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Liberty and Democracy are not opposing ideas. The political center is where all change is made. Let's embrace reason and civility.

Friday, September 4, 2015

Money, Credit and the Real Economy

"There is no limit to the services we can perform for each other... Real wealth, for any nation, is everything you produce domestically, plus whatever the world sends you, minus what you have to send to them - your exports. So, the imports are the real benefits; the exports are the real cost." -- Warren Mosler

When you work, you provide a service to other people, directly or indirectly. It doesn't matter if you're a security guard sitting in a chair or an iron worker riveting steel, you are contributing to the real economy.

I've spent my whole life in the private sector, except for my service as a soldier in the US Army. All production and distribution of the goods and services in our society is driven by demand for that production, demand expressed in terms of purchasing power or "money".

We all have what's called a "survival constraint", or "profit constraint". We, the private sector, need to generate at least enough income to cover our spending and our desire to "net-save".

We can borrow spending power if we need to, create money for a house or car for instance, by issuing our own private security (mortgage) which a bank will only grant based on our income projection. When we pay back the loan, or default, that debt (and money) is extinguished.

This is why federal spending, specifically deficit spending, is so important. Our private sector thrives within a framework of public infrastructure-- which includes civil law and citizen benefits.

New money is created by federal spending. It enters the private sector by purchasing resources, goods and services (labor). This money remains in the private sector where it is spent or saved, and extinguished when we pay federal taxes.

Hence, federal debt is necessary for the private sector to retain any "net financial assets" beyond the private debts of individuals. We can prevent recessions, provide full employment, invest in cities and states, and expand citizen benefits as long as there are people willing to perform services for each other...

+/- the international trade balance, but that's another issue.

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