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by gph1
5031 days ago
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You are correct that the fiscal reality of a sovereign currency issuer is not like that of a businesses or households. If you carried this thought furthur, you'd realize why some of your concerns are unfounded. A government that controls its own currency and does not keep any exchange peg is not revenue constrained. The only real constraint on gov't spending is inflation (that we match our deficit spending $ for $ with bond issuance is mostly an institutional legacy from the gold standard/ fixed exchange rate era, as well as performing certain key functions in stabilizing our payments system). I challenge you to identify a point in history when we had to raise taxes in order to pay off retiring debt. Debt is paid by shuffling numbers in a xls at the Federal reserve. That's probably the best way to look at government spending in general--as ex nihilo. Spending creates money, and taxation destroys it. So think of taxation not as raising money per se but as the government draining enough aggregate demand from the system so as to enable it to spend sufficiently to achieve its goals without causing undue inflation. Moreover, there is nothing a priori good about a balanced budget or a surplus. A surplus means the government is draining more income from the private sector than its adding in. In general, because household savings and a current account deficit represent a leakage of demand/income, the US should and does run a deficit most years (otherwise there wouldn't be enough available income in the system to purchase our output every year). Right now especially, with depressed household consumption due to the debt overhang and massive excess productive capactiy, the government should be running huge deficits in order to support private sector incomes. |
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I love thinking about our money supply like that. I'm stealing your quote.