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2 Comments
  1. fresno dan says

    What I would like to see in the analysis of accounting identities that would make this whole concept easier for me to grasp is debt.

    The analysis equates money flows between “taxpayers” and “government” as if money is not going anywhere else – and I don’t mean foreign exchange. If “taxpayers” in general were paying out 2K (housing and other consumables) with an income of 1K, and that is unsustainable, why exactly is the government paying out more than income sustainable? Is there a profound difference between public versus private debt? Is a public default worse, better, or no different than a private default (I am hard pressed to know the difference between a public and private default anyway, as government policy is obviously TBTF).

    The issue is, are “taxpayers” really deleveraging? If government simply takes the place of the NINJA loans (and I believe that government can actually spend money efficiently and effectively – I am talking about total debt in an ecomony) why should we expect a different result than the great financial crisis? Is the amount of debt that society take on be infinite? Was the US consuming more than it was producing, and isn’t it inevitable that this will end in tears?

    Dont get me wrong – as I stated in my “New Suckers” post, I love debt. Loan me a billion dollars…its just that people get all cranky when I don’t pay them back – of course, awful tough to forclose on orgies with strippers, blow, and booze.

    1. Stephanie Kelton says

      Fresno Dan,

      “…why exactly is the government paying out more than income sustainable? Is there a profound difference between public versus private debt?”

      Indeed there IS a profound difference! If you take out that billion dollar loan, you may be UNABLE to pay. You are the USER of the currency (in this case the US$), and there is a risk that you will default on your debt because you are unable to “get” the dollars you need to service your obligation.

      The US government is the ISSUER of the currency. It can always pay. It can never be forced to default due to an inability to “get” the dollar. Government services debt with keystrokes (Bernanke has been most candid on this, explaining to Scott Pelley that purchases are made by “marking up bank accounts”.

      Greece, Ireland, Portugal, etc. gave up their sovereign currencies and became USERS of the Euro. It is precisely why they face a debt crisis. The US government remains the ISSUER of its currency and can never become unable to pay. (It can become unwilling to pay, say, because one does not understand ones own monetary system, but that is an entirely different thing.)

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