Alan Longbon — U.S. Private Domestic Sector Balance Books A $147 Billion Surplus Through March 2019

Summary

• The US budget deficit is $147 billion in March 2019; this is a net add to private domestic sector income.
• Dollars added to the economy by the federal government allow the private sector to post a $147 billion surplus and add to its stock of net financial assets.
• Private credit growth was again flat and added less than $1.8 billion to the money supply. A big drop from the January contribution of over $70B.
• Further, income flows from the national government impact investment markets with a one-month lag, and so, can be a useful predictive tool. April is looking good up until the 15th when Federal income tax is paid and markets will fall into May 2019.

Seeking Alpha
U.S. Private Domestic Sector Balance Books A $147 Billion Surplus Through March 2019
Alan Longbon

Ricardo Martin — Monetary Sovereignty

The main lesson I want to draw from this post is (excluding being autarkic/poor or being in a monetary union): 

If a country wants to maintain a fixed exchange rate, the country must accumulate a lot of foreign reserves to be sovereign (or maybe some capital controls?) 

If a country wants to have floating exchange rates, it must convince its trading partners (or its trading partners’ trading partners) to hold its national currency as foreign reserves.

losinterest
Monetary Sovereignty
Ricardo Martin

Heiner Flassbeck — The economic situation in Bulgaria and Romania – Part 2

How little the two Eastern European countries that we have focused on can be compared with Western countries can be seen very clearly in the development of unemployment (Graph 1). Following the major crisis of 2008/2009, the unemployment rate in Romania hardly rose at all. In Bulgaria it increased significantly, but despite weak economic development after 2013 it is falling at an astonishing rate, almost to the relatively low Romanian level.

For Romania, this can only mean that unemployment is not recorded as such or that the outflow of labour is so rapid that, despite significant declines in production, the labour force does not register as unemployed at home. In the case of Bulgaria, there have probably been considerable migration effects in recent years, which have ensured that official unemployment has remained within limits.…

The neoliberal solution to unemployment at the national level—emigration to other countries where employment may be available.


Heiner Flassbeck joins Dirk Ehnts in backing MMT in Germany?

flassbeck economics
The economic situation in Bulgaria and Romania – Part 2

Heiner Flassbeck

Charles Adams — The single most important piece of economics that everyone should know [sectoral balances]

Sectoral balances may not sound like something you need to know, but if you will give me a moment I will try to convince you. It might change what you do....

Progressive Pulse
The single most important piece of economics that everyone should knowCharles Adams | Professor of Physics at the University of Durham, where he teaches Optics and Econophysics

Alan Longbon — Good News: The CBO Reports The Federal Government Deficit Will Be Larger Than First Thought And Go On For Decades

Summary

• Contrary to mainstream opinion the CBO report is a positive result.
• The CBO finds that higher deficits will lead to higher and faster GDP growth and employment.
• The governement deficit is the private sector surplus and while the private sector balance remains positive and grows the likelihood of a stock market crash or recession is low.

The purpose of this report is to show the finding of the latest CBO about the Federal deficit is a good thing and should be celebrated. To produce this report an analysis of the national accounts will be used and a sectoral balance model constructed after the work of British economist Professor Wynne Godley.

First a quick review of the newly released Congressional Budget Office report.…

MMT-friendly.

Seeking Alpha
Good News: The CBO Reports The Federal Government Deficit Will Be Larger Than First Thought And Go On For DecadesAlan Longbon

David Graeber — Accounting error spells chaos for global economy

The title may be alarmist but the post is worth reading. David Graeber points out that the sectoral balances don't actually balance and asks why, since it is an accounting identity.

When I first saw this diagram I was startled and confused. Was I missing something? Was there something about the math I didn’t understand? I passed the image on to two different economists and asked just that: isn’t there something wrong with the numbers here?

You’ll notice that towards the end of the graph, after 2014, the figures above and below the line are no longer equal. It’s easy to miss, but this glaring error has significant consequences for the global economy.

Both instantly got back to me, rather surprised they had not noticed it themselves, and confirmed that yes, indeed, there was something very funny going on here. One even wrote to the OBR himself, asking why the two sides didn’t match up, only to be informed it was a standard “residual error” that always occurs at first but is duly patched up later. (This clearly isn’t true: no previous OBR report contains such an imbalance; when this was pointed out to them they simply dodged the question). Here’s the link to the latest report.

This is what led to my piece in the New Statesman, calling for a public inquiry. I also asked my friend who made up the original diagram to adjust it to what it might look like corrected. This has to involve a certain amount of guess-work as we don’t actually know which part of the numbers are inaccurate. He provided me two possibilities; both extremely sobering.…

RenegadeInc
Accounting error spells chaos for global economy
David Graeber

Peter Cooper — Short & Simple 19 – Sectoral Balances in a Closed, Demand-Determined Economy

We have seen that the ‘income-expenditure model’ combines key macro identities (introduced in parts 7 and 15) with particular behavioral assumptions to provide a theory of income determination (considered in parts 16 and 18). The behavioral assumptions relate to causation. The causation envisaged in the income-expenditure model has implications for the sectoral balances, some of which are the focus of the present post....

heteconomist
Short & Simple 19 – Sectoral Balances in a Closed, Demand-Determined Economy
Peter Cooper

Brad Voracek — USA 2017 Q1 Sectoral Balances Update

I will keep an updated quarterly graph here on The Minsky’s as FRED releases data.

"Muddling along."

The Minkys
USA 2017 Q1 Sectoral Balances Update
Brad Voracek

Peter Cooper — Truth and Lies About Government Deficits

There is a lot of misinformation spread by politicians and much of the media on the topic of fiscal policy, particularly when it comes to the role and impact of government deficits....

There is a basic distinction that needs to be kept in mind to avoid falling for the lies. It is that although changes in government policy have an effect on the economy, the final fiscal outcome depends on what happens, partly as a result of those policies, to income and employment. This is why a larger fiscal deficit can occur alongside either weak income and employment (a “bad deficit”) or strong income and employment (a “good deficit”).

In reality, a currency-issuing government’s fiscal position is not important in itself. What matters is that the government’s fiscal policy is appropriate to the economic circumstances. During a period of economic weakness, the important point is to facilitate a sustained recovery. Once recovery is under way, incomes and tax revenues revive. The fiscal deficit narrows automatically as a result, although this is really neither here nor there. What matters is the strength and sustainability of the economic recovery.

heteconomist

Truth and Lies About Government Deficits
Peter Cooper

Bill Mitchell — Something is rotten in the state of … Britain

When I was trawling through the British fiscal statements in 2010 and 2011, hidden in all the detail (an obscure Annexe) was a very explicit statement that told me that the British government was inflicting austerity on the economy and relying largely on the growth of non-government indebtedness to offset the fiscal drag and restore the growth cycle. In the same documents but more visible (in the main fiscal statement), the Government was claiming that the non-government debt position that had deteriorated sharply in the lead up to the crisis was unsustainable as a growth strategy. The mainstream press didn’t pick up on the contradiction. Now, the same press seems alarmed with the latest data from the British Office of National Statistics that shows that the Government’s strategy has been working like a charm – the non-government saving ratio has plunged, household debt escalated sharply, non-mortgage debt has accelerated and to top of the impending disaster – real household disposable income growth has been negative for three successive quarters (the first time since the mid-1970s). None of these trends are surprising. I predicted them 6 or 7 years ago. I have been watching the results steadily unfold. But for the mainstream commentators it is all a big headline – ‘look at what we have discovered’ ….

Bill Mitchell – billy blog
Something is rotten in the state of … Britain
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Ramanan — Public Debt And Current Account Deficits

On account of sectoral balances

The Case for Concerted Action
Public Debt And Current Account Deficits
V. Ramanan

Neil Wilson — Savings are an Export Product

New economic thinking about savings, international trade, and open economies.

Modern Money Matters
Savings are an Export Product
Neil Wilson

Dean Baker — National Income Accounting for Robert Samuelson and Friends

Dean Baker does sectoral balance analysis but obliquely without mentioning it specifically.

Beat the Press
National Income Accounting for Robert Samuelson and Friends
Dean Baker | Co-director of the Center for Economic and Policy Research in Washington, D.C

Dirk Ehnts — Data source for US sectoral balances (links to data and updated graph)

FRED.

It looks like the private sector is starting to save more and/or invest less. The government deficit has stabilized, and so has the current account deficit. Given that the dollar is expensive and global growth weak, demand from the rest of the world will be relatively weak. In order to grow, demand must come from domestic sources then. The private sector, as I just wrote, does not seem to go on a spending binge (and into debt) right now, so it seems like expansionary fiscal policy is the way forward. Let’s see what 2017 brings.

econoblog 101
Data source for US sectoral balances (links to data and updated graph)
Dirk Ehnts | Lecturer at Bard College Berlin

Tim Wallace — US economy picks up speed as exports surge

NX is kicking in as a sector.

The Telegraph
US economy picks up speed as exports surge
Tim Wallace

Lara Merling — How the Government Deficit Helps the Economy

The Minskys
How the Government Deficit Helps the Economy
Lara Merling, UMKC

Dirk Ehnts — Sectoral balances of the eurozone

This afternoon I devoted to the sectoral balances of the eurozone. The current account is inverted, the public deficit a deficit and the private sector financial surplus a surplus. Some of the recent data is probably a forecast. I let the data speak for itself for now. Just one comment: the only country not able to run a consistent and significant surplus in the private sector is Greece. This is situation is hardly sustainable as debts are more easily repaid when a surplus exists. Continuation of the debt structure into the future is hence possible, but not likely.

Here the sectoral balances (in % of GDP; data from AMECO):

econoblog 101
Sectoral balances of the eurozone
Dirk Ehnts | Lecturer at Bard College Berlin

Andrea Terzi — Debt and savings in the euro area: An update (and how net exports have been keeping the EA afloat so far)

The current combination of sectoral balances makes the EA highly vulnerable. If private corporations remain net savers in a weak economy, and if governments consider their current deficit levels just about good enough to meet their fiscal rules, any turbulence originating from a rising value of the euro in the foreign exchange markets or from a further slowdown in the U.S. would leave private savings with no support and set the conditions for another recession.

Money And The Real Economy
Debt and savings in the euro area: An update (and how net exports have been keeping the EA afloat so far)
Andrea Terzi, Professor of Economics, Franklin College, Switzerland

Andrea Terzi — A T-shirt model of savings, debt, and private spending

As long as the Euro area enforces balanced budget constraints at ALL levels of government, the Euro area will not be sustainable.

I have summarized here the argument behind the statement above.

What follows is a simple model that shows the logic of the argument.

Money And The Real Economy
A T-shirt model of savings, debt, and private spending
Andrea Terzi | Professor of Economics, Franklin College, Switzerland

Philip Arestis and Malcolm Sawyer — Structural Reforms Are Not the Answer: Expansionary Fiscal Policy Is

 The obvious response to an excess of savings over investment is to run a corresponding budget deficit which enables the savings to be realised and supports aggregate demand. Some, such as Germany and the Netherlands are able to combine high savings with low investment through a current account surplus, but others need a budget deficit.… 

Triple Crisis
Structural Reforms Are Not the Answer: Expansionary Fiscal Policy Is
Philip Arestis and Malcolm Sawyer

Philip Arestis is Honorary Senior Departmental Fellow, and Director of Research at the Centre for Economics & Public Policy, Department of Land Economy, University of Cambridge; Professor of Economics at the Department of Applied Economics V, Universidad del País Vasco, Spain; Distinguished Adjunct Professor of Economics at the Department of Economics, University of Utah; Senior Scholar, Levy Economics Institute, New York; Visiting Professor, Leeds Business School, University of Leeds; and Professorial Research Associate, Department of Finance & Management Studies, School of Oriental and African Studies (SOAS), University of London.

Malcolm Sawyer is professor of economics at the university of Leeds, and a research scholar at the Levy Institute.