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 doe...

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 a...

Economics in One Lesson: Do Price Controls really work? This is the transcript of my video Economics in One Lesson: Do Price Controls really work? You can see the video here .  Hello Guys, Introduction We are living in unprecedented times where we are staring at a global recession and even a depression in the worst-case scenario. Once the shutdowns are lifted the focus of all the governments will be to take unprecedented measures to reverse the economic damage caused by the shutdowns. These measures will be touted as temporary and would be purported to relieve the pain of the worst affected classes. On the face of it, they may look necessary and even seem to work but once you dig deeper you will discover the disastrous consequences of these measures which are influenced by economic fallacies on the society as a whole. These consequences have an impact on each an everyone one of us. Some of us will be affected very badly by it and some of us will do okay...

Recently, Rick Rieder, Chief Investment Officer of Global Fixed Income for BlackRock published an article on the BlockRock blog highlighting the economic policy state-of-play today, and where it may lead to should economic growth falter, productivity not materialize, and populism continue to thrive. While the Avengers: Endgame ended well for the world with Ironman being able to restore the world to the same state as it was before Thanos snapped his fingers, the same cannot be said for the implications of the current monetary policy being pursued by the Central Banks across the world. The changes brought about by Quantitative Easing(QE) are irreversible and there is no infinity gauntlet, which can by snap of fingers, restore the world back to the state it was before Central Banks resorted to QE . It means that we have to accept the reality and brace ourselves for impact as the endgame plays out.So how is the endgame is likely to play out? The Endgame According to Ri...