Monetary Policy Takes Center Stage: MMT, QE or Public Banks?

As alarm bells sound over the advancing destruction of the environment, a variety of Green New Deal proposals have appeared in the US and Europe, along with some interesting academic debates about how to fund them. Monetary policy, normally relegated to obscure academic tomes and bureaucratic meetings behind closed doors, has suddenly taken center stage.

The 14 page proposal for a Green New Deal submitted to the US House of Representatives by Congresswoman Alexandria Ocasio Cortez does not actually mention Modern Monetary Theory, but that is th it’s e approach currently capturing the attention of the media – and taking most of the heat. The concept is good: abundance can be ours without worrying about taxes or debt, at least until we hit full productive capacity. But the devil is in the details….

MMT advocates say the government does not need to collect taxes before it spends. It actually creates new money in the process of spending it; and there is plenty of room in the economy for public spending before demand outstrips supply, driving up prices.

Critics, however, say this is not true. The government is not allowed to spend before it has the money in its account, and the money must come from tax revenues or bond sales.

In a 2013 treatise called “Modern Monetary Theory 101: A Reply to Critics,” MMT academics actually concede this point. But they write that “these constraints do not change the end result,” and here the argument gets a bit technical. Their reasoning is that “The Fed is the monopoly supplier of CB currency [central bank reserves], Treasury spends by using CB currency, and since the Treasury obtained CB currency by taxing and issuing treasuries, CB currency must be injected before taxes and bond offerings can occur.”

The counterargument, made by American Monetary Institute researchers among others, is that the central bank is not the monopoly supplier of dollars. The vast majority of the dollars circulating in the United States are created, not by the government, but by private banks when they make loans. The Fed accommodates this process by supplying central bank currency (bank reserves) as needed; and this bank-created money can be taxed or borrowed by the Treasury before a single dollar is spent by Congress. The AMI researchers contend, “All bank reserves are originally created by the Fed for banks. Government expenditure merely transfers (previous) bank reserves back to banks.” As the Federal Reserve Bank of St. Louis puts it, “federal deficits do not require that the Federal Reserve purchase more government securities; therefore, federal deficits, per se, need not lead to increases in bank reserves or the money supply.”

What federal deficits do increase is the federal debt;  and while the debt itself can be rolled over from year to year (as it virtually always is), the exponentially growing interest tab is one of those mandatory budget items that taxpayers must pay. Predictions are that in the next decade, interest alone could add $1 trillion to the annual bill, an unsustainable tax burden.

To fund a project as massive as the Green New Deal, we need a mechanism that involves neither raising taxes nor adding to the federal debt; and such a mechanism is actually proposed in the US Green New Deal – a network of public banks. While little discussed in the US media, that alternative is being debated in Europe, where Green New Deal proposals have been on the table since 2008. European economists have had more time to think these initiatives through, and they are less hampered by labels like “socialist” and “capitalist,” which have long been integrated into their multiparty systems.

A Decade of Gestation in Europe

The first Green New Deal proposal was published in 2008 by the New Economics Foundation on behalf of the Green New Deal Group in the UK. The latest debate is between proponents of the Democracy in Europe Movement 2025 (DiEM25), led by former Greek finance minister Yanis Varoufakis, and French economist Thomas Piketty, author of the best-selling Capital in the 21st Century. Piketty recommends funding a European Green New Deal by raising taxes, while Varoufakis favors a system of public green banks.

Varoufakis explains that Europe needs a new source of investment money that does not involve higher taxes or government deficits. DiEM25 proposes for this purpose “an investment-led recovery, or New Deal, program … to be financed via public bonds issued by Europe’s public investment banks (e.g. the new investment vehicle foreshadowed in countries like Britain, the European Investment Bank and the European Investment Fund in the European Union, etc.).” To ensure that these bonds do not lose their value, the central banks would stand ready to buy them above a certain yield. “In summary, DiEM25 is proposing a re-calibrated real-green investment version of Quantitative Easing that utilises the central bank.

Public development banks already have a successful track record in Europe, and their debts are not considered debts of the government. They are financed not through taxes but by the borrowers when they repay the loans. Like other banks, development banks are moneymaking institutions that not only don’t cost the government money but actually generate a profit for it. DiEM25 collaborator Stuart Holland observes:

While Piketty is concerned to highlight differences between his proposals and those for a Green New Deal, the real difference between them is that his—however well-intentioned—are a wish list for a new treaty, a new institution and taxation of wealth and income. A Green New Deal needs neither treaty revisions nor new institutions and would generate both income and direct and indirect taxation from a recovery of employment. It is grounded in the precedent of the success of the bond-funded, Roosevelt New Deal which, from 1933 to 1941, reduced unemployment from over a fifth to less than a tenth, with an average annual fiscal deficit of only 3 per cent.

Roosevelt’s New Deal was largely funded through the Reconstruction Finance Corporation (RFC), a public financial institution set up earlier by President Hoover. Its funding source was the sale of bonds, but proceeds from the loans repaid the bonds, leaving the RFC with a net profit. The RFC financed roads, bridges, dams, post offices, universities, electrical power, mortgages, farms, and much more; and it funded all this while generating income for the government.

A System of Public Banks and “Green QE”

The US Green New Deal envisions funding with “a combination of the Federal Reserve [and] a new public bank or system of regional and specialized public banks,” which could include banks owned locally by cities and states. As Sylvia Chi, chair of the legislative committee of the California Public Banking Alliance, explains on

The Green New Deal relies on a network of public banks — like a decentralized version of the RFC — as part of the plan to help finance the contemplated public investments. This approach has worked in Germany, where public banks have been integral in financing renewable energy installations and energy efficiency retrofits.

Local or regional public banks, says Chi, could help pay for the Green New Deal by making “low-interest loans for building and upgrading infrastructure, deploying clean energy resources, transforming our food and transportation systems to be more sustainable and accessible, and other projects. The federal government can help by, for example, capitalizing public banks, setting environmental or social responsibility standards for loan programs, or tying tax incentives to participating in public bank loans.”

UK professor Richard Murphy adds another role for the central bank – as the issuer of new money in the form of  “Green Infrastructure Quantitative Easing.” Murphy, who was a member of the original 2008 UK Green New Deal Group, explains:

All QE works by the [central bank] buying debt issued by the government or other bodies using money that it, quite literally, creates out of thin air. … [T]his money creation process is … what happens every time a bank makes a loan. All that is unusual is that we are suggesting that the funds created by the [central bank] using this process be used to buy back debt that is due by the government in one of its many forms, meaning that it is effectively canceled.

The invariable objection to that solution is that it would act as an inflationary force driving up prices, but as argued in my earlier article here, this need not be the case. There is a chronic gap between debt and the money available to repay it that actually needs to be filled with new money every year to avoid a “balance sheet recession.” As UK Prof. Mary Mellor formulates the problem in Debt or Democracy (2016), page 42:

A major contradiction of tying money supply to debt is that the creators of the money always want more money back than they have issued. Debt-based money must be continually repaid with interest. As money is continually being repaid, new debt must be being generated if the money supply is to be maintained.… This builds a growth dynamic into the money supply that would frustrate the aims of those who seek to achieve a more socially and ecologically sustainable economy.

In addition to interest, says Mellor, there is the problem that bankers and other rich people generally do not return their profits to local economies. Unlike public banks, which must use their profits for local needs, the wealthy hoard their money, invest it in the speculative markets, hide it in offshore tax havens, or send it abroad.

To avoid the cyclical booms and busts that have routinely devastated the US economy, this missing money needs to be replaced; and if the new money is used to pay down debt, it will be extinguished along with the debt, leaving the overall money supply and the inflation rate unchanged. If too much money is added to the economy, it can always be taxed back; but as MMTers note, we are a long way from the full productive capacity that would “overheat” the economy today.

Murphy writes of his Green QE proposal:

The QE program that was put in place between 2009 and 2012 had just one central purpose, which was to refinance the City of London and its banks.… What we are suggesting is a smaller programme … to kickstart the UK economy by investing in all those things that we would wish our children to inherit whilst creating the opportunities for everyone in every city, town, village and hamlet in the UK to undertake meaningful and appropriately paid work.

A network of public banks including a central bank operated as a public utility could similarly fund a US Green New Deal – without raising taxes, driving up the federal debt, or inflating prices.


This article was first published under a different title on Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including Web of Debt and The Public Bank Solution. A 13th book titled Banking on the People: Democratizing Finance in the Digital Age is due out soon. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at

24 Responses

  1. Don’t take any notice of MMT naysayers, Henwood is one example. He mischaracterises MMT then spends many paragraphs on trying to diss it, As Bill Mitchell writes, these guys, like Rogoff and Krugman are joined in a conga line of economists who are seeing all their work become invalidated. Past time too.

    They miss the fundamental idea of MMT. It is a DESCRIPTION of what exists in the economy already. It is not a hypothesis needing evaluation. It is FACT. It just needs to be recognised.

    The Monetary Sovereign government of the USA is the originator of its currency,[via the Constitution] FACT. It can spend to pay for its debts and create the money supply,FACT. I bet if you asked these self important “economists” to describe the origin of the US $ they would get it wrong. They probably also think you can spend a Budget Surplus! Ridiculous.

    The mainstream economists are a blot on the profession and now we are seeing the inevitable correction. but not without a rearguard action

    • It’s good to read at least no one is quoting Karen Hudes.

  2. An excellent analysis and solution to the problem of usuary.

  3. Note Please:
    On May 23, 1933, the truth was told by Congressman, Louis T. McFadden, brought formal charges against the Board of Governors of the Federal Reserve Bank system, The Comptroller of the Currency and the Secretary of United States Treasury for numerous criminal acts, including but not limited to, CONSPIRACY, FRAUD, UNLAWFUL CONVERSION, AND TREASON.

    The petition for Articles of Impeachment was thereafter referred to the Judiciary Committee and has YET TO BE ACTED ON.

  4. Please will one of you give a status of the activity of creating public banks in America and identify where they now exist arround the world ? Please ? Monte McKenzie

    Sent from Mail for Windows 10

  5. Reblogged this on The Most Revolutionary Act and commented:
    MMT advocates say the government does not need to collect taxes before it spends. It actually creates new money in the process of spending it; and there is plenty of room in the economy for public spending before demand outstrips supply, driving up prices. Lincoln did it with Greenbacks and Roosevelt with with the Reconstruction Finance Corporation. Both were immensely successful in saving the economy and reducing people’s misery.

  6. […] Ellen Brown Writer, Dandelion Salad The Web of Debt Blog March 21, […]

  7. Sorry: ” the exponentially growing interest tab is one of those mandatory budget items that taxpayers must pay. Predictions are that in the next decade, interest alone could add $1 trillion to the annual bill, an unsustainable tax burden.”…No!

    The taxpayers mustn’t pay that tab. The government must pay that tab. Easy way to pay it: with dollars that the government can make literally without limit. Witness the $16 – $29 trillion in credit the Fed issued in 2008. No tax increase (and no inflation necessary)…

    Dollars are part of the debt. In fact that’s true with banks too. Your account is your asset which is the bank’s debt. When you write a check, you’re assigning a portion of the bank’s debt to the payee. Currency is simply checks made out to “cash” in fixed amounts. It appears on the Fed’s books as a liability (i.e. debt) too.

    What’s the common name for the dollar financial assets of the economy (besides “citizens’ savings”)…it’s “National ‘Debt'” Dollars are part of that debt that, like typical checking accounts, do not bear interest. T-Bills and treasury bonds are like savings accounts….

    So…could the Fed issue dollars (which don’t bear interest) and buy up all the treasuries in the economy? Obviously yes. So no more interest owed! Would the government have to raise taxes for this to happen. Again, obviously not. They could simply issue the money, just as you could simply move your assets from savings to checking.

    You need to stop characterizing MMT with these bizarre misstatements.

  8. I see that my last reply was not posted. I believe because it contained a human solution to the problem. I advocated a economic (an all inclusive issue of upgrading human beings living their lives and contributing to the whole development process without inpovertizing anyone) with the use of the force inside all of us – human creativity. This can be accomplished by the use of Alexander Hamiltons credit system rather then the current British Empire’s speculative system. Those who attempt to ‘”solve the problem” within the confines of the existing British controlled monetary system, such as the MMT,m especially now that the Alexandra Ocasio Cortez ‘New Green Deal” has exposed it’s self as anti-human, will fail. Was that too ‘revolutionary’ for this site? Our American Founding Forefathers brought our Nation into existence rejection the ancient speculative system that kept people impoverished and controlled. So why is it even being treated as legitimate now?

  9. Hello.
    I am Japanese. I’m reading and writing with machine translation.

    “A major contradiction of tying money supply to debt is that the creators of the money always want more money back than they have issued. Debt-based money must be continually repaid with interest. As money is continually being repaid, new debt must be being generated if the money supply is to be maintained.…”

    I found a very interesting article on interest.
    Is this article correct?
    Let me hear your opinion.

    Debunking the “Debt-Virus Hypothesis”

  10. […] Continue Reading […]

  11. ““All bank reserves are originally created by the Fed for banks.” Really??? The definition of fractional reserve banking describes fractional-reserve banking is the common practice by commercial banks of holding reserves at least equal to a fraction of the bank’s deposit liabilities. Reserves are held as currency in the bank, or as balances in the bank’s accounts at the central bank. The banks provide reserves to the FED not the other way around. OR have I missed the spaceship to an alternate universe?

    • Maybe you may want to ask bank of America a question or two with this doc in hand and ask who are the Hands and Legs.
      Why and how does the FEDERAL RESERVE claim ownership of all American people and their land? See lien docs. doc 1 doc 2

    • Fractional reserve banking died out years ago. The current theory is Credit creation banking. Reserves are for interbank dealings and currency markets, not loans.

      • There is no currency just notes.
        This is why the banks can’t answer these 3 questions.

        1. Produce documentation of prior title, ownership and rights to the money you purportedly loaned me;
        2. Produce documentation of the history and origin of funds that you/principal purportedly had prior title, ownership and rights to that you purportedly loaned me. It’s my comprehension that banking requires 3 generations at least if not all the way back to issuance/creation of the alleged funds and that this is why banks issue a letter of origin/history of funds.
        3. Produce documentation of the actual transaction and transfer of said funds (prior title, ownership, and rights) from loaner to borrower (invoicing/receipts) as there is a difference between a “loan” and “debt”, conceptually and factually.

        When your bank won’t answer these question, cannot answer these question you now know what to do about your payments.

        • Sounds suspiciously nonsensical. No comment warranted.

          • So you must believe your dollar is a certificate. LOL
            Are you afraid to ask legal questions of your bank about a contract you have with them.
            Remember all are digital entries no actual money is involved. You cannot disprove this. Just ask the questions. You don’t have to do anything but will know the truth.

            • I know full well what to do. It is just that what you are saying sounds ridiculous.

  12. In my educated opinion I believe that the MMT (along with the resurrected 1930’s German Green Policy) is a product of a generation raised on ingesting Disney movies. Not to degrade the intent to bring humor to children but when applied to a entire Nations ability to bring to the fore the freedom for individuals ability to create a better nation, a better world, these ‘new’ concepts seems to have originated in a mind of a Micky Mouse like character, Pluto, or the Charley Chaplin who helped Hollywood entice Americans to enter WW uno. Shunning the way to dip the movie film into a ‘Fix’ that will prevent any changes in the future scenes of a movie, Alexander Hamilton would bend over laughing at the script. But in the minds of those producing these concepts I believe there are serious infantile flaws.
    An excellent book on Hamilton (isbn 978-1-53206754-9 by Nancy Spannaus, a college of Richard Freeman [who Helen has quoted in her book Web of Debt]), goes into Hamilton’s distaste for Wall Street but promoted the use of a credit system that rapidly grows an entire economy that liberates the creative aspects of human nature to bring a economic advancement many times the rates of interest assigned to long term funds into key infrastructure, industry and ag. At the end of 100 year loans varying between 3 or 4 % fixed charge, a population can experience a 5-600 % growth in the living standards…compare that with the fixed freebies the Greens offer – or the MMT, that is formulated by thinking in the comic book of the ancient system of kings and wild eyed dictators, who seem to believe that any necessary infrastructure would be drawn in by Walt Disney’s staff. Actual currencies come into existence once the physical or other population enhances are made – opposite of use of money to create a minor physical product after the speculators, insurance, and stock-shoppers have looted the primary bulk of the alleged golden egg.
    I’m quite confident that Helen, or any other reasonable human that absorbs Spannaus’s researched intent of Hamilton would come the similar conclusion’s as this writer.

  13. Your “educated opinion” doesn’t rise to the challenge that MMT proposes to the mainstream’s fatuous economic theories, which you have sided with. The past is another country. Fiat currency is a different world to Hamilton’s. I don’t think Hamilton knew about Disney either. The FIRE sector is a post 2008 problem, which should be bankrupted.

  14. […] Originally published on […]

  15. It is true that government spending currently has to be financed either by tax revenues or the sale of interest-bearing bonds, and that new money is created by banks lending it into existence at interest. The key word here is CURRENTLY. There is nothing inherent in the nature of the universe requiring that to be so. It’s a state of affairs created by the decisions of human beings.

    • It is NOT true that Federal government spending has to be financed either by tax revenues etc etc. Government spending creates the money supply by paying its debts which arise from appropriations bills in Congress. It’s called deficit spending [compared to taxation levied] and it extinguishes the debts. Tax is not government revenue. They create enough without needing it, as far as the Federal Government goes. It’s different for the states etc.They do need taxes.

  16. […] 原文 […]

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: