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Every dollar bill is an IOU from the federal government. It says so right on the paper bill: "This note is legal tender." Money only means something if people b
by uoaei 6y ago
Every dollar bill is an IOU from the federal government. It says so right on the paper bill: "This note is legal tender." Money only means something if people believe it means something. I can make up a new currency but if no one believes it has value, then it does not. Any and every economist you find will tell you the same.
With this sort of flexibility you are forced to abandon the zero-sum style of monetary policy, and you open up a lot of new possibilities for how to interact with the flows of monies. Republicans who shriek about the deficit know this, too, but keep their rhetoric the same because they and their friends benefit from the general public believing that the federal government works like "a family at the kitchen table," because they can shut down any talk of federal spending by pointing to that boogeyman.
- rayiner 6y agoExplain why the EU (and countries like Germany) impose tight limits on budget deficits.
- uoaei 6y agoSure! First you will have to support your claim that they do so.
- f00zz 6y agoBefore the current crisis Germany had several years of budget surpluses.
- uoaei 6y ago...and the other member states had significant budget deficits. It is unhelpful to look at countries in isolation because the Euro is what ties all their fiscal policies together.
- rayiner 6y agohttps://en.wikipedia.org/wiki/Stability_and_Growth_Pact https://en.wikipedia.org/wiki/Stability_and_Growth_Pact
- uoaei 6y agoThose limits exist for the same reason the US can't just spend as much money as we want it to -- the threat of runaway inflation. If one member state spends "too much" (i.e., injects "too much" money into circulation), it challenges and threatens the economic capacity of other member states because it devalues the Euro because the Euro is less scarce than it was. And there are no "EU taxes," only taxes paid to each member state separately. So controlling the monetary policy, and particularly the amount of money in circulation, is a little more complex than would be expected in a homogenous economy. So tolerances for "errant" behavior are a little tighter. But I wouldn't call those limits "tight" in the grand scheme of things. It's a bit like telling people to stay home during the pandemic -- most people will do it faithfully so that the few that act out can be accounted for and will have a smaller impact than if no controls were in place. We should note that the economy before the pandemic started is very differently managed to the one after. The economy was relatively predictable compared to today, so the tolerances shrunk somewhat to reflect that. You will note that the EU lifted those limits at the start of the pandemic and have come together to redefine a short- and medium-term policy to account for the circumstances.
- xyzzyz 6y ago> If one member state spends "too much" (i.e., injects "too much" money into circulation), it challenges and threatens the economic capacity of other member states because it devalues the Euro because the Euro is less scarce than it was. This would make sense if only Eurozone members were part of the Stability and Growth pact, but as it turns out, other EU countries like Sweden or Poland, which neither are part of nor intend to join Eurozone any time soon, are also subject to these very same debt limit obligations stemming from the pact. Poland in fact has its own debt limit written into its national constitution.
- 6y ago