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You have it backwards. The private sector funds the government. That means that the private sector already has financial assets before government gets paid.
Government budget deficits simply means they are overspend the resources they are given.
Debt for anything other than an appreciating asset is bad. Going into debt to pay daily living expenses/luxuries for people who for generations refuse to educate themselves, and <gasp> earn their own way in life is the exact opposite of that principle. Same with throwing money away you don't have to provide aid for foreign countries. Are the futures of your children, grand children, and great grand-children worth that? (although the current fools have mortgaged many generations already)
Not only that, think about living with your credit cards completely maxed out. What happens if your transmission needs rebuilt, and you are barely able to pay your current bills? Not a very smart place to be, for an individual, or a government.
You have it backwards. The private sector funds the government. That means that the private sector already has financial assets before government gets paid.
Government budget deficits simply means they are overspend the resources they are given.
The private sector doesn't fund the government. This is impossible, actually. The government is the monopoly issuer of the currency, and much like banks, creates money from thin air. The private sector does not "fund the government."
Here is a long example to demonstrate this.
Quote:
Imagine the economy is a household which is comprised of you (the parent) and your kids. You the parent are analogous to “government†and the kids comprise the non-government or private sector. As the government you decree that you will offer 100 of your business cards per week to the kids if they agree to tend the garden on a weekly basis.
Naturally, the kids resist as they have no use for worthless business cards so you create demand for your “currency†(the business cards) by establishing a tax that can only be extinguished by remitting them. You declare that the kids will need to pay you 100 business cards per week to remain living in your household.
Immediately, by imposing a tax obligation in the currency of issue (the business cards) you have created a demand for the currency and created the conditions to allow you to transfer private resources (the kid’s labor) to the public sector (your garden). However, also note that you must spend the 100 cards each week before the kids can pay the tax of 100 cards. This illustrates that government spending must precede taxation and that taxation is not a revenue source for the government (i.e. taxing or taking your business cards from your kids does not allow you to spend your cards in the first place). You are the monopoly issuer of your cards and you are never financially constrained in your business cards (the currency).
This arrangement is analogous to a fiat currency like the US dollar. You can then extend this analogy and begin to track your currency transactions via a spreadsheet. This eliminates the need to “print†more business cards. Your spreadsheet represents “bank entries†which record all the outflows (spending) and inflows (taxation). If you make an error and add an extra zero to your spending one week, you wouldn’t have to “print†900 new cards but your kids would be better off by 900 cards because it would show up as a deposit in their account.
Under the conditions above, the household budget would be balanced each week: You spend 100 cards and the kids pay you 100 cards to extinguish their tax liability. Note that the kids will be unable to accumulate any cards (that is, save) because they can only get access to the volume of cards that you make available via spending.
If you want to teach your kids to save you will either need to increase the business card wage for their labor while leaving your tax unchanged, ask them to do more labor each week and thus increase their wages while leaving your tax unchanged or keep paying them the same amount for the same labor and lower your tax. Let say you provide them with 120 cards per week as wages (government spending) but keep the tax at only 100 cards. Your budget will now be running a deficit of 20 cards per week but the kids can now save 20 cards per week because your spending (the government spending) has provided the “finance†for the savings. As the weeks go by the kids could accumulate more and more savings (numbers in the spreadsheet would increase) and you would soon see that the non-government saving over time is the exact record of the cumulative deficits being run by you (the government). Same as the US economy.
Extend the analogy further; Your kids now want to make more money (cards) and earn a return on their savings. As it stands, the only way they will be able to do that is if you decide to pay interest on their savings. This is equivalent to you offering them a government bond (a bit of paper saying that if they deposit their savings with you each week that you will pay them back at some future time plus some interest paid, of course, in business cards). Your issuance of debt establishes a non-zero rate of interest in your household and increases the kid’s wealth. Note that you were not forced to issue the bond to enable you to continue to run a deficit. The bond simply replaced non-interest bearing savings (reserves in our “banking†system) with an interest-earning asset (the bond).
We learn from this:
1.) A federal surplus reduces private sector savings
2.) A net deficit is necessary
3.) Everytime in US history we've run a surplus/cut the debt a recession has followed.
so-called "Fractional" reserve banking. Which should probably be described as either no-reserve banking or on-demand central bank liquidity.
This doesn't create net financial assets. Within a sector, such as the domestic private sector, every liability is offset by an asset. When billy goes to the bank and get's a loan for 50 thousand, the bank gets a promissory note, and billy gets the loan. The bank gets the note, the banks asset, and billy gets the money, his asset. Billy has a liability and an asset, same with the bank. It all evens out to zero. Now, of course, the bank may get more from billy in the form of loan repayment, but the economy can't live off of this. You also have to take into account "settlement accounts", better known as reserve accounts.
When billy goes to the bank and get's a loan for 50 thousand, the bank gets a promissory note, and billy gets the loan. The bank gets the note, the banks asset, and billy gets the money, his asset. Billy has a liability and an asset, same with the bank. It all evens out to zero.
Debt for anything other than an appreciating asset is bad. Going into debt to pay daily living expenses/luxuries for people who for generations refuse to educate themselves, and <gasp> earn their own way in life is the exact opposite of that principle. Same with throwing money away you don't have to provide aid for foreign countries. Are the futures of your children, grand children, and great grand-children worth that? (although the current fools have mortgaged many generations already)
Not only that, think about living with your credit cards completely maxed out. What happens if your transmission needs rebuilt, and you are barely able to pay your current bills? Not a very smart place to be, for an individual, or a government.
The national "debt" isn't a debt in any sense of the word. The US, being the monopoly issuer of currency, a fiat regime, faces no risk of solvency. There will always be a keyboard to credit accounts. "Future generations." Hah. Tell me when the "debt" from world war 2 is going to cause us to send back 1 million cars. Real resources are not going anywhere. "Throwing money away." Yes, crediting accounts is going to kill us all one of these days.. The national "debt" is simply a representation of the sum of cumulative annual deficits. Private sector savings.
Well, I assume you recognize that money is debt based. The bank simply expands its balance sheet. Billy gets a deposit to spend, and a liability, the loan repayment. The bank gets billys promise to repay the loan, the banks risk, and they get a liability, the deposit for billy. You can't really consider this a "net asset." The private sector cannot go on doing this for very long. People actually have to be willing to take loans.
The private sector doesn't fund the government. This is impossible, actually. The government is the monopoly issuer of the currency, and much like banks, creates money from thin air. The private sector does not "fund the government."
Here is a long example to demonstrate this.
We learn from this:
1.) A federal surplus reduces private sector savings
2.) A net deficit is necessary
3.) Everytime in US history we've run a surplus/cut the debt a recession has followed.
The private sector absolutely funds the government.
The analogy you got from whatever website is faulty. Government spending does not precede taxation... or it shouldn't.
Money facilitates the transfer of goods for work that is done. We have given the government the responsibility to manage the currency. They didn't just plop down, set up shop, and then waited for the people to come - as though they are a business.
What if I cut the grass for my neighbor for the exchange of 2 chickens... and I choose to deal with straight products instead of money? What does that mean for government? They get nothing, and I get what I need. What about the drug dealers and prostitutes that deal under the table... they don't pay taxes. How about the homeless? Under the analogy, they would HAVE to pay taxes to live in the country... but they don't.
Government should only spend what it is budgeted to spend, which should be based on what they receive.
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