5 responses to “A Simple Spreadsheet Model of Government Spending

  1. DL file is econ1.xls but Macro points to econ.xls (?)

  2. When I create a debt for the users government runs a surplus. But isn’t that because the loan would have come from the government in the spreadsheet?

    Loans usually come from private banks. Doesn’t that make a difference?

    • It doesn’t make any real difference. We can easily put our three currency users into debt by clicking on the third macro.

      Say we give them $100 worth of debt and the cash to match. That could be an overdraft at a private bank. So they’d have the debt but an extra $100 of cash ie spending money to start with. We click away on the second macro and the govt have a $100 surplus. Everything looks good – Superficially.

      If all the users banked at the same private bank the transactions would be recorded in the IOUs of that bank. Except, the tax bill on the transactions would have to be paid from the private bank’s reserves – in real central bank money.

      So, at the end of the process, the users are collectively in debt to the tune of $100. The private bank has an asset of those debts but it has also lost assets of $100 from its reserve account. So the PB ends up all square. The debts in the economy remain, however, until they are repaid – unlike in the spreadsheet when they are extinguished by the reset button.

      It is this accumulation of private debt in the economy which is the basis of Steve Keen’s debt deflation concept. The problem of Increasing private debt levels can only be temporarily fixed by encouraging the creation yet more private debt. But that’s a bit like a junkie needing a bigger and bigger fix. He needs at some point to choose a healthier lifestyle.

  3. Thanks for the great visual representation. As personal debt rises fewer transactions occur (unless the debtors are given more heroin) and so the tax return falls. The laffer curve in action?

    At some point personal debt will reach a tipping point where income will be insufficient to service the debt (hence negative interest rates) and people will go bankrupt. A clear out can’t come soon enough in my opinion – either bankruptcy for the over-indebted, or debt forgiveness (aka: bankruptcy for the banks – and hopefully prison! Whey!).

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