“Deficit” and “debt” fool most people, because these words sound negative. But think about it this way:
A federal “deficit” occurs when the federal government creates and spends more dollars than it receives in taxes. Similarly, when the government runs a surplus, the government takes more dollars out of the economy than it sends into the economy. A government surplus is the economy’s deficit.
The added dollars from federal deficit spending go to one of two places:
1. Into the U.S. economy, where they become Net Savings, or
2. To foreign economies to pay for Net Imports
Thus, the equation: Federal Deficits = Net Private Savings + Net Imports
Banks create dollars by lending, but those are not net dollars. For every dollar created by a bank, a loan obligation also is created –- the new dollars are offset by new obligations, so they net to zero. Only the federal government creates net savings dollars.Monetary Sovereignty
Mathematical proof that deficits should be increased. Send it to your favorite debt-hawk
Rodger Malcolm Mitchell
"1. Into the U.S. economy, where they become Net Savings"
ReplyDeleteYes but whose net savings exactly? Joe Schmo's $1000 or Mr Oligarch's billions?
"2. To foreign economies to pay for Net Imports"
i.e. to pay foreigners a pittance to do the jobs that Americans used to do before they all got sacked by Mr Oligarch so that he could increase his profits.
Then Mr Oligarch gets to accumulate interest from all those lovely government bonds he owns, which the government has to sell to Mr Oligarch to support all the Joe Schmos he sacked when he offshored their jobs to child labour land.
That's another way of looking at it.
Yes but whose net savings exactly? Joe Schmo's $1000 or Mr Oligarch's billions?
ReplyDeleteThe deficit trickles up as firm profits when accrue to the equity holders. Some of that is in pension funds, so it is not all garnered by the 1%.
lets not forget though that much of the government's deficit is down to military expenditure, corporate subsidies and bailouts. And then of course the interest-paying debt flows to bond holders, with the richest bond holders getting the most money.
ReplyDeleteDeficits and debts are not always or necessarily things to be celebrated.
y, this is the fly in the ointment without taxing away economic rent and ending corruption and capture. On the other hand, this is the essence of capitalism and why capitalism is not a good fit with liberal democracy, which is based on equal opportunity.
ReplyDeletey, even if we eliminated military spending altogether, I think we would still want to run a deficit by reducing taxes juts as dramatically. In a normal economy, we need a deficit so we can get the maximum amount of economic activity consistent with the savings desires of the non-government sectors.
ReplyDeleteDan, you don't necessarily have to accomodate everyone's savings desires.
ReplyDeleteWhat if the top 5% decide that they'd like to save hundreds of billions, thank you very much. You could tax some of it and redistribute that spending power, for example.
A lot of people can't get more tax cuts because they are already not being taxed (or very little, it's not going to be a major difference).
ReplyDeleteMiddle class are small business entrepreneur class could benefit from more tax cuts (even less regulation on some areas, which favour big corporate world). But to fix this you need a basic income (sufficient enough to enjoy a relatively stable life), and guarantee unemployed some sort of sustainability.
You need to tax inflation creation by the top percentile of the population and wide profit margins from non-productive activities (ie. landowners exploitation), and even productive ones shouldn't be able to have big profit margins where income more than covers profitability to do business, if they do is that 'free market' is failing some way (price fixing, oligopolies, etc.).
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ReplyDelete"What if the top 5% decide that they'd like to save hundreds of billions, thank you very much. You could tax some of it and redistribute that spending power, for example."
ReplyDeleteI agree. Is ridiculous you should accommodate 'saving desires' (Warren Mosler tends to defend this), when there are conservative studies that TRIllions of USD are being 'saved' in tax heavens by 1-0.1% of the populations. Money should be spent in goods or invested to produce more economic activity and never be and end in itself.
Too little blood is bad, but too much blood is also bad, the system must have about the right amount of blood with as few leakages as possible (the so called 'savings'). If we had the proper institutional and social arrangements even no one should (not could, which they should be able to do) need to 'save' for retiring at their old age.
"inflation creation by the top percentile of the population"
ReplyDeleteI need to research this more. Can you describe what you mean exactly?
Another possible issue with accomodating all 'savings desires' is that it could potentially increase the risks of a sudden and major currency depreciation, as people start selling off/dumping assets, and you get a snowball effect, with 'savings desires' suddenly falling very sharply and inflation rising sharply.
ReplyDelete