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Wednesday, 11 February 2015

Oh no...

Once upon a time, a government decided to spend some money on a school. It built it, paid the teachers' wages, etc... These people had to pay a property tax so they needed the money. They couldn't pay it in bitcoin or gold.
But something terrible happened. The teachers and builders, etc decided to save some of the money. As a result, the teachers didn't spend all the money into the economy. And the people who got the money after them saved some too. As a result, after several taxes (VAT, property taxes, etc) the government didn't get all of its money back. Or perhaps people spent money on net imports. This led to real goods and services being given to the country for pieces of paper. The foreign central bank is running export led policy and prints some money and swaps it for our money to keep the exchange rate constant, and then stores the money forever for as long as they have export led policy.

This is part of the 'export led recovery' mantra advanced by the IMF that forgets that for every exports there is an input.

I know this is all terrifying, but that could lead to a deficit in the "public finances" (!!!) It is OK though because politicians say the have the 'deficit under control' and can 'cut useful spending or raise harmful taxes' to get rid of it. If we don't we could end up like 'Greece' (except for the borrowing in a foreign currency part.)
We can't have Scandalnavian spending at American taxes you know. The markets will punish us.

This is the story told by the current UK government since 2010. They have used ridiculous tactics like comparing the UK government to a credit card and say the UK should have ran surpluses (to increase household debt hopefully, along with even more financial deregulation) prior to 2007.