Understanding Modern Money Operations is Easy

1. Dollars are created when government (and their central banks) spend. Contrary to popular belief, governments DO NOT NEED to collect taxes or to borrow before they spend. They can simply create dollars from thin air.

2. Too much of the latter sort of “money creation” leads to excess inflation, and too little leads to households not having what they regard as enough money. So spending declines and unemployment rises.

3. It follows that attempting to balance the budget or avoid deficits or anything of that sort is a TOTAL AND COMPLETE waste of time. It’s pointless. If unemployment is excessive, government needs to create money and spend it (and/or cut taxes). Conversely, if inflation is excessive, government needs to do the opposite: that is, withdraw money from the private sector via a budget surplus, and “unprint” the relevant money.

(h/t Ralph Musgrave)