We all heard this story, or it was joke, about the Invisible Hand fixing all. Who is hiding this hand or it is , as usual, the best excuse to cover the tracks?
Witchdoctor is outlining the destructurating/ deconstruction of the Base Pillar of the economy driven by debt. This is the foundation on which, macroeconomically , leans all of this house of cards and its perfectly logical quandaries and its logical decline.
The link to get in the mood:
http://heteconomist.com/budget-deficits-and-net-private-saving/
Here we see the analysis and the claim of the Modern Money Theory.
The basic postulate, barren, primary:
Budget Deficit = Net Private Saving
Budget Deficit is equal to the private saving, which includes the entire private sector. So, the country’s deficit ( and debt) means that on the other side there is a surplus- more money in the hands of private individuals (people, companies, …)
Why is this claim at the same time absolutely correct and absolutely wrong (absolutely true / absolutely false)?
It is necessary to analyze the equation. First of all, the equation is biased, it is not an “equal” formula, the State being by law the stronger part. Or, as it seems certain, after the new TTIP it will be not the equal partner, but just the coffee boy.
If, theoretically, a country has a deficit, it means that this deficit and the incurred national debt has remained in the hands of the private sector as its own surplus, because the State has not collected it.
First constatation – the source of the money covering the deficit is an important issue (follow the money) for the the funding. If this deficit is covered by the State Central Bank, this money is staying in the same circle of participants. If not, this deficit is only a temporary money inflow in the circulation, but it is a foreign credit -money , it is a money supply based on foreign credit and it bears a compound interest repayment.Or it is a bank money with dubious return as is happening, leading to domino default.This is the Eu situation.So, this new money is only a temporary surplus of the private sector, with a logical projection of the increase of the debt and has to be recovered through even higher taxes (and this is a cat chewing its tail situation), which lead into more taxes, debt and recession.
Second constatation.
The deficit is a result of not enough high taxes to cover the State budget. Here is the next dilemma. Does this means that the state does not collect enough taxes because if they pick up and collect all the necessary taxes the private sector will collapse due to its non competitiveness ? So, the no charging of all the taxes is therefore a hidden financing of the private sector, which is ergo unable to stay on the market without this hidden “credit” (and the debt then doubles in time -as a government debt and corporate debt in the final stage).
The third complication. The country has a deficit because it is incompetent,too big, inefficient, in short, it is a Pig.Then the State deficit is not the way of making hidden loans to businesses and the households, which (this hidden loans) make the business and household competitive and financially viable.
It may even occur a common EU or Wherever syndrome (the fourth complication), when the state deficit- is a RESULT of the swine nature of the country-dysfunctional and hungry, and on the other hand, the private sector is also unable to compete due to its own internal lousy cost effective structure . The Default situation.
So this beautiful law on paper is equally flawed in practice, and is only an equation that applies to pure accounting that does not say anything more specific.
This equation has an embedded, hidden law: there is a State deficit which comes in existence as debt, and has to be repaid. So, the food chain of the financial parasitism keeps on forever. The “not to be preoccupied” mood and easiness of accumulating debt is just a way to leave the things in the debt driven economy as they are.The debt keeps feeding the swap,cdo, securization, new leverage and all kinds of bets- derivatives attached to it. It is real Money somebody is pocketing, absurd as it sounds, but it is. A completely apologetic, reactionary way to sell a theory as something revolutionary, a mere spin. Based on the fact, true, that the current model needs the extra financing- extra money from “somewhere” to survive. Like the currency adjustments, more debt…
And the additional complication :
Suppose we have a nation that is slim and promptly adjusts the deficit, which is (the deficit) really a hidden way of financing private enterprises (less taxes-more income) However, in the system of global competition this country is forced to constantly regulate its income down by less taxes, as the private sector is equally forced to constantly regulate prices and costs down.
We have the current global competition situation which mathematically forces all participants to regulate taxes (the State) and business (the costs) down and more down , to the poor and more poor environment.
This road downhill, forced on the World, is a pure mathematical illusion in which anybody can win by cutting everything , every day , forever. The complete depletion of the planet and all wealth, as a last stop,
the last exit,or , we can start talking about
The Wealth of Nations