But MMT ran with it: central banks could "print money" to pay for any amount of spending. At the limit, they had a motto: there is no constraint on how much the government can spend. This is an absurd limit, wrong and backwards: CB reserves are just another form of borrowing— Ricardo Reis (@R2Rsquared) February 18, 2021
MMT starts from a likewise correct result in monetary macro: as central banks now satiate the demand for reserves, govt spending can be paid for by issuing CB reserves. This increase in M0 per se has no impact on interest rates, inflation, nor does it crowd out investment.
The (approximate) irrelevance of the size of the central bank's balance sheet has only been true post-QE. So it may not be as widely understood. But it is still standard: a boring economist laid it out in Jackson Hole back in 2016 with no controversy.
- How do operations work now? Money is spent into existence by the central government. This is the study of operations, and although interesting, just a statement of facts, and obviously not a policy stance.
- Using operations to explain why mainstream discussions of financial constraints are incorrect. Neoclassicals have been dragged towards the position that currency sovereigns are immune to involuntary defaults, but the conversion towards the MMT stance is not safely described as a consensus yet.
- The only policy recommendations revolve around abolishing the government bond market, and locking the overnight rate at 0% by legislation. (A less extreme version is the trillion dollar coin proposal, which leaves the Federal Reserve as-is, but eliminates institutional constraints on spending.)
- an "independent" central bank right now purchasing government bonds because its reaction function implies a negative spot overnight rate;
- legislation committing to the end of government bond issuance, and locking the policy rate at zero.