Hi Saturn,
I don't think you quite get it.
The point of being a sovereign currency issuer is that you can accomodate spending and monetary policy towards what is needed in the economy at any point in time.
Think of it like this;
The Aus government announces a 100% cash tax, so everyone in Australia, out of Australia, wherever has to hand over all their cash.. Every cent of it.
There is now no money in the system at all. None.
They decide they arent going to spend any money in the budget this year, and therefor run a huge suprlus.
They declare that next year they will tax everyone $5.
But no one has any money, how can anyone pay their tax if they don't have money? Meanwhile in the economy, everyone has all these goods and services they want to buy and sell, but they can't do so because they dont have a good, widely accepted medium of exchange.
So the government, NEEDS to spend some money, to put some money into the system, so that people can sufficiently go about their lives, the amount of money they put in, will determine the prices of goods.
That is the role of money. And the gov must spend sufficiently so that everyone can participate in this economy sufficiently, the govt. runs a 5trillion dollar deficit this year, but the rules havn't been broken, the rules are to make sure theirs sufficient money in the system to mediate exchange!
Now what happened in America when the housing bubble collapsed? People had huge debt, all of a sudden their million dollar home was only worth 500k, so they sold their home and now still have a 500k debt to the bank.
A lot of wealth was destroyed, vanished.
Now a very high amount of people in America are trying to get back to even, to pay off their debt. But the problem was that there wasn't enough money left in the system, no one had enough money to buy the goods and services they needed for the economy to run properly.
It's the role of the government to ensure that there is enough dollar's floating arround so that everyone can buy and sell what they need, thats the beauty of the sovereign currency issuer vs the gold backed or euro.
And they can do so, with appropriate policy.
Ala spending programs, pay a man to dig a hole, and another to fill it.
In Australia, free $1000 handouts, what did it do? It got money back in peoples pockets, they started spending, business started hiring etc. etc.
Only in America, they were more leveraged up then we thought, they're still deleveraging and need more deficit spending.
So the 'rule book' isn't being disregarded, it's about getting real goods and services produced and growing by giving people a sufficient medium of exchange, money, and you need to ensure people have that money no matter how odd compared to our family budget it may seem.
Our friends over in Portugal are showing us just how their system doesn't work, the gold system is the same. However Japan's been in a deleveraging recession for the last decade, but their somehow still bumpin along..
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