Balance Sheet Structuralism: the institutional limits of monetary sovereignty in advanced economies

This article develops the Balance Sheet Structuralism (BSS) framework to reassess the assumption of infinite credit elasticity embedded in conventional horizontalist and Modern Monetary Theory (MMT) approaches. By integrating Stock-Flow Consistent (SFC) accounting with a Lotka–Volterra dynamical system, the analysis suggests that the Basel III Supplementary Leverage Ratio (SLR) places a binding nominal boundary on sovereign debt expansion. The framework highlights several macroeconomic implications: sustained fiscal deficits tend to generate an endogenous structural floor for interest rates; Quantitative Easing (QE) appears limited in its ability to expand nominal balance-sheet capacity; private-sector “crowding out” arises primarily as an accounting friction rather than a constraint on real resources; and shadow banking operates as a key systemic pressure valve. Taken together, these findings point to a distinction between a sovereign’s unconstrained capacity to create currency and the practical limits imposed by the financial system’s ability to absorb it. Within this perspective, conventional horizontalism emerges as a boundary case that holds only under conditions of ample regulatory slack.