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View Diary: Conservatives do not want to cut the deficit (15 comments)

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  •  Deficits don't matter..... (2+ / 0-)
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    RUNDOWN, Larsstephens

    Cheney was sort of right.  Too bad people don't ask what he meant.

    The Deficit = all dollars in the private sector.

    The US creates dollars out of thin air.

    The Deficit doesn't necessarily signal a debt when you have a fiat currency.

    Fiat currency has only notional value, it's a notation.  A unit of account.  Like inches.

    The US Fed Gov issues the dollars the private sector uses.

    It's an ISSUER, not a USER of dollars.

    If it were a debt like a household debt, then it should  all be paid back -- at least in theory.

    But the deficit is not like a household debt.

    If you paid the deficit down to 0, you'd have 0 dollars in the private sector.

    That would suck.

    •  Well, one problem is... (0+ / 0-)

      ...that a lot of those dollars actually went into foreign private sectors.  Does the theory about fiat currency and deficits/debts merely moving the money to the private sector still hold up when it's not a closed system, and money can "leak out"?

      •  Yes. The deficit is an accounting of all net (1+ / 0-)
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        financial assets, ie, dollars.

      •  Ok, now you have me going.... (1+ / 0-)
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        I'm going to have to read just how leakage is accounted for, and how much leaks out.

        Thanks for the homework :)

      •  Actually the world ends up being a closed system (2+ / 0-)
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        katiec, Larsstephens

        at least for now. So in sector analysis from the US point of view, there is the government sector, the non-government domestic (private) sector and the foreign sector which accounts for the rest of the world in the aggregate. The principle economic leakages as I understand it are foreign purchases in excess of sales, federal taxes, and private sector savings. In MMT it is proposed that the appropriate size of the federal deficit is that amount that produces full employment and satisfies the savings desire of the private sector. Of course, where savings stops and hoarding begins is up for grabs, and savings itself presents the paradox of thrift wherein if you or I save it is good, but if we all save at once we crash the economy.

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