Deficits are our saving

[girl gone mad]

Deficits are our saving
William Mitchell
http://bilbo.economicoutlook.net/blog/?p=10384

Even the most simple understandings are lost in the public debate about budget deficits and public debt. The Flat Earth Theorists who whip up deficit hysteria each day like to stun people with large numbers. They produce debt clocks that relentlessly tick over and try to get us to believe that impending doom is upon us. But if we just take a deep breath and think the situation through we would see that the ticking debt clock is really just a measure of the portion of non-government wealth embodied in public debt. We would then learn that budget deficits are just the mirror image of non-government savings. Saving is usually considered to be something we should aim for. Increased wealth is also something we usually aspire to. So the increasing deficits and increased debt outstanding is, in fact, beneficial to the private sector (overall). Once we understand that then the deficit hysteria becomes transparently ideological. These characters just hate government and want to get their greedy hands on more of the real pie.

I thought this article – http://www.guardian.co.uk/commentisfree/2010/jun/17/fiscal-deficit-threat">The national debt is money the government owes us – which appeared in the UK Guardian (June 17, 2010) was interesting. If more people understood the argument that the journalist (Paul Segal) is making then the Flat Earth Theorists would starve for oxygen.

Segal says:

Politicians on the right love to scare us. George Osborne, in his Mansion House speech cited “fears” over government solvency and sovereign debt crises. David Cameron has declared the fiscal deficit a “threat” to “our whole way of life,” and “a clear and present danger to the British economy”. This is nonsense. The threat we face is ideologically driven cuts that risk causing a double-dip recession.

The fiscal deficit seems scary because it is debt. Cameron argues that within five years the national debt will rise to “some £22,000 for every man, woman and child in the country”. This may be true, but what he doesn’t tell us is that it is money the government owes to us – not money that we owe to anyone else. That’s right: 80% of our government debt is owed to the British people. What is called “national debt” is our own savings, looked at from the other side of the balance sheet.

People get very confused about the concept of national saving. They assume that saving is spending less than you earn and then apply that to budget surpluses and conclude that the surpluses add to national saving. But this view is erroneous. A sovereign government does not save. What sense does it make to say that the government is saving in the currency that it issues? Households save to increase their capacity to spend in the future. How can this apply to the issuer of the currency who can spend at any time it chooses?

http://bilbo.economicoutlook.net/blog/?p=10384">more...

[OnlinePoker]

1. What could the government do with an extra $164 Billion per year?

That is how much interest is being paid out on the accumulated national debt this year, up 18% over last year. Short term deficits may be required during periods of financial hardship as we're seeing now, but built in, long term deficits only serve to rob the potential of the country.

This is the Presidents budget request to congress for 2010 so you can see where the money comes from and where it goes.

http://en.wikipedia.org/wiki/2010_United_States_federal_budget

[jtuck004]

2. You wann know what's really funny?

If we paid all the debt back, we would be finished, as far as I can tell. Because unless the government runs a deficit, there is no money in the economy.

People seem to think the government operates like Aunt Minnie's cookie jar. If she spends more than she has she goes into debt. Too much debt, she goes bankrupt. But the government can't do that, because it manufactures "money".

The way it works is the government issues money (we are no longer on a "gold" standard, so it's all fiat money, simply created out of thin air by Congress) and the government then puts it into the economy by adding zeroes to commercial bank accounts, selling bonds (fairly inefficient way of doing it,imho) etc.

Putting that money out there allows us to trade with it, exchange it for goods, and, most importantly, pay taxes. When the government wishes to shrink the supply, they tax us. We pay it in and "poof", it dissapears.

When they run a surplus, the country goes into recession, because the money supply is too small for the country to operate.

So, if the governement wanted to do things, like, say, create $10/hr jobs for everyone, or just do away with payroll taxes for a year, Congress just needs to say it's ok to make more zeroes. We would be floating in good times, until they needed to increase taxes because inflation started rearing it's wittle head. (Though with 31 million people not working or not making enough to pay their bills it might be a while before we have to worry about that).

The people who most want the deficit paid back are those who want to steal the money that working people paid in payroll taxes, which was then used to pay off hedge funds. If the deficit is not paid off we might have to raise taxes in 10 or 20 years to fund SSI, which would make them pay back the billions that they (about 15% of the population who makes a large percentage of their money from investments that have a favorable tax, not paychecks) took from working people.

For the working person, or about 85% of the folks, there is no advantage to "paying back" the deficit.

[girl gone mad]

3. Right, and this premise isn't even controversial.

It's just basic double-entry bookkeeping.

I would agree that it's a bad idea to have a large portion of our debt owned by foreigners. I also think it's crazy that our government pays banks to print money out of thin air - something the government should be perfectly capable of doing on its own.

[jtuck004]

4. Why is that anyway, some holdover from the gold standard? I

saw a discussion on a site the other day about the fact that it is illegal for the Fed<?> I think it was, to do that. I will have to go find that discussion...

[jtuck004]

5. This is the post that your statement brought to mind.

It concerns how the Fed gets money to the treasury. I think the guy is making the argument that because they have to buy bonds on the open market this invalidates the whole theory of MMT, because they can't create money. It almost sounds like he is making the argument that if the Fed can't write checks MMT must be wrong <G>, but I haven't found enough information about the process to figure out where he goes astray...

It's near the bottom of this link:

http://rogueeconomistrants.blogspot.com/2010/02/questions-about-chartalism.html

"The Federal Reserve Act is structured in such a way that the Fed is restricted from interacting with the Treasury in many ways. Sections 13, 14, and 16 are relevant to this. For instance, the Fed can only buy securities in the open market, and not directly from the Treasury. To make a long story short, the Act prevents ex-nihilo creation of Fed deposits for the purposes of the Treasury.

The Act allows the Treasury only one way to increase its account at the Federal Reserve, and that is by transferring in money from Treasury accounts held at private banks. And the only way for the Treasury to increase its accounts at private banks is through tax inflows and bond issues. Thus, the Treasury IS financially constrained.

So I would say that MMT is no description of modern central banks. All it describes is a hypothetical world in which there are no legal barriers between the Fed and the Treasury. ie. a much more centralized government, probably a police state. As such, it's not a bad theory."

[Hawkowl]

6. Brilliant summation!

I think you have the modern fascist/capitalist/bankster state summed up in a nutshell.

[Statistical]

7. Many countries operate with no deficit, limited deficit (less than 3% of GDP) or even run surpluses.

So china is in a recession.

China now has $300 billion (and rapidly growing) in a sovreign wealth fund. Instead of a per capital national debt there is a per capita national surplus.

http://en.wikipedia.org/wiki/China_Investment_Corporation

The fund will generate billions in revenue a year which can be ADDED to spending.

[fasttense]

8. Such a silly argument this federal debt thing is.

Everyone knows that if we stopped the wars there would be no debt. Oh you would pay for a awhile but if we put all that money we are wasting on 3 wars, into balancing the budget, the RepubliCONS would not have that boggy man of debt to scare, and of course CON, Americans with.

Simple, stop the wars, the debt problem is solved, let's move on to the next issue.

Stop the wars and you balance the budget. No more debt.

So the real question is why are we fighting 3 wars we can't afford? Why are we borrowing money to fight silly, useless, never ending wars?

[truedelphi]

10. Oh, but when those of us who have hated the TARP Bailouts for the Too Big To Fail

Financial firms try to point out that the government should be its own central bank, and should not be loaned money from those on Wall Street (who have taken it from US!) we are told - no the government is not charged any interest.

But you tell a different story. So which is it?

[golfguru]

14. U.S. Economy: Confidence Sinks on Concern Over Jobs

http://www.businessweek.com/news/2010-06-29/u-s-economy-confidence-sinks-on-concern-over-jobs.html

[Art_from_Ark]

9. So deficits really don't matter?

You mean, Snarling Dick Cheney was actually right? :crazy:

http://www.ontheissues.org/2004/Dick_Cheney_Budget_+_Economy.htm

[jtuck004]

11. That's funny. Says they don't matter, and then by paragraphs

4 and 6 says they do.

What's that old saying, even a bloodless, sociopathic war criminal is right twice a day? Or is it a stopped watch. I can never remember...

[Art_from_Ark]

12. I think the actual saying is

"Even a broken clock talks out of both sides of its mouth"

or maybe, it's "A soulless, sociopathic war criminal talks out of both sides of his snarling mouth."

I can never remember...

[jtuck004]

13. LOL - this could go on for a while.... n.t.