This is the position of economist money experts. Though I would argue taxes are not the only thing that give money value, just the most fundamental thing. Regardless, the arguments that taxes drive value are very compelling. [ cf. , the L R. Wray reference I cited.] The above is not something I would argue or "indicate". What I "indicated" is that deficits are the means by which governments increase the net amount of outside money in an economy. Since deficits are not debt*, the only deficit that one might want to reduce is the "un-necessary" deficit. That could be reduced either by increasing taxes or by growing the economy without a commensurate additional deficit. Ordinarily the Central Bank will only desire to reduce the net deficit if there is excessive erosion of the currency's buying power relative to competing currencies, i.e., too much inflation. The C.B., however, can exercise neither of these two remedies for excessive, un-necessary deficit (i.e., too much outside money) on its own. It needs cooperation of the legislative body. Consequently the C.B. may choose instead to sell sovereign bonds from its inventory into the private sector. This also will reduce the amount of outside money in the private sector economy by sidetracking it in the form of future treasury liabilities (reserve balances will be reduced). The immediacy of this latter remedy may be somewhat blunted, because Treasury liabilities may be collateral for credit. It is good to avoid making things more complicated than they need to be. In other words, things should be "as simple as possible, but not more simple." _____________ *Recognizing this may be the key to understanding fiat money. You haven't recognized it yet. You will eventually. Then you will have an "Ah Ha moment."
The effect of increasing taxes is direct and it's easy to understand, but how the aggregate deficit is affected depends, of course, on what happens to spending. The effect of growing the economy without increasing the deficit commensurately is a little more difficult to grasp. In this case a reduction in the aggregate deficit can come from the increased tax revenue of a greater GDP, but only so long as revenue exceeds spending. Then the aggregate deficit is reduced by the difference. Again, this can only make sense when there is an excess deficit to begin with, and not even then in every case. For any fixed accounting period, the amount of revenue change will not be accurately known until well after the accounting period ends. It is too late then to adjust spending. So naturally spending must be adjusted according to current exigencies. As a point of clarification, suffice it to say that in every case both revenue and spending must be considered to arrive at the net affect on the aggregate deficit. In the discussion above in post #21 I have simply assumed the obvious, namely that to achieve a reduction in aggregate deficit, i.e., what some misleadingly call the national debt, revenue must exceed spending in every instance. Otherwise, by definition, the aggregate deficit can not be reduced. And normally, unless large un-necessary deficits have accumulated to the point of causing an economic malady, there is little incentive to do this. The widespread misunderstanding of deficits among the public, however, affords the politician with rhetoric, though nonsense, that falls favorably upon their constituents ears. The natural, and sensible, course of every nation with its own fiat currency is to grow its deficit continuously so long as there is economic growth. If a nation, the typical nation at least, does not do this to a sufficient extent, it will eventually experience economic contraction, deflation, and depression. The exception will be nations with large nationalized natural resources that are exported at a nationalized profit. These nations may be able to run surpluses in their government's budget without throwing their economies into recession. These nations must still supply their economies with sufficient currency to support their economies, but growth in the amount of money that must be supplied to their economies may be more than offset by their export revenues. Of course their favorable balance of exports over imports results in a net unfavorable balance in some other nation.
Piezoe is really crazy... Piezoe... Our US govt does not create money... It borrows it form the FED creates and then it uses its banks to sell the notes or bonds in dollars. . It takes in money to create money. Money creation is done by the FED. It creates trillions of dollars... and buys assets with it. It also sets a target for money creation to match the expansion of the economy. The FED creates money... The US Govt borrows it to spend it. The US govt does not create money. And before you get into you bullshit. The fed is owned by private shareholders... not govt shareholders... you can read that on the Federal Reserve website. its not like a publicly owned corp... because it is privately owned.
This is is not a mistaken belief... This is the definition of a privately owned corp. The govt does not own these regional FED banks... Banks do. https://www.federalreserve.gov/faqs/about_14986.htm#:~:text=The Federal Reserve System is,directly accountable to the Congress. "Some observers mistakenly consider the Federal Reserve to be a private entity because the Reserve Banks are organized similarly to private corporations. For instance, each of the 12 Reserve Banks operates within its own particular geographic area, or District, of the United States, and each is separately incorporated and has its own board of directors. Commercial banks that are members of the Federal Reserve System hold stock in their District's Reserve Bank. "
As a self-proclaimed lawyer you have an unfortunate reading deficit. There is a word in the first sentence of the quote you took from the Fed website. That word is "similarly" . The reason that word is there is because although the structure of the fed branch banks is similar to that of private, for profit banking institutions, it is not identical. What do you suppose chief differences are?
Maybe these already become popular and many countries also create new money with these process, but because already become the law, hence for them is no mistake, and as public only use the money, even only paper with number and stamps.
I have a couple of issues with your response. The first is the deficit is the amount of the government overspend over a set period of time for example a year. The ongoing amount the government has already borrowed and issued in bonds is the government debt. The deficit or government debt depending on how you define it (I will describe it as the quantity of government bonds issued) is not just government spending it is a agreement to pay back the principal amount borrowed at the maturity date with coupon payments every six months. This means the government debt is not just a deficit it is a future liability or agreement to make repayments. My second point is your use of taxation as a method of backing up currency and the need to issue a (your terminology) deficit to create money in the first place. If this was the case the currencies of countries that have surpluses of cash and no government bonds would not be able to issue currency.
As soon as a currency is traded on an exchange it has its own value if people buy it. It doesn't matter what the currency is if people pay for it then it has a value. Any product can also be valueless if people do not pay for it, at least in monetary terms, although it may have a value in terms of its use or potential to be used.
There is a error in your accounting. Although issuing sovereign bonds gives the appearance of borrowing and acquiring debt , for the sovereign, one that uses it's own fiat money!, it isn't what it appears. Your government regularly spends before either issuing corresponding bonds or receiving sufficient revenue to cover the expenditure! You, nor I, can do that. The sovereign doesn't really borrow money. Rather it creates the money it needs and uses bonds for an entirely different purpose than borrowing. But of course the outward appearance is that of borrowing. The net deficit equals to the penny all the additional money created and spent into the economy beyond what has been received back in revenue which is exactly in line with your understanding. When the sovereign creates and sells a bond money flows back to the sovereign and the bond represents a temporary reduction in reserve balances, a future liability of the treasury and the promise to expand the outside money in the economy by the amount of interest to be paid.* The sovereign can do whatever they like with the money they receive for the bond. They can store it on their books, or figuratively burn it. It doesn't matter, because there is an endless supply of money whenever the sovereign desires to pay an obligation or buy goods, services or assets.** When sovereign bonds are traded within the economy there is no affect on the amount of outside money. The transaction is simply a transfer on money from one reserve account to another. Because the amount of money needed in an economy grows with the economy, the deficit will also grow with the economy.*** So long as an economy continues to grow the deficit will grow, eventually exceed the GDP and continue to grow still larger. This is a great puzzlement to those who look at a nation's ratio of deficit to GDP ,e.g., Japan, and wonder why the economy doesn't collapse, when in fact they are looking at a perfectly normal state of affairs. In a world of fiat money, only if a nations productivity fails to keep up with the sum of money created, spent into and left in the economy by the sovereign will it be in financial trouble. I have used the example of Zimbabwe many times because it is so instructive. When Zimbabwe was Rhodesia it was the bread basket of Africa and its farms were very productive. Agricultural exports produced huge revenue and provided all the foreign currency reserves its central bank needed for international commerce. When Mugabe's revolution succeeded, the farms were nationalized and broken into pieces that were awarded to his freedom fighters for their sacrifices. These freedom fighters knew not the first thing about farming and Zimbabwe's agricultural production plummeted. Government revenues also plummeted and foreign currency reserves were rapidly depleted. The government continued to print money, but as there was little to buy, inflation quickly set in; then hyperinflation. Deficits in themselves are neither good nor bad. They are simply a part of maintaining the necessary supply of outside money in an economy. Underlying every economy is its productivity. I don't think it is too much of a stretch to say that after 1971 the world transitioned from a gold standard to a "productivity standard." The latter is much, much better. _________________ *QE is different. There the government sells bonds to the C.B. via the secondary market, primary dealers I would guess, which is the near equivalent of the government selling bonds to itself, and uses the money created in the process to spend into the economy. The money is raised at virtually zero cost just as it would be if the new money were printed without linking it to bonds. (A practice frowned on by crusty old economists, and so new money is linked to bonds, though it does not have to be). The bonds are held on the books of the Central Bank. Interest rates are pushed down by QE. Later if it is found that their is an excess of outside money in the economy, the C.B. can sell the bonds in its inventory into the private economy temporarily removing, i.e., sidetracking, money from reserve accounts and pushing interest rates up. The C.B. also has the option of holding the bonds to maturity in which case, the Treasury and C.B. being different arms of the same body, the net transaction is virtually the same as if the Treasury had indeed printed the money and spent it into the economy the without linking it to bonds. **In the U.S. for example, when the Treasury writes a check it will always clear regardless of how much money is in the Treasury's reserve account at the Central Bank. The C.B. will cover any shortfall by crediting the Treasury's account with whatever is needed. ***A little reflection on your part will convince you that it is impossible for the amount of outside money in the economy to increase unless spending exceeds revenue; there must be a deficit!