The Difference Between You and The Federal Government is Authority and Access

I’ve discussed many times now that the US dollar is just a number with a “$” symbol in front of the number. It is not a commodity. It is not finite; it is infinite, because numbers are infinite. Anyone who tells you that the US dollar is finite, or that the US government does not emit US dollars, doesn’t know what they’re talking about. At all times, when the US government spends, it is spending US dollars into existence via keystrokes, by entering an account and typing a number. That number becomes US dollars. At no point in time does the US government need your numbers before it can type them into someone else’s account. The notion is patently absurd. To illustrate the absurdity, let’s use you as an example.

Today's Reply to George Kendall on Monetary Mechanics in the UK

I've tried repetitively to post my reply to Mr. Kendall, but Facebook seems to be having issues with posting in the group. Therefore, for that reason and to further a learning opportunity for the general public, here is my reply to George Kendall.

What of Deficits and Inflation?

A brief note here to answer a question about inflation. All spending carries the risk of inflation. The question is whether or not deficits automatically translate into inflation. The answer is no.

The government could at this moment issue $40 trillion. If that $40 trillion merely sat in an account somewhere unspent, it is not a problem. The problem occurs when the $40 trillion is then spent on goods and services. In doing so, aggregate demand increases. If the economy is unable to meet that demand, then the price level will rise. 

We must begin thinking correctly in terms of real resources and not "money". Real resources are finite. Currency in the US, UK, Canada, Japan, Australia et al., is not finite; it is infinite. However, once you begin spending that which is infinite to buy that which is finite, inflation will be a possibility, whether that spending is public or private. 

If you want to create demand-pull accelerating inflation with budget deficits, then you must spend persistently more than the economy is capable of producing. If there remains the ability to increase output, then that budget deficit is not a problem. How do we know whether or not we can increase output?

Unemployment. If it remains, then the deficit is too low.

One of My Replies to George Kendall on UK Budget Deficits

George Kendall, Andy Blatchford, Peter Martin and I have been having a pleasant, albeit a bit frustrating discussion. Frustrating because the now defunct Bretton-Woods system always manages to obstruct progress towards an understanding of macroeconomic reality. This morning, George replied to Peter and myself, demonstrating that the Bretton-Woods obstruction is still very much alive and well. We can thank orthodoxy for that. Since I’m always on the lookout for opportunities to impart knowledge to the layperson, I thought it a good idea to post George’s comments and mine here as a learning opportunity.

A Brief Note on Deficits

I’d like to take a moment to add something to Bill Mitchell’s excellent article “Iceland proves the nation state is alive and well” found here: http://bilbo.economicoutlook.net/blog/?p=33707 which, I feel, would make an excellent learning opportunity for the general public concerning deficits and the economy.

In the section “The public deficit supported growth until private domestic expenditure was strong enough”, we note from the chart that at the start of the Global Financial Crisis in 2008, Iceland was running a pretty large deficit in order to counter the collapse of the economy. As the years move ahead, we see the deficit gradually reduce until we reach 2015 where it is almost non-existent. Today, Iceland’s unemployment rate is very low and the economy is doing great. 

Federal Deficit Spending is Money Creation

In addition to closing on a new house and moving over the next two weeks, plus dealing with allergies, I am pre-occupied with writing a series on the Gold Standard and why it was and always will be, a monumental failure. Therefore, I’ll keep today’s discussion brief with another look at how federal spending works. Before I begin, I wish to point out that for the sake of the layperson’s familiarity and understanding, I am going to use the word “money” in reference to federal spending rather than “currency”. We will also skip discussions of private debt and the sectoral balances.

How Federal Budget Deficits Work

I will begin today’s discussion by stating what a federal budget deficit is not. A deficit is not:

When US Government spending is greater than its income from federal taxes. 

Now, why is this wrong? The word “income” is what makes it wrong. There is no such thing as an “income” for a sovereign currency issuer like the US Government. Therefore, the textbook definition of a federal budget deficit is wrong, even though it seems to be correct. The above definition leads to all kinds of misunderstandings and nonsense concerning federal spending which, frankly, every last one of us can do without.