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> The government already has an infinite supply of money for itself, by virtue of being the issuer of the currency. Money supply means the money in circulation

> The government already has an infinite supply of money for itself, by virtue of being the issuer of the currency. Money supply means the money in circulation in the non-government sector. Then by definition, taxation takes money out the economy and government spending adds money to the economy. > See https://en.wikipedia.org/wiki/Sectoral_balances https://en.wikipedia.org/wiki/Sectoral_balances > Discounting foreign trade, private sector surplus is exactly equal to government deficit. > > Sectoral balances analysis states that as a matter of accounting, it follows that government budget deficits add net financial assets to the private sector. This is because a budget deficit means that a government has deposited more money into private bank accounts than it has removed in taxes. A budget surplus means the opposite: in total, the government has removed more money from private bank accounts via taxes than it has put back in via spending. > > Therefore, budget deficits, by definition, are equivalent to adding net financial assets to the private sector; whereas budget surpluses remove financial assets from the private sector. This is represented by the identity: (G – T) = (S – I) – NX > > which is > > (Government sector balance) = (Private sector balance) – External sector balance > > where G is government spending, T is taxes, S is savings, I is investment and NX is net exports. > > The conclusion drawn from this is that private net saving is only possible when running a trade deficit if the government runs budget deficits; alternately, the private sector is forced to dis-save when the government runs a budget surplus and the trade deficit exists > In the above equation, increasing T has exactly the same effect as decreasing G by the same amount. Stating that the government has "an infinite supply" of money is not relevant because the money has to be created because the potential to create money is not the same as money that has been created. (I may also note that article must be implying a fiat currency, even though it is not stated.) You statements and quote from Wikipedia do nothing to address Cantillon effects and I'm tempted to say, based on the quote provided, the editors of that article have never heard of such a thing. This is why Wikipedia is not a source. I can make the same arguments about mattresses: Money going underneath a mattress is removed from the equation of money in "circulation" until it has been placed into a pocketbook. If an entire population decides to remove 80% of the money in "circulation" by placing it under their mattresses, the prices for everything will fall though the floor as the population is only willing to spend the money remaining in "circulation". Then, the population decides, all at once, to move the money from underneath their mattresses into their pocketbooks, and prices shoot through the roof because of the huge expansion of money in "circulation". This is, conceptually, no different than the activities described in the quote and is best attributed to Cantillon effects (i.e., money flows through an economy).

wz1000 7y ago
The difference between you stuffing money under a mattress and the government doing so is that the government controls the money printers and you do not. There is no point to the government stuffing money under a mattress because it can conjure up as much money as it desires when it so desires. On the other hand, you have no much magical ability, so the situation is quite different. And yes we are talking about fiat currencies because most currencies in use today are fiat currencies. Government debt is not like household debt, and government saving is not like household saving.
- generalpass 7y ago
  > The difference between you stuffing money under a mattress and the government doing so is that the government controls the money printers and you do not. There is no point to the government stuffing money under a mattress because it can conjure up as much money as it desires when it so desires. On the other hand, you have no much magical ability, so the situation is quite different. > And yes we are talking about fiat currencies because most currencies in use today are fiat currencies. > Government debt is not like household debt, and government saving is not like household saving. Yes, the money printers are the exclusive exception and the only factor in inflation or deflation. Taxes are not a factor any more than mattresses. I don't know if you recognize it, but you are supporting my position.
  - wz1000 7y ago
    Taxes take money out of the economy. Government expenditure puts money into the economy. Its a basic accounting truism. The rate of inflation/deflation is proportional to the difference between the two. Think of it this way. If one day the government decides to tax 99% of the money in the economy, you have barely any money left circulating for anyone else and you get deflation(less money chasing the same goods). On the other hand, if the government decides to add a billion dollars to everyones bank account, you have too much money in the economy and inflation(more money chasing the same goods. The government can decide to put either of the policies(or anything in between) into effect at any time, it isn't constrained by its own "savings under the mattress" at any point. If there are restrictions on government action in this direction, they are legislative, not fiscal(because, again, the government is the source of all money, it can never be fiscally constrained, no more than the referee in a tennis match can run out of points to award). RE mattresses: If you owned a money printing machine, you would not be stuffing money under your mattress, because it would just take up space. You would just destroy money you do not need at the moment, and print more as and when you need it. RE cities going bankrupt: Of course, the city of Stockton doesn't control the money supply, we are only talking of entities who can issue their own currency, i.e. the federal government. This is also why Greece went bankrupt, because it doesn't control the supply of money its debt was denominated in.

wz1000 7y ago

The difference between you stuffing money under a mattress and the government doing so is that the government controls the money printers and you do not. There is no point to the government stuffing money under a mattress because it can conjure up as much money as it desires when it so desires. On the other hand, you have no much magical ability, so the situation is quite different. And yes we are talking about fiat currencies because most currencies in use today are fiat currencies. Government debt is not like household debt, and government saving is not like household saving.

generalpass 7y ago
> The difference between you stuffing money under a mattress and the government doing so is that the government controls the money printers and you do not. There is no point to the government stuffing money under a mattress because it can conjure up as much money as it desires when it so desires. On the other hand, you have no much magical ability, so the situation is quite different. > And yes we are talking about fiat currencies because most currencies in use today are fiat currencies. > Government debt is not like household debt, and government saving is not like household saving. Yes, the money printers are the exclusive exception and the only factor in inflation or deflation. Taxes are not a factor any more than mattresses. I don't know if you recognize it, but you are supporting my position.
- wz1000 7y ago
  Taxes take money out of the economy. Government expenditure puts money into the economy. Its a basic accounting truism. The rate of inflation/deflation is proportional to the difference between the two. Think of it this way. If one day the government decides to tax 99% of the money in the economy, you have barely any money left circulating for anyone else and you get deflation(less money chasing the same goods). On the other hand, if the government decides to add a billion dollars to everyones bank account, you have too much money in the economy and inflation(more money chasing the same goods. The government can decide to put either of the policies(or anything in between) into effect at any time, it isn't constrained by its own "savings under the mattress" at any point. If there are restrictions on government action in this direction, they are legislative, not fiscal(because, again, the government is the source of all money, it can never be fiscally constrained, no more than the referee in a tennis match can run out of points to award). RE mattresses: If you owned a money printing machine, you would not be stuffing money under your mattress, because it would just take up space. You would just destroy money you do not need at the moment, and print more as and when you need it. RE cities going bankrupt: Of course, the city of Stockton doesn't control the money supply, we are only talking of entities who can issue their own currency, i.e. the federal government. This is also why Greece went bankrupt, because it doesn't control the supply of money its debt was denominated in.