Alberto Veronese, July 7, 2016
Economists divide the economy into two sectors, public and private… they say:
The government deficit equals the non-government surplus.
For example, if the government (Public Sector) spends 100, then the private sector’s saving (businesses and households) equals 100.
We wouldn’t have any government money if the government didn’t spend into the economy – and if we didn’t have fiscal deficits, we wouldn’t have any government money.
The treasury balance decreases when the government debits its account and credits the accounts of the private sector – e.g., the payment of pensions to households or that for public works to firms.
Yet, government and businesses are part of – the same – society; they are not “two” separate bodies, or two different identity. We all, households and companies, are part of the government just as of the non-government.
We are the government and the government is us. Though, we might take into account the possibility that we all have so far universally failed the mirror test…
Only a few animal species have been shown to have the ability to recognize themselves in a mirror – and not to see a sociable playmate in the mirror’s reflection…
This is also true with money – we all bash into a midway point, a point that is difficult to fully understand and to come by.
(financial double-entry bookkeeping)
We have the national debt (deficit) on one side – and the corresponding financial asset (surplus) on the other side… But, the deficits and surpluses are two faces of the same coin! They are not “two” separate pieces.
In the real world these “red” versus “black” numbers are not “two” distinct physical objects.
The whole national debt is just a collection of government-issued financial assets; “red” versus “black” numbers – savings account operated by the government, circulating in the society.
The public debt just measures and puts into numbers the total value (prices/costs) of all monetary tokens (savings/expenditures) that still circulate in the society as a whole (government/households).
Money exists only as the “price” of “something” produced at a given “time”; and it is always expressed in its “government’s currency”.
Don’t confuse national wealth (real assets), with financial numbers on a balance sheet. What matters is not if the glass is half empty or half full; what matters is what it is inside the glass.
“[…] money can serve no other purpose besides purchasing goods. Money, therefore, necessarily runs after goods, …. It is not for its own sake that men desire money, but for the sake of what they can purchase with it”. Adam Smith, The Wealth of Nations, 1776
It is necessary to have a clear understanding how money is created (and how it is managed by its “authority”), if one does not want to find oneself in a “problem entanglement” in which “equal” things are perceived and compared as different with each other, whereby in reality they are the same.
The smart animal perceives the reflected image as itself, rather than of another animal.
What matters in our world, is a healthy environment, strong civil and private institutions, well educated people, a fair distribution of wealth and income across society.
Money does not change hands as commodities are – the natural number for money is zero.
Zero can’t be a debt.
Government debt = community money
Money is a unit of price. Prices are units of money.
Once one clearly recognizes the difference between real productive capital (non-financial assets) and money, it is only a small step to a clearer understanding of real world economic imperatives.
savings ≠ investment
debit = credit
asset = liability
owner’s equity = price of capital goods
Is the National Debt Really “Debt” at All ?
also look for…
The String Theory of Money
Money: The Missing Z-axis
Money Is Not an Act of Saving
Father Gold, Mother Money
Money, One of the “Dynamic Forces” that Act in Economy
When Man Accepts What He Has Been Told is Money…
How Much Money Is Out There?
Government Debt = Private Assets