Spending = Income !
I don’t know why anyone has a problem seeing that. But, many of us are so caught up in the thought that saving must be a good thing that we sometimes miss it. Saving is what the virtuous do. Spending, on the other hand, must be a bad thing. That is what the reckless do. Except, of course, if the spending can be classed as “investment”. Then it might be classed as a good thing too! Income, naturally, is a good thing. At least we all agree on that. Everyone needs some income to survive.
It should be a self-evident ‘truism’ that everyone, everywhere, who has earned any money has done so only because someone else has made a decision to spend some money. If people are not earning enough it must follow this is because other people are not spending enough. Spending may be “investing” in new infrastructure or, equally, it may be simply you or I just going down to the pub and buying a pint or two!
Of course, if anyone wants to put aside some of their hard earned money then there is no reason why they should not. But, as a simple matter of accountancy, it needs to be recognised, by all, that if someone is spending less than they earn someone else has to spend more, otherwise our economy will spiral downwards as it has in the Eurozone. The foreign sector in the UK spend less than it earns. Overseas buyers spend less on buying products from the UK, our exports, than sellers earn from sales of products to the UK , our imports. That needs to be made up for.
Many baby boomers are nearing retirement. They are spending less than they earn, as they put aside money into their pension funds. More generally, the private domestic sector needs to net save to clear past debts and avoid new ones. That needs to be compensated for too.
That has to be down to Government. There is no one else. It needs to spend more than it earns, ie run a deficit, to “balance the books”. It is all so simple, and so obvious, but many of us are just so conditioned to be the way we are that we can be blind to what should be apparent to an intelligent 5 year old and mess up our economies as a consequence.
Modern Monetary Theory: Real Economics 
You are absolutely right! But the money that the state injects into the economy mustn’t be, either directly or indirectly, as debt created by the banks as debt to themselves! Any successful expanding economy demands an expanding money supply. A static supply would result in deflation, recession and on-going depression – which is where we are now!
Modern day mature consumer led economies cannot survive, let alone progress, without adequate spending power in the hands of the customers/consumers – realistically higher wages, lower taxes and reasonable levels of benefit provision. Unfortunately our debt based system of money creation by commercial banks inevitably creates income inequality. Neither income inequality nor overloading debt are compatible with a successful consumer led economy. It will have to change – either soon pro-actively and constructively or later re-actively and hap-hazardly following economic meltdown and/or WW3. Every debt based financial system since civilisation began 6000 years ago has collapsed in mayhem or warfare.
That’s simply not the case. Interest is just part of the profit share that goes to bankers as payment for their assessment of which project or business gets support. That assessment has to be done by somebody, just as the ‘organising the efforts of others’ has to be done by somebody.
It really is time to get over the hang up about the word ‘debt’. Money is always a debt and we do transactions in a monetary economy by swapping debts with each other.
Nothing wrong with what you are saying – it’s just got totally out of kilter. Yes we need banks and other investors to fund private and corporate borrowing whether it be loans or corporate bonds – but not at gearing of up to 50:1.
Money is not a debt when it’s created as an asset by a sovereign state. That is what we have neglected – largely out of fear that sovereigns or governments will abrogate their responsibilities and abuse sovereignty to bribe the electorate. When things look benign banks over create money and this drifts – or cascades into asset bubbles and/or inflation. The same has happened with the QE funding since there has not been a means of directing its focus. Much of it. also, had of course to be appropriated by the banks to bolster their balance sheets! Printing money – regardless whether as new debt-based money by the banks or as new real fiat debt-free money by the state – does not cause inflation per se. Too much does; just as too little causes deflation; look at the mess the EU is in for this very reason. It’s not rocket science – it’s common sense and we’ve been conned by the bankers. The government bond system needs to be wound down and phased out – which is what QE is doing and will continue as quickly as conditions allow. Perhaps the banks and the bond vigilantes haven’t realised yet! But anyway if the vigilantes try to trash the currency the bond price drops and it’s easier to buy them out. Of course at the same time the bank’s capital reserve requirements need to be hiked up to c. 30% – RBS was 2% went it went tits up! It’s all here:
Philadelphia Global Centre 31st Annual and Monetary Trade Conference: Fixing the banking system for good on April 17th. The proceedings can be viewed at:
http://www.positivemoney.org/2013/04/video-from-the-conference-fixing-the-banking-system-for-good/
and no I don’t support Positive Money’s drive for full reserve banking!
We will still need banks to provide leveraged funding for corporate bonds, SMEs and private loans. At the above conference Michael Kumhof’s [IMF Researcher] presentation is sound stuff – even if his presentation is abysmal!
Also see George Soros and Adair Turner at the 2013 INET Conference in Hong Kong:
http://www.positivemoney.org/2013/04/adair-turners-keynote-speech-at-inet-conference/
“Money is not a debt when it’s created as an asset by a sovereign state.”
It’s true that the monetary base is not counted in the National debt. But should it be counted? That’s the real question. I suspect the decision to not count it goes back to the time when money was backed by gold so that then it would have made some sense. Not now though. There hasn’t been any gold involved for decades now.
Issued money is still a liability to whoever issues it. Its an IOU with a promise that the IOU will be accepted back as a payment for tax. In other words they are tax credits. If government issued vouchers and called them £10 tax credits , £20 tax credits etc they would have exactly the same function as banknotes. When government received the vouchers they’d tear them up. Just like Tesco tear up their shopping vouchers after you hand them in. Just like Governments tear up old banknotes! They are spent and worthless to them. Not to us though. We’d never tear up a £20 note no matter how tatty it looked.
On the question of bank debt/loans in your previous comment. Yes banks can create their own credit. But it isn’t like they can create the same credit or money as can a sovereign government. If they could they’d never go broke. They’d hardly have to employ anyone. Just a couple of people to create huge amounts of money maybe! So, its important to know the difference. This is where the PM group get it all wrong. They’ve got hold of the idea that banks can create money and taken the argument to its ultimate absurdity.