Government deficits create private wealth

[@indricotherium4802]

In a conservative minded country sold on the concept of fiscal prudence, factual explanations like this are seen as a kind of heresy.

[@OghamTheBold]

If you say the word “Heterodox” on Economics Discord you are banned for life (see their rules TL;DR)

[@foxbat51]

Is this why we got more millionaires during covid? £800billion spent by the government ended up filtering into private hands?

[@tancreddehauteville764]

The money went into corporate hands, not private hands. But of course the directors of such companies legally 'stole' the money for themselves.

[@LWQ15881]

Furlough wasn’t given to help the serfs in fact it was to help the ones who own the mortgages who own the national debt who own the capital.

[@ooo-vc4xl]

The USA is the perfect example. Massive ongoing central govt deficits have funded excessive corporate profits and profits for the rich and wealthy for a long time.

[@PaxAlotin-j6r]

@PlutoPhobia-qg6wn This is the same Bernie Sanders --- who took the money & ran. 😉

[@Alberto-k6t]

The same happened in Italy. It has bene estimated that since the 80s almost 3 trillion of presente day euros have bene pais tò public debt owners, including Banks, insurances, pension funds.

[@stephfoxwell4620]

@@ooo-vc4xl US national debt has doubled in eight years. UK national debt has quadrupled in 16 years.

[@stephfoxwell4620]

We have had our national debt since 1693. Never repaid. It has averaged 92% of GDP. Peaking at 248% in 1947. It is currently close to 100%.

[@Ridz149]

never repaid in full, but constantly paying on it

[@stephfoxwell4620]

@@Ridz149 Yes. At an average 4.2% since 1693.

[@grantbeerling4396]

@@Ridz149 Pay it all back; there is no money in the economy. The issue you refer to is the bond market gaining interest on the perception of lending money to the government (which they have created). This is a gold-standard relic that we don't actually need; it is just that it is in law unless QE. Now, some economists suggest having QN (Quantitative Neutralisation), which would right off (after all, how can you be in debt to yourself) around £800 billion. We could, in theory, have 0% interest and control the money supply by progressive taxation. Regressive interest rates affect the working and middle class as the wealthy don't have direct debt (maybe through a company that can go bankrupt as an LLC).

[@WarrenPeaceOG]

It may be a shortcut, but it's best to think of the "national debt" as the money supply. We don't want to pay it off. We don't want a govt surplus either. A govt deficit is the best option

[@AndrewCowell-sz9dx]

I may be simple but my understanding is the government borrows the money in our case the Bank of England. Then repays it back and with interest through taxes😊

[@eskibrew]

What you didn't explain, and where people will struggle to agree if you do not explain, is that the household wealth shown on the graph was not distributed equally among households. Some/many households had a smaller income (furlough) but broadly the same expenses (rent, food etc) and had low discretionary spending so their wealth declined. Some households whose income was mostly passive (landlords etc) had the same income and some of the same expenses however they usually had a high discretionary spending which was not possible so they saved enormously without trying and became enormously more wealthy.

[@RobinHarris-nf4yv]

This is something Gary economics explains very well He said wealth inequality would grow massively during pandemic, for exactly the reasons you’ve stated.

[@eskibrew]

@@RobinHarris-nf4yv it would be good if they got together for a chat and included someone from mmt - they're all on the same page 😎

[@winthorpe2560]

This is basic double entry book keeping. For every debit there has to be a credit(unless you are the Bank of England of course!)

[@DileepaRanawake]

From a wealth inequality and welfare perspective I think it’s important to look at who saves. Rich people save. Poor people get by. If they’re lucky.

[@jasonaris5316]

The problem is the deficits benefit one group but when the government comes to claw those deficits back they land the costs onto other groups (most of who got little benefit from the original spending) An example is the furlough scheme (whether we should have done what we did is another discussion) which overwhelmingly benefited middle class white collar workers but the resulting costs (inflation tax rises etc) have landed on the low paid more than anyone else

[@53supermojo]

Excellent thank you for explaining this and reason why we currently have a huge Deficit of over £2.3 Trillion !

[@stephfoxwell4620]

@@53supermojo £2.68 trillion is the national debt. Our deficit is £97 billion.

[@BertWald-wp9pz]

Great to hear coherent explanations.

[@jonp3216]

You ask what the problem is. Surely that is obvious, govt deficit usually means that rich folk here and abroad lend us money then all of us, including the poor, pay them interest, forever because that debt is never repaid.

[@WarrenPeaceOG]

Sounds like you're saying money is debt and the money supply is always growing, which is correct

[@martinsingfield]

The accounting identity of which the presenter speaks is actually: (S - I) + (Z - X) + (T - G) = O. Where S = savings, I = investment, Z = imports, X = exports, T = taxation, and G = government expenditure. Therefore, an increase in government borrowing (i.e. T - G become more negative), can be matched by either a corresponded opposite change in (S - I) or (Z - X) or both. That is to say, either an increase in net savings or an increase in the current account deficit. Furthermore, an increase in net savings (S - I) could result from an increase in savings (S) or a decrease in investment (I). So an increase in government borrowing does not always have to result in an increase in private sector wealth (savings). An increase in government borrowing could leave savings unchanged, and merely result in a fall in investment or an increase in the current account deficit. Finally, savings are a flow, while wealth is a stock. Savings could increase and wealth decrease at the same time, if wealth is destroyed (e.g. your house burns down).

[@fburton8]

It’s a looking-glass world!

[@simonskinner1450]

Davos always insists on more government borrowing, as Corporations vacuum it up, a balanced budget in every country is the antidote.

[@PaxAlotin-j6r]

*Re - the Deficit / Private Wealth relationship* ------ According to the Pareto Distribution - 80% of that Private Wealth ------- *goes to the wealthiest top - 20% of the population*

[@OghamTheBold]

My household had less than nowt-United Utilities attached £750,000,000 profits to Universal Credit of 50-somethings sacked for pneumonia soon to be 60 sanctioned off all food after ICU

[@lkearney7299]

Much 'money' was created out of thin air during the 'pandemic' era (i.e. much more than is normally done year after year). This has an effect of increasing the money supply and therefore is inflationary.

[@RichardJMurphy]

@@lkearney7299 No it was not. All that happened was government money creation replaced commercial bank money creation. No serious commentator thinks QE created the inflation in 2021 - 23. Covid reopening and war did that. Politely, your claim is completely untrue.

[@peterbedford2610]

Gov borrows to pay for things made by companies. These companies benefit from this spending. Who owns these companies?

[@BOZ_11]

5:00 "The deficit is within control of the private sector". The private doesn't create new money. Bank credit (the non M1 part of M2) is a negative drain on the money supply, since banks only create the principal of the loan, but not the interest portion. M1 (which only Govt can create) is literally used for paying interest on the vanishing (paid off) bank credit.

[@sweetvuvuzela4634]

This is why we enjoy the benefit of pfi contracts with hospitals schools and other facilities. Private sector puts up these facilities and ridiculous prices and tax payer foots the bill.

[@WarrenPeaceOG]

PFI seems like the dumbest economic move govt could possibly make. Govt has financial super powers no other entity can match

[@armineser2591]

That developing countries could borrow huge amounts for very low interest from roughly 2000-2020 was facilitated by Chinese, German and some other countries savings. One may argue no, interest rate was low and western banks could have created additional money. True, but additional demand for products would have caused inflation. With more inflation interest rates would have not been so low.

[@GhostOnTheHalfShell]

Why would a currency sovereign ever have the word “borrow” associated with it? This makes no sense. The national gov commissions money, like a painter paints a painting. From where does a painter “borrow” her work? Deficit is also a difference of spending v taxation. The national spending side incurs no liability from any party (ie money creation), unlike a loan which registers an asset with the liability. There’s a difference here. If a national budget remains stable the only difference is tax revenue on the gov balance sheets of money expansion vs destruction. Borrow implies receiving money from some source. Find a different word.

[@Ridz149]

So we need to spend to support society, but we also dont want private wealth to save ineuqality. How do we balance that?

[@WarrenPeaceOG]

Spend on universal infrastructure for all and tax the super rich

[@aloksrivastava7938]

When Borrowing = Lending we have a zero-sum game.

[@grantbeerling4396]

As usual, a brilliant explanation.

[@rungus24]

What does 'rest of the world' mean in this graph? Does it mean overseas? How does Sterling exist overseas? Does it mean people/corporations overseas who have Sterling in a British bank, or do foreign banks hold Sterling, or is it something to do with money being exchanged between currencies? And why does it need to be represented as a separate part of the graph from 'corporate'? Does 'corporate' on the graph only describe British corporations? Or does 'rest of the world' not describe corporations at all? Sorry if the questions are annoying.

[@JGS2295]

The external sector refers to all non-UK economic units. Because the UK runs a current account deficit, it means in aggregate foreign entities are accumulating net financial claims on the UK - largely via holding Sterling claims on the Bank of England via foreign central bank and foreign bank Sterling reserve accounts. The Sterling does not physically move anywhere. When the UK imports more than it exports, the exporting nations collectively end up holding Sterling assets in place of their net exports to us. The Sterling financial assets are accounted for in the Bank of England balance sheet (digitally on a computer in London).

[@rungus24]

@@JGS2295 Okay, thank you. So what do these foreign entities then do with those assets in order to make use of them?

[@JGS2295]

@@rungus24 They can either leave them in their reserve account at the BoE earning, now, 5% interest, lend them out to other financial institutions who need reserves for slightly higher yield than that, buy UK gilts for a fixed interest but floating price Sterling asset as opposed to reserves which are fixed price but floating interest, or buy other currencies at the given exchange rate on forex markets (but of course the only action above which changes the *aggregate* level of reserves is to buy UK gilts since all the other options simply shift Sterling reserves around, leaving the total reserve liability of the BoE the same.

[@rungus24]

@@JGS2295 I see, thank you.

[@shadowofmyfutureself]

You're very good at this @RichardJMurphy

[@sunnygee3712]

Two main sources of money 💰 creation: Gov defict spending Commercial bank lending (If the definition of money also includes gov debt)

[@rich-rothschild1400]

Universal credit in the population of large. What’s your opinion on the matter?. how should it be applied? If it’s too feasible? Just curious thanks again. Keep the videos coming. Appreciate it. Enjoy your Sunday. Take care of your friends and family and bye for now.

[@user-ht2fc1tt6g]

Does anyone have a link for the data in that chart? I would be interested to see it redrawn in the way Stephanie Kelton does for the US - adding together all the non-government sectors, and showing that the two sides mirror each other.

[@WarrenPeaceOG]

It's on the internet if you search "sectorial balances." It often has the Clinton surplus on it too

[@magravy1]

Wouldn’t most households still have spent their money as most is spent on mortgages rents food and energy?

[@nicrogers709]

Interesting (as usual) Richard ... The pro-capitalist and anti-capitalist balancing act (a.k.a. fascism) transfers the independence of large-scale capitalism to the “state” - at the same time endorsing a market economy, private property rights and sponsorship of affluent individuals. Just as the US economy depends (to significant extent) on investing government (tax payer´s) money in the politically controlled MIC to create industrial growth, labour opportunities and shareholder approval (while enhancing hegemony) - all driving towards the rewarding scam a.k.a. war/death. Your valued hypothesis, “every action has a reaction” (every borrower needs a lender) implies that all that occurs in this moment is an accumulation of everything that's gone before. And just as butterfly wings in the Amazon can causes catastrophe on the other side of the world … are actions and reactions (borrowing and lending) always in balance? Is government interference in almost every aspect of industrial and financial enterprise (whilst conveniently ignoring that which does not fit the narrative) an indication that the western world is increasingly drifting towards fascism? PSG

[@allykhan8594]

Best not exceed tax receipts then!

[@PeterLihou]

Macro source and distribution of funds for an economy.

[@kayedal-haddad]

At what rate would you set the deficit as a percentage of GDP?

[@oscartrain1151]

nice

[@jimf671]

Excellent work. I think it is useful to consider a public sector worker receiving their salary and then spending it. End of the month they get £3k of freshly conjured up government money of which £875 goes in taxes. They spend the other £2125 of which £300 goes in VAT. The businesses that it is paid to use much of the remaining £1815 to cover their payroll costs and more PAYE and NI get deducted. Already, we are approaching the point where around half of the money is taxed out of the economy, reducing the government deficit. In most cases, that spending and taxing keeps on going of course. If instead it were all paid into an ISA account there would be none taxed back and it wouldn't reduce the deficit.

[@christopherdobbie]

Can you graph change in GDP concurrently?

[@deerfootnz]

Do all the sectors still sum to zero if the money supply is increased?

[@warfish0r]

The y axis is "% of GDP", so a money supply increase cannot affect the sum. For example; if every pound was exchanged for 2, the proportion split would be identical, if new money is printed and handed to households, their proportion of GDP increases. Printing money, should (assuming all other things are equal - which they never are) devalue a currency against all other currencies.

[@lecturesfromleeds614]

Have you done a video about gold backed currency VS MMT?

[@RobCollins2015]

This video (and to some extent the chart) seemed to rather gloss over the role of foreign entities holding UK Government debt (roughly 25% of UK Government debt (up a lot over the last 10 years)). Couldnt you argue that the Government's ability to run a deficit is based on having a 'lender of last resort' ie that always positive purple line of the 'rest of the world' and that if 'they' dont want to finance that deficit then it would be difficult to create it (ie Liz Truss budget.)

[@truthseeker5911]

From a government financing perspective it doesn't need to issue debt. borrowing is an accounting procedure between the treasury and its central bank and occurs on the governments own balance sheet. The treasury could issue debt directly to the central bank and the government would in effect owe the money to itself. Issuing debt does help the central bank to maintain its interest rate target though and it is a safe asset for our savings to be held in.

[@piccalillipit9211]

*IVE BEEN SAYING THIS FOR YEARS* - also - national debt is just a way of giving more money to rich people If you can print money you have NO NEED to borrow. You can print, spend and tax back off the rich [where money migrates] to prevent inflation. BUT instead of taxing the rich you can make the rich RICHER by borrowing that excess money from them to use in the economy and NOT tax it back in... BOOM - WINNER...!!!

[@m0o0n0i0r]

however your premise is that it is only the government that can create wealth right? During covid, I was still out working, I didnt claim as I was not furloughed, my savings went up

[@pensarfeo]

Why is the gray line no longer at 0 after 2022?

[@ericrawson2909]

my guess is QE

[@pensarfeo]

@@ericrawson2909 Could be, but he claims that the gray line must be 0 everywhere, so shouldn't that be included too?

[@WarrenPeaceOG]

I think because the numbers have not all been settled yet. There is a delay until the accounts zero out

[@boptah7489]

Absolute rubbish. There is no such thing as 'private wealth ' measured in currency. The currency and its creation , plus the legislation that upholds that, is entirely in the purview of the government.

[@roymillsjnr5172]

Sorry mispells ive a gremlin in the works

[@roymillsjnr5172]

Of course it does , i wish we had sensible honest people in parliment ,i know this ,if i was in charge ,i would have Ruchard as my right hand man , as the chancellir of the exchequer ,and i would brain storm with him what we could do ,to eliviate struggling communities and what emergency measures we could use 💛

[@RobinHarris-nf4yv]

Richard, expect you have a nice big private pension and live in a large mortgage free house.