As with all fallacies, Modern Monetary Theory rests on some real insights into a matter, but seems to hinge on one or two key assumptions that are more matters of faith that historical or even practical experience e. In this is it can become not so much an economic theory, as a cult belief.
I do not say that lightly. It can become a cult because it is a matter of believers and unbelievers, those who will drink the koolaid, and those who cannot. And those who cannot must be ignored, because their arguments cannot be answered rationally. While this may be of some use in religion, which addresses matters beyond the scope of reason, it does not sit well in such a practical issue as the working of a monetary system.
This paragraph taken from Yves Smith’s recent article about MMT
“The sovereign government cannot become insolvent in its own currency; it can always make all payments as they come due in its own currency because it is the ISSUER of the currency, not simply the USER (as a household or private business is).
This issuing capacity means that the government does not face the same kinds of constraints as a private sector user of money, which in turn exposes the fallacy of the household analogy, so beloved in popular economics discourse.”
The finances of a sovereign are most assuredly NOT like those of a household. And those of a Bank are not like a household either.
In several ways they can be the inverse of a household in their motivations. For example, when household spending is slack because of an economic shock, the government may wish to engage in more spending to counteract this. Some think it is the role of government to keep the economy out of what is called a liquidity trap or as I understand it a feedback loop of cutbacks that greatly exacerbate the problem of slack demand.
This is one of the points of having a government, that is, to do things that the individual cannot do well alone, no matter how powerful they may think that they are, and to protect the rights of the many from those who are more powerful, both foreign and domestic.
