“….. but for each dollar of current account deficit you’ve got to borrow a dollar from a foreigner” I heard this one just a couple of days ago by from David Murray the former CEO of the Australian Commonwealth Bank. Its even more stark than the usual misrepresentation of government and trade deficits. The statement is highly misleading , in the sense that people use the term borrowing, and it’s hard to think that David Murray wouldn’t know that. Borrowing in the normal use of the term means going out and asking someone for a loan. As head of the Commonwealth Bank he wouldn’t have used the term borrowing to describe the process of the Bank’s customers depositing their money in his bank. In a narrow accounting sense that is what the bank is doing though and that’s all most government “borrowing” is. http://www.abc.net.au/lateline/content/2012/s3600412.htm The central reserve banks of all developed countries have many overseas held accounts. In an accounting sense they have borrowed money but it doesn’t cause anyone to lose any sleep in the way that an average person might if they had borrowings as a mortgage or a car loan. If we have money in the bank and that bank displeases us in ways banks often do, we can’t repossess the CEO’s car! All we can do is move our money to another bank and the bank don’t usually care in the slightest!
Daily Archives: October 31, 2013
I am giving just short answers to each of the frauds which we hear perpetrated all the time.
Deadly Innocent Fraud #3:
Government budget deficits take away savings.
Government budget deficits ADD to savings.
This is just so basic that it barely needs any explanation. Every year I typically receive back about a $1000 in overpaid income tax.
When that happens my bank account increases by $1000 and the government debt also increases by the same amount.
How hard is that to understand? 🙂
The 7 Deadly Innocent Frauds of Economic Policy: by Warren Mosler is available on pdf for anyone who would like the full explanation to each one.