MarvinSussman

The US gummint wants a lot of stuff for the next year so it gives the public sector a LOT of money to make the stuff. By the end of the year, all the stuff is delivered. The public sector used the money to make the stuff and used its income to satisfy its needs and also to start new enterprises and do some commerce.

After the stuff is all delivered, the gummint says to the public sector:

"You remember all that money I gave you to make that stuff? Well, I see that you put about 5% of it into your savings accounts. That was a good idea! Tell you what l will do, I will auction off some risk-free, interest-bearing bonds that you can use for trade collateral, bank reserves, pension funds, etc. That will be a store of wealth that you will need for your future. So, whenever I have a tax deficit like that, you will be able to save money and accumulate wealth for the future.

“And you sent another 7% of the money to China so I will make the same offer to them so they will have trade collateral. That will help maintain the status of the US dollar as a reserve currency, which simplifies trade and reduces import prices.

"Now about that 88% of the budget that you still have, I want it back because if I let you keep it, you will go hog-wild and overspend and cause inflation. So send that 88% back. Now! Or else!"

The liberal hears that and says: "Ouch! But I guess it's a reasonable request. I will pay my taxes and enjoy the savings."

The conservative hears that and says: "Gummint, you need the money more than we do. Take all of it back! We will just cut back on infrastructure."

Liberal: Wait! What about the unemployed? They need those construction jobs. And the economy needs their spending. And we need that infrastructure for our grandchildren! And we won't have any savings!

Conservative: Those lazy unemployed people ought to look for other jobs. If the gummint does all that spending, it will get too big. I want a small gummint. And if the gummint sells all those bonds, it will have too much debt.

L: That debt is our wealth! And how can we have too much wealth? The gummint can’t possibly have a debt problem. When a bond matures, the Treasury just sends a check that never bounces. The only cost to the gummint is the interest.

C: But if the debt gets real big and the interest rate goes up, the budget will explode.

L: The interest rate won't go up if we have a lot of wealth and everybody bids for bonds, raises the bid price, and lowers the interest rate. The gummint just has to make its deficit spending as big as what we save and what we send to China. There is no problem as long as the GDP growth rate is greater than the debt interest rate which will stay low as long as we grow wealthy and spend and keep the GDP growth rate high.

C: Well, I have to live within my means and so does the gummint. I can't spend more than my income and neither can the gummint. We need a Constitutional amendment to enforce a balanced budget.

L: But the gummint does not depend on income. The Constitution lets the gummint spend without limit. We get taxed only to prevent inflation, not to supply Congress with funds. And if the gummint takes all the money back, the money supply will lose the amount we save and send to China every year, taking it out of circulation. Eventually, that will cause deflation and recessions.

Wouldn't it be better to use the tax deficit on spending for infrastructure for our grandchildren and fix the bridges before they fall into the river and get full employment and empty the prisons and put an end to poverty and increase our wealth for retirement?

C: But with full employment and empty prisons and prosperity forever, Those People will become middle class and get uppity. No way!

Gummint! Don't leave money on the table! Wh**ever you spend, take it all back! We need that amendment for a balanced budget. And let’s get back to a gold standard!