If the government was a household budget...

Discussion in 'Economics' started by peilthetraveler, Feb 9, 2012.

  1. [​IMG]

    That about says it all...
  2. I would hate to see the UK equivalent.
  3. but it is not at all like a house hold debt and shouldn't be treated like one either. U.S. treasures are near perfect substitute for money or simply money that occurs interest. It literally is the same thing as money to the non-governmental sector. As a currency issuer the government can pay it off whenever they choose simply by replacing one government liability for another. A common mistake would be to assume this would cause hyperinflation though it is not clear how. Treasuries are the most liquid instrument in the world at any time one can convert to cash. If one wanted to spend it he could. For example If China's holding were converted to cash all of a sudden they would decide to use it for consumption? they can do it themselves any time they want

    Since the government in a modern money system is not revenue constrained, the reason for government issuing bonds can not be "borrowing to fund deficit spending". Governments issue bonds to provide the non-government sector with an interest-earning savings alternative, and to manage the interest rates in the economy.

    A common misconception is that future generations will suffer under a "debt burden", and that paying back the debt will make them poorer than they otherwise would have been. This is incorrect.

    "Government bonds and what is called "base money" can be thought of as substitutes for each other. Both are government liabilities. Base money is liabilities with zero interest and zero maturity, while bonds are interest earning liabilities of non-zero maturity. But both are denominated in the same unit of account and are interchangeable. ("Base money" is the "definitive" money, the money issued by the government, comprised by bank reserves and physical currency. This will be further discussed in the article Money, Government and Banking.)

    One can think of government bonds as nothing more than an interest earning version of base money[3]:167, much like an interest earning "deposit" in a "security account" or "savings account" at the central bank.

    The base money in use today is not something that will be a burden for future generations – and neither is the bonds. Both are rather non-government sector financial assets, and will be inherited by future generations."


    "What would happen if the government decided to "pay off the debt"? Outstanding bonds would be replaced with bank reserves (and bank deposits). This is not something that MMT suggests necessarily should be done. There are possible consequences such as inflation or disinflation, that may be deemed undesired. Yet, it is revealing to look at this in some detail. If the expected consequences are undesired, the government should refrain from doing so. If not, the process of "paying off the debt" would not be cumbersome whatsoever. The key take-away is that government bonds and government currency are just two different forms of financial liabilities for the government -- and financial assets for the non-government sector. One is interest bearing, the other is not. Neither is going to be a "burden" for future generations.

    If the future holders of the government bonds desire to hold currency instead, or if the government desires to reduce its amount of outstanding bonds, the government can stop rolling over bonds (i.e let bonds come due and not issue new ones.) Or, the central bank could simply buy back bonds outstanding. Funds would then be shifted from the "securities accounts" to non-interest earning "reserve accounts" (i.e bank reserves) at the central bank. This is done by changing electronic accounting entries (much like changing numbers in a spreadsheet).[1]

    This does not alter the amount of non-government net financial assets but only the composition, as some of them are shifted from bonds (interest earning with various maturities) to currency (non-interest earning, zero maturity). Analogies sometimes used for this process are "monetizing the debt" (and even "printing money to pay off debt"), which sounds scary but is misleading. A better way to express it would be "shifting the non-government asset composition from bonds to currency". (When central banks in Japan and the U.S has performed this process during recent recessions, it has been called "Quantitative Easing").

    It is sometimes believed that such an operation would be stimulatory or even highly inflationary. The idea is that holding bonds instead of currency restrain people from spending. Therefore, if the composition of financial assets held by the non-government sector shifted from bonds to currency, spending would increase which would possibly induce inflation.

    MMT rejects this idea on both theoretical and empirical grounds. Comparing with a currency holder, a bond holder is not restrained from spending in any plausible way. There is always the option of selling the bonds. Alternatively, the bond holder can use the bond as collateral for a new bank loan[4] (i.e the bond can support spending out of horizontal money creation, a concept that will be discussed further in the article Money, Government and Banking)"

    Also remember that Government financial liabilities are private sector's financial assets. To reduce Government financial liabilities is to reduce private sector financial assets.

  4. That's not funny it's real ---- that is very easily the middle class family household budget. Only thing missing is the mortgage debt.

    It's becoming a cultural norm. top down...
  5. It's a pretty sweet gig if you on the right side of the equation. Forget further generations, life is short; spend, spend, spend, enjoy while others wonder why you have a 200k job with 200k pension forever and benefits, etc... If it's against the law, have congress change the law. Let others spend your lifetime complaining, while you live in luxury. How about a workshop in Hawaii for 100k? Sure, taxpayers won't figure it out for a few years.

    Sure, I'm jealous. Same jealousy as when INTC had 90% gross profit margins, athletes get 200 million contracts, and senators end up being worth 100 million while representing the "honest man".

    Good luck fixing this system.
  6. 377OHMS


    Didn't you guys take economics at university?

    The first thing they teach is that countries are *not* like households or individuals.

    Individuals die and that means they must pay off their debts and have some financial conclusion to their lives.

    A country is perpetual (well, hopefully) and so the debt doesn't have to be payed off, ever, it must instead be managed so that it does not grow out of proportion to GDP which is why you generally see debt expressed in terms of ratio-to-GDP.

    For fucks sake, you guys are posting the "Economics" thread!
  7. Really, tell that to the credit card companies that write off millions of debt each year from consumers who die without a penny to their name.

    Also, many consumers file for a thing you may have heard of called "Bankruptcy" - so no "that means they must pay off their debts" is not true.

    And you are trying to be all high and mighty on this thread?
  8. On which planet is that, exactly?

    Because it sure isn't Planet Earth.
    #10     Feb 11, 2012