposal. It’s how ALL government spending has always been done. That’s all there is to it and there is no other way to do it. And everyone in the Treasury and the Fed, including the chairman, knows it.

There is no dispute whatsoever that whenever the US government spends, yesterday, today, and tomorrow, it’s just about changing numbers in bank accounts.

And the government can just as easily spend $1 billion as it can spend $1, since all it has to do is change a number on its own books.

So how will we pay for medicare and all the infrastructure we need? The exact same way we are paying for everything today, yesterday, and tomorrow: We spend by changing numbers in bank accounts to higher numbers.

This is not to say spending doesn’t have consequences, which it does.

What it does mean is there is no such thing as the government running out of dollars to spend, because all it does is change numbers in bank accounts. The government can’t run out of dollars it adds to bank accounts any more than the football stadium can run out of points it shows on the scoreboard.

And if you don’t want to believe me, I have this gentlemen from the Federal Reserve Bank standing next to me along with another from the US Treasury, to answer all of your questions.

So let me continue with this question. Since the government can’t run out of money, and can make any payment when it needs to, like it’s always done, what possible problem can there be if it spends too much?

The answer to that is inflation. Too much spending can cause too much inflation.

So how do we know if that’s going to happen?

How about looking at the inflation forecasts?

And just so happens the Federal Reserve Bank and the Congressional Budget Office already are spending a lot of money doing inflation forecasting.

So here’s how it works.

We propose a program, like Medicare for all, or my trillion dollar 10 year infrastructure proposal, and then we ask the Fed and the CBO how much inflation, if any, it will cause.

And if they say those proposals won’t cause inflation, then we’re free to act without increasing anyone’s taxes.

But what if they say they will cause too much inflation?

Well, in that case we have to raise taxes.


Because taxing takes money out of the economy.

So if the Fed and the CBO say the new spending will cause too much inflation, we can take some of that money out of the economy by taxing.

And, again, how do we know how much to tax?

It’s the same answer – the inflation forecast.

The important point is that the inflation forecast is what tells us how much to tax, not the size of the deficit.

And so what is this thing called the public debt?

Listen carefully:

The public debt is nothing more than all the dollars spent by the government that haven’t yet been used to pay taxes.

Let me repeat: The public debt is nothing more than all the dollars spent by the government
that haven’t yet been used to pay taxes. And those dollars stay in the economy as someone’s savings [Ed note: in bank accounts] until they get used to pay taxes.

Think of it this way – when the government spends a dollar, someone has to have it.

And if it also taxes away that dollar, that dollar is gone from the economy.

But if the government spends a dollar and doesn’t tax it away, it stays in the economy as someone’s savings.

And most all of that savings is right there at the Federal Reserve Bank in bank accounts that they call Treasury bonds, notes, and bills. Yes, all those Treasury’s are just dollars in savings accounts at the Federal Reserve Bank with fancy names.

Yes, the Treasury has spent some $18 trillion more than it’s taxed, and that $18 trillion is the savings of people and businesses in the economy that’s in bank accounts at the Federal Reserve Bank called Treasury securities and also called the public debt.

This means the government doesn’t owe any dollars to anyone, because it’s already given them the dollars when it spent them.

Someone already has them, and the dollars are already are sitting there in bank accounts at the Fed.

And this explains why paying off the debt has never developed into a problem.

If it was going to cause a problem, don’t you think it would have happened long before it got to $18 trillion?

Yes, all savings accounts are called ‘bank debt’ by the accountants, but in this case it’s highly misleading, and it’s been driving some very bad policy decisions.

Now let me quickly review the three points I’ve just made:

1. How do we pay for Medicare and infrastructure?

The same way we always pay for everything. We instruct the Federal Reserve Bank to enter the dollars into the appropriate bank accounts.

2. How do we know how much to tax?

We give our proposals to the Federal Reserve Bank and the Congressional Budget Office to determine how much tax is necessary to keep inflation low.

3. The results are world class healthcare and infrastructure for all, millions of new jobs, and an increase in total dollar savings for the economy, with taxation at the right level to prevent unwanted inflationary pressures.

Well, I’m pretty sure you’ve never heard anything like this before. And until not long ago, I hadn’t heard it either. And yes, I’m mad as hell! I used to think the government had run out of money, and had to borrow from lenders like China demanding high rates to be able to spend more than it taxed, and all the rest of that nonsense that’s been keeping us down.

And everyone in Congress still probably thinks that way. And they’re all wrong. And every insider in the Fed and the Treasury knows they’re all wrong, and word is just now getting out.

After all these years of hearing it wrong, we’re only now hearing the truth.

And let me finish by saying that’s it’s not about adding any kind of stimulus, but about removing a restriction. Think of the US economy as a champion runner, ready for the Olympics. But then we put a plastic bag over his head and he can’t breathe and he can’t run. What I’m proposing is to remove the plastic bag- remove the restriction- and let him run again. It’s not about giving him drugs. And so it’s about removing the artificial financial restrictions on the economy and letting it run to it’s potential.

Added April 15 through 17

To Debates & Controversies

Rohan Grey’s Twitter Thread on @dylanmatt’s Vox piece on MMT
— Rohan Grey (@RohanGrey) April 16, 2019

Modern Monetary Theory, explained • A very detailed walkthrough of the big new left economic idea.
— Dylan Matthews (@dylanmatt) vox.com Apr 16, 2019

Tom Friedman Just Noticed that the UK “Has Gone Mad” (Part 2) • Blair, Brexit, and Friedman Show the Need for MMT Insights
— William Black (@WilliamKBlack) New Economic Perspectives April 11, 2019

Tom Friedman Just Noticed that the UK “Has Gone Mad” (Part 1)
— William Black (@WilliamKBlack) New Economic Perspectives April 11, 2019

Democracies With Sovereign Currencies Can Dance
— Anonymous New Economic Perspectives April 11, 2019

MMT, Models, Multidisciplinarity
— Pavlina Tcherneva (@PTcherneva) New Economic Perspectives April 8, 2019

Why Does Everyone Hate MMT DOWNLOAD
— James Montier, GMO April 3, 2019

A Must Read: Why does everyone hate MMT?
— L. Randall Wray, New Economic Perspectives, March 26, 2019

To News & Op-Eds

The Untold Story Of How Clinton’s Budget Destroyed The American Economy
— Joe Weisenthal (@TheStalwart) Business Insider (@businessinsider) Sept 5, 2012