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If a government isn’t in deficit they are extracting money from the economy. This is why government surpluses need a big offsetting factor like net exports otherwise they would be in permanent recession. This is what happened to Greece post GFC, and why Australia was able to have government surpluses because of its big trade surplus. Without it they would have crashed the economy as well.
Yup, this video needed a slight edit–swaping "wrong" and "right"
@ProfSteveKeen is there a link to the complete video?
@Jasper Galvin Yes. It's the 3.5 hour interview with Lex Fridman: https://www.youtube.com/watch?v=1XGiTDWfdpM
I'm confused, and don't care what Elon said. Are you saying it's bad for gov to be in permanent deficit or not?
In my view if a gov owes money it's not free to make decisions because it depends on it's lenders. So gov should never be in deficit if we want to be sovereign. It also shouldn't be making a profit and storing that up.
I don't blame you for being confused: the marketing company which is putting these videos together got this one wrong (you'll see that I've swapped "right" and "wrong" in the title of the video), and cut off my comment too quickly.
When you do the full accounting of a fiat money system, a government creates fiat money by spending more than it takes back in taxes. Its negative equity from this is matched dollar for dollar by the positive equity of the remainder of the economy–the non-government sector. A fiat money system only works if the non-government sector is in positive equity with respect to the government. So your second sentence is wrong: being a sovereign means that the government can sustain negative equity. It also does not borrow–in the sense that we use that word for private sector debt. See this post for the full accounting explanation: https://profstevekeen.substack.com/p/using-accounting-to-prove-the-core
@ProfSteveKeen is this a special case where the gov controls the fiat currency, eg Australia and AUD?
When media says we're $1 trillion in debt, do we not owe massive amounts to foreign banks/gov/entities?
@Peter Nemere No we don't. Most treasury bonds are bought in the first instance by Australian banks, using funds that are created by the deficit itself (which is why you have to understand double entry bookkeeping). Banks then on-sell some of these bonds to non-banks, including foreign entities. The interest on these bonds is also generated by the government's money-creating capacity.
It's only bonds issued in a foreign currency–say US$ bonds issued by, oh, let's say Argentina–that generate a problem, in that export revenue has to be earned to pay interest on them. And it's the general case that a government issues bonds denominated in its own currency. The exceptions are the countries of the Eurozone (which is a huge mistake) and countries like Argentina, etc., with a history of chronic balance of payments deficits and defaulting on debts they owe denominated in another country's currency.
@ProfSteveKeen ah yes I was going to use euro as a counter example then thought that's weird too. Thanks for the explanations, will read up on your site. Good to hear it's not owed to foreign entities directly though, media is often not clear and causes more confusion on an already confusing topic