Friday, March 2, 2012
How can a government run out of money?
The MMT and MMR folks are fond of saying that "a government that is a currency issuer can not run out of money". But this is not true! Money is any object or record that is generally accepted as payment for goods and services and repayment of debts. After hyperinflation their currency is no longer accepted as money. They can still print pieces of paper but nobody uses them for commerce any more. So the accurate statement is that "a government that is a currency issuer can not run out of currency". Any government, even one that prints currency, can run out of money.
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MMT and MMR people don’t understand definitions. If money is a medium of exchange, then all parties must freely accept it in exchange for goods or services. If anyone balks at accepting a currency, then it is not money. Counterfeit currency is not money, not because the notes lack official blessing, but due to the fact than anyone who knows what they are will not accept them. In a hyper inflation then all bank notes come to be perceived as counterfeit. The central bank is just the official counterfeiter.
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