Photo by Karen Laårk Boshoff:
https://www.pexels.com/photo/cluster-of-australian-dollar-coins-7186390/
MMT's fundamentals are straightforward. Governments that issue currency authorises expenditure through appropriation legislation and the corresponding account at the central bank is marked up. That bank then credits the appropriate customer. This procedure does not change because of previous fiscal positions, the government's balance, or the bonds they choose to issue. So there should be no disagreement about it. That is how government spending works.
The notion that our treasuries are at the whim of central bankers or bond market speculators is absurd. The Australian government has spent almost $200 billion on COVID, and central banks worldwide have been buying debt on the secondary market (referred to as Quantitative Easing).
The point is that the Australian government generates dollars through appropriation bills. According to the website finance.gov.au, there are two basic types of appropriations:
annual appropriations—a provision within an annual appropriation Act or a supply Act, that provides annual funding to entities and Commonwealth companies to undertake ongoing government activities and programs
special appropriations—a provision within an Act (that is not an annual appropriation Act or a supply Act) that provides authority to spend money for particular purposes (e.g. to finance a particular project or to make social security payments). Special accounts are a subset of special appropriations.
It continues with,
'While appropriation Acts authorise the drawing of money from the CRF [consolidated revenue fund]*, they do not authorise the spending of that money. Legislative authority is required for the Commonwealth to enter into arrangements to spend relevant money for a particular purpose.'
*The CRF is a 'conceptual' account established under the Australian constitution and contains all 'money,' regardless of its location. The official public accounts are a series of accounts held by the Australian government at the Reserve Bank (OPA). The figures in these accounts are not part of the money supply.
Understand the CRF to be a transactional account that tracks expenditure and taxation. The figures reported cannot be used by the government for spending. The Public Governance, Performance, and Accountability Act of 2013 provides for spending authorisation following appropriation.
The PGPA Act of 2013, under section 51, says
(1) If an amount is appropriated by the Parliament in relation to a Commonwealth entity, then the Finance Minister may, on behalf of the Commonwealth, make the appropriated amount available to the entity in such instalments, and at such times, as the Finance Minister considers appropriate.
(2) However, the Finance Minister must make an amount available if:
(a) a law requires the payment of the amount; and
(b) the Finance Minister is satisfied that there is an available appropriation.
Treasury operations are never "funded" by the markets. Appropriation legislation fulfils that role. The central bank's account is marked up when the expenditure is authorised, enabling the banks to buy bonds. What the former financial balances were is irrelevant. The spending now and the availability of real resources are what count. With QE, the Treasury's debt management divisions have been producing bonds, letting financial institutions purchase them, and then central banks have been buying them a little later.
So when stuff.co.nz writes:
"Purchasing debt (issued in the form of bonds) on the primary market means that instead of purchasing bonds from third parties like banks and investors, the Reserve Bank would buy the bonds directly from Treasury itself. One part of the government would buy bonds issued by another part of the government, cutting out the middleman. It's a big move. "
Bond issuance provides no funding. Instead, bond issuance converts currency in reserves to interest-bearing securities accounts. However, interest is now paid from the Treasury to the government's central banking branch, which then credits the Treasury.
"But Treasury's biggest concern was that skipping the secondary market would give New Zealand a bad reputation as it would look like the Reserve Bank was simply printing money for the government to spend. "
Financial institutions in New Zealand get NZD in their reserve accounts at the Bank of New Zealand by having the account marked up by the NZ Treasury. The funds come from appropriation legislation. There are no printers; only keystrokes occur.
It reminds me of complaints in 1910 when the Australian government outlawed private bank note issuance and issued its own through the Treasury. The Hansard records the member for Wentworth, Mr Kelly
We ought further to be informed what guarantees the public will have that this particular method is not being adopted for the purpose of raising money without paying interest thereon by a Government which refuses to borrow. (House of Representative Hansard No.30, p.690, 1910)
So there you have it, the very same old disputes because certain capitalists are deprived of their free lunch. They’d rather hide the workings of government spending to demonise it; collect their interest-bearing assets (bonds); watch governments decrease public spending; privatise public assets; and retain a desperate pool of employees working for desperate pay.
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