 The balance sheet approach to money and financeL. Randall Wray () Chapter 9 in Understanding Modern Money Theory, 2025, pp 206-237 from Edward Elgar Publishing Abstract: This chapter uses balance sheets to show how private and public spending are financed. The main conclusions of the endogenous money approach—that banks create money when they lend and are not reserve constrained—are demonstrated. The MMT approach to government spending is demonstrated, showing the operational procedures adopted that ensure government can spend up to budgeted amounts. Government spending normally results in credits to bank reserves and to the deposit accounts of recipients of the spending, while tax payments reverse that. Budget deficits result in net credits—demonstrating Wynne Godley's sectoral balance conclusion that government deficits create net financial wealth for the non-government sector. Balance sheets also demonstrate the main conclusions of the Circuit approach, Keynes's argument that investment creates saving, and the Kalecki profit equation's conclusion that investment and government deficits create profits. Finally, MMT proposals for eliminating government bond sales and zero interest rate policy are examined. Keywords: Bank balance sheet; Required reserves; Government bond sales; Zero interest rate policy; Central bank digital currency; Tax and loan accounts; Treasury government account; Dealer bank (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:elg:eechap:20168_9 Ordering information: This item can be ordered from Access Statistics for this chapter More chapters in Chapters from Edward Elgar Publishing |
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