a deer in the headlights


Bill Morneau comes across as inadequately briefed. Or maybe just not up to the job. Anyhow, he looks taken completely by surprise: a deer in the headlights.

Money issued directly by a well run, monetarily sovereign government is a zero-interest IOU cancelled in due course when accepted in payment of taxes owed. Any talk of balance sheets in this context is a red herring.

Persons, households, businesses, charities, institutions, city governments, and so forth may be required to balance assets against liabilities and equity (or reserves), but for a monetarily sovereign government, such a balance sheet is irrelevant or even meaningless; what matters is how the price and availability of goods and services people need to live on is affected by government spending.

When the price of essential goods and services rises because the resources required to produce them are hitting their limits, a responsible government can reduce inflationary pressure by cutting spending or raising taxes – or both.

A caveat is in order here. Money issued not to people who use it to buy essential goods and services but to people who use it to buy property rights to existing assets – stocks, real estate, gold bars, and so on – leads to asset price inflation. The bubble bursts, and the dispossessed among us end up even more so.

see also: David Graeber on money as an IOU
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