Policy responses to the COVID-19 pandemic, much like policy responses to the global financial crisis and Great Recession of a decade ago, carry a couple of clear macroeconomic lessons for anyone who cares to learn them:
1. A currency-issuing government faces no revenue constraint.2. A currency-issuing government dictates the terms on which it issues debt.
It is not only electorates that, understandably, have been slow to appreciate these aspects of reality. Plenty of economists, perhaps with less excuse, also exhibit little understanding. The lessons had better be learned fast, or austerity will be applied once the situation attenuates on the spurious grounds of “paying for” the fiscal deficits of the present period. While fiscal restraint, in some measure, may turn out to be appropriate, depending on the presence or absence of inflationary pressures, “paying for” past deficits can never be a legitimate justification for a tightening of fiscal policy.heteconomist
The Unlimited Financial Capacity of Currency-Issuing Governments
Peter Cooper
1 comment:
Except the economy does not run off fiat* but instead runs off the deposits of private depository institutions who ALSO create deposits ("Bank loans create bank deposits") but NOT for the general welfare but for the private welfare of the banks themselves and for the so-called "credit worthy."
Now there's no practical way to prevent private deposit creation but why should government privilege** its rivals for real resources? Hmm?
* except to a relative small extent on mere, grubby (virus anyone?) physical fiat, coins and paper CB notes.
**e.g. government provided deposit guarantees.
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