Nirav's Personal Blog

Introduction: The Basics of Modern Money Theory (MMT) MMT derives its theoretical foundations from the works of John Maynard Keynes, Karl Marx, A. Mitchell Innes, Georg F. Knapp, Abba Lerner, Hyman Minsky, Wynne Godley, and many others.  As per the author, the most important original contribution of MMT has been the detailed study of the coordination of operations between the treasury and the central bank. It helps to answers the questions about how does the government "really spends". MMT assumes the existence of the State Money System, in which the state chooses the money of account. This is then used to impose obligations eg. taxes, denominated in that money unit. The state also issues currency which can then be accepted to discharge the obligations.   The government brings currency into existence by spending, which becomes an income for the households. The households then use this currency to make the payment of their obligations to the state. Thus, the government does no

Monetization of Fiscal Deficit – A Primer Recently, there has been a lot talk around monetization of deficit by the Government of India. Many of economic experts and politicians are advocating for it in order to counter the effects of the economic slump caused by the Covid-19 induced shutdown. At the same time a number of experts have warned against it because it may lead to disastrous consequences in future in form of inflation. The opinions are conflicting and there is not a lot of literature that one can find which systematically deals with the subject. Workings of modern financial system are not well understood by an average person and monetization of deficit is a difficult concept to comprehend even for most financially savvy and astute professionals. Hence, the purpose of this primer to make it easier for everyone to understand what is monetization of deficit. In this primer, I try to answer the following questions 1.       What is a fiscal deficit and how can it be funded?