Sovereign currency makes austerity inappropriate

Sovereign currency makes austerity inappropriate
Posted on November 6, 2018 | Larry Kazdan | Written on October 4, 2018
Letter type:


National Post

Re: Wolf is truly at provinces' doors, Andrew Coyne, Sept. 29

When the First World War began, Europe was on the gold standard and experts predicted fighting would last only months because governments would run out of money.

But since wars are fought with real resources, the belligerents simply suspended the gold standard and kept on fighting.

Today we are no longer on the gold standard, and a war-like mobilization would enable us to jumpstart our underperforming Canadian economy. The amount available for equalization payments could be dramatically increased and provinces might use the funds to put people back to work through infrastructure renewal, environmental stewardship, and better provisioning of health and education.

Any recommendation that provinces cut vital services today derives not from an appraisal of true economic possibility, but from a misguided pre-war mentality of penny-pinching, inappropriate for a country with a sovereign currency and unused available resources.

Word count: 157

Copyright Postmedia Network Inc. Oct 4, 2018


1. Essential insights of Modern Monetary Theory (MMT)


The essential insight of MMT is that sovereign, currency-issuing countries are only constrained by real limits. They are not constrained, and cannot be constrained, by purely financial limits because, as issuers of their respective fiat-currencies, they can never “run out of money.” This doesn’t mean that governments can spend without limit, or overspend without causing inflation, or that government should spend any sum unwisely. What it emphatically does mean is that no such sovereign government can be forced to tolerate mass unemployment because of the state of its finances – no matter what that state happens to be.

Virtually all economic commentary and punditry today, whether in America, Europe or most other places, is based on ideas about the monetary system which are not merely confused – they are starkly and comprehensively counter-factual.


2. Economics for Everyone: A Short Guide to the Economics of Capitalism (2nd Ed.), Jim Stanford, Pluto Press, P. 352

If money can be created out of thin air by the government’s own bank, to buy financial securities, why can’t it be created out of thin air to do other things – like putting people back to work in real jobs? The answer is, ‘It can be.'


3. Alan Greenspan, former U.S. Federal Reserve Chairman, 1997

"[A] government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit."

4. Fiscal federalism: US history for architects of Europe’s fiscal union


"(p.4)......states in the US can abide by strict budget

balance rules to the extent the federal government is responsible for

stabilisation and the bail-out of insolvent banks, but this simple lesson

is sometimes overlooked in European discussions.

(p.23)  Fiscal transfers from the federal government directly into state budgets, to help them fulfill federal mandates and otherwise alleviate budget pressure, ameliorate the procyclical influence of the states during downturns."

About The Author

Larry Kazdan's picture

Larry Kazdan has undergraduate degrees in history and sociology, is a retired Chartered Professional Accountant and runs the website
Modern Monetary Theory in Canada.... More