From a memo from Paul Saunders


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Paul runs James River Capital Corp and sent this out today:

Everyone, including our public officials running this country, think in terms of the private sector and not the public sector. They are so used to running their own businesses or their own lives, that they are unable to think in terms of how the government works. The private sector, you and me, needs to borrow money or earn money in order to spend. The public sector never needs to earn money or borrow money. The Government prints US dollars and only the Government is able to print US dollars making the US Government the monopoly producer of US dollars. It is strange that so many smart people struggle with this concept. Every dollar that the government spends ends up in the private sector. The only way that those dollars are reduced is if the government taxes those dollars back from you. If the government taxes more than it spends then the Government runs a surplus and the private sector is depleted of its savings which eventually leads to a contraction in the economy. If they spend more than they tax then they run a deficit and the private sector increases its financial savings and this is stimulative to the economy.


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10 Responses to From a memo from Paul Saunders

  1. warren mosler says:

    think if the proposed fiscal adjustments as removing fiscal drag that’s strangling the real economy, not adding something that stimulates something that isn’t there.

    and/or think of it this way:
    taxation is more powerful than spending, it takes govt spending larger than the taxation to keep it all towards neutral and not strangle the real economy

    Reply

  2. Steve Wrestler says:

    I’m so happy that Paul runs James River Capital Corp and not my company. He apparently has never heard of these weird things called banks… Mr Mosler have you heard about them? Banking is a brand new invention. It has been around for only a few thousand years. Please, check the latest papyrus publications to get up to the warp speed of financial innovation.

    From a speech of our glorious comrade Stalin:
    “Our glorious peoples’ public works supply the filthy private sector with Mooney. Why? Our glorious peoples public works can do everything which the filthy private sector can do and MUCH MORE. We don’t need them! I’m asking you glorious peoples, what should we do with the filthy private sector?”
    “The Gulag, the gulag” – answered the jubilant glorious peoples…

    Please excuse my sarcasm. Seriously now… no it can’t be serious. Please tell me this site is a practical joke, please! Prosperity through printing money??? Who would have thought it was that easy! Geniuses, pure geniuses … on par with those from Weimar.

    Best Regards,
    Steve

    Reply

  3. Warren–please explain this to me and others. IF the government can just print wahtever dollars it “needs” why should there be any taxation at all? Taxes just repatriate dollars from individualks and businesses back to the mother source, thus limiting the capacity of the private sector to spend. The government is fiat owner and producer of its currency should never need to get dollars back from its citizens. Just print more dollars. How could this not cause inflation thus finally producing a Weimar like condition in which a loaf of bread is priced at 1 million dollars? Thanks, Bob Millman

    Reply

    zanon Reply:

    Robert: You’ve answered your own question. Government spending creates money. Government taxation uncreates it (at the Federal level). Uncreating money reduces aggregate demand, and thus, reduces inflation.

    If the Government did not tax, then it would need to spend (much) less in order to keep inflation in check.

    Finally, taxation effectively creates transfers between various groups, and also encourages/discourages different sorts of activity, so is also a mechanism for social policy/political rewards.

    Reply

  4. manny valesco says:

    “Every dollar that the government spends ends up in the private sector.”

    I saw this congressman named charlie wilson who bought hookers and blow – how come congressman purchasing power never seems to vaporize like dave begotka’s does with these policies? With folks like spitzer paying $5,000 per hour, how is a poor citizen to compete? I cannot support any monetary memes where spitzer and friends can keep thier lifestyles running at warp speed while my goes into the abyss from inflationary excess.

    Reply

  5. The Interest says:

    “The public sector never needs to earn money or borrow money.”

    So true! So why does the government borrow money with interest? Why can’t it do the Abraham Lincoln way and just print greenbacks and spend them into the economy?

    Reply

    Scott Fullwiler Reply:

    It can, but it needs a zero interest rate target to do it. Otherwise, an interest bearing alternative to “money” must be offered.

    Reply

    Mike S Reply:

    Are we in the ridiculed or violently opposed stage. I want -this idea to get to the self-evident phase asap.

    Also, to elaborate on Scott’s point, the govt helps to set the interest rate curve on money by issuing debt. The basic cost of money over time is set by govt financing. If you read the essay, the natural rate of interest is zero,

    Reply

    zanon Reply:

    we’re in ZIRP now

    Reply

    Dave Begotka Reply:

    Some say that is what got him killed

    Reply

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