Marshall Auerback — Who’s afraid of the big, bad deficit wolf? Not China.

… it’s nice to see that at least one major economy is not succumbing to the screams of the fiscal deficit fetishists. Far from being a burden, the deficits and the corresponding government bonds constitute the foundation of private financial wealth in any nation that creates its own sovereign currency for use by its citizens. Debt owed by the government yields net income to the private sector, unlike all purely private debts, which merely transfer income from one part of the private sector to another. In basic national accounting terms, government deficits equal non-government savings surpluses.

Notwithstanding the obvious reality that sovereign governments have no solvency risk because they create their own currency, most financial commentators (and economists) still waste their time talking about sovereign default risks. Unfortunately, we implicitly legitimize this sort of talk when we use the analogy of the household and the alleged need for government to embrace budgeting like a household does. Remember, firms, households and even state and local governments require income or borrowings in order to spend. But a sovereign government’s spending is not constrained by revenues or borrowing. It is constrained only by what its population chooses as national goals.

Fortunately, Beijing appears to understand this. Would that similar wisdom were shown in Washington, Ottawa, Brussels or Berlin.

Macrobits
Who’s afraid of the big, bad deficit wolf? Not China.
Marshall Auerback
(h/t Kevin Fathi via email)