Comments by "Maria" (@maria8809ttt) on "The sectoral balances" video.

The government has to record the bank loan amount as a government liability incase of default. The government is responsible for all money creation in its owned legislative Fiat. If the loan is paid in full, that is then a private sector exchange of asset at an agreed price. If the load is defaulted on it will involve government. The liability lasts for the duration of the loan. That is what happened in the global financial crisis, a global, mass private sector default, all centeral banks had to except the liability and absorb the losses, even though banks had behaved in an irresponsible manner. It was that bad, if global central banks hadn't of stepped in, the mass default crisis would have brought down the global monetary system. Just the same as when the gold standard system collapsed in 1971. Unconventional monetary policy was implemented, to prevent a crash not seen since the Wall Street Crash of 1929, known as the Great Crash, followed by the Great Depression. The only thing that kick started economies such as the US and UK was 'money printing' (OMF) by government, used directly by government into the economy for 'public good' spending. In the US it was Roosevelt that implemented this form of macroeconomics in 1931. The UK didn't act untill after Ww2. The same macro was implemented 'public good' spending.
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'We are now able to understand how mass unemployment arises and why government is central to its solution. There is no unemployment in traditional non-monetary economies or non-monatery segments of a modern economy. For example, an unpaid childcarer can never be unemployed. In monetary economies, however, the output of goods and services responds to spending. Firms and other organisations do not produce if they are not confident of selling their output. The production process generates a flow of income (paid to the various production inputs). One person's spending is another person's income. A basic macroeconomic rule is that total spending must equal total income for all the goods and services produced in any period to be sold. If total spending in a period is less than the total income generated, then firms will have unsold output in the form of unwanted inventory accumulation and will reduce future production and employment. Why would total spending fall below total income in any period? A simple reason might be that households desire to save some of their income for future use or to purchase imports, which means income generated in the domestic economy is spent abroad. The result of this spending deficiency is a rise in involuntary unemployment, which is idle labour offered for sale with no buyers at current wages. In this situation making labour cheaper (cutting wages) will not reduce unemployment, unless those cuts somehow increase total spending. Clearly, wages are an important component of total income and spending is dependent on income. Cutting wages is thus likely to worsen a spending shortfall.' Professor William Mitchell.
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If the non-government sector desires to save overall, it will spend less than it's income. The shortfall in each period has to be eliminated by the government spending more that it receives in revenue (that is, running a fiscal deficit) to prevent a rise in mass unemployment. There is another complication. The non-government sector may desire to save overall but it also has to pay taxes from its income, which further reduces the amount that can be recycled back into the non-government spending stream in each period. The imposition of taxation thus reduces the spending power of the non-government sector. That gap also has to be filled by government spending, which means 'taxes in aggregate will have to be less than total government spending. Therefore, if the objective is to maintain full employment, while there may be circumstances that require a fiscal surplus (for example, if private sector spending is strong or if the country is running a large current account surplus), for most countries this will typically require continuous fiscal deficits of varying proportions of GDP as the overall saving desires of private domestic sector vary over time. By the same token, unemployment occurs when net government spending is too low relative to the current tax receipts, or taxes are too high relative to the level of government spending, after taking into account the overall savings desires by the non-government sector that have to be matched by government deficits.' Professor William Mitchell.
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'In the coming years the growing masses of citizens dispossessed by the forces of neoliberalism will increasingly choose the reality of national democracy, imperfect as it may be, over the fantasy of a democratic global society.' Wolfgang Streeck.
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'The conclusion that mass unemployment is the result of the government deficit being too low also defines the limits on responsible government spending. It is clear that government spending has to be sufficient to allow taxes to be paid. In addition, net government spending is required to meet the non-government desire to save (accumulate net financial assets). The government should aim to maintain total spending such that firms are willing to produce and employ at levels sufficient to engage the available labour resources fully. Not a penny more needs to be spent by government. This logic also allows us to see why the pursuit of government fiscal surpluses will be contractionary. Pursuing fiscal surpluses is necessarily equivalent to the pursuit of non-government sector deficits. They are two sides of the same coin. For a time, inadequate government deficits can continue without rising unemployment. In these situations, as is evidenced in many countries in the pre-crisis period, GDP growth can be driven by an expansion in private debt. The problem with this strategy is that when the private debt-service levels reach some threshold percentage of income, the private sector will 'run out of borrowing capacity' as incomes limit debt service and banks become risk-averse. Typically, this will then provoke efforts to reduce the debt exposure (a so-called 'balance sheet restructuring') and render the household and/or firm finances less precarious. As a consequence, total spending from private debt expansion slows and unemployment rises unless the government increases its deficit. If the government refuses to show fiscal leadership then recession follows. In some circumstances credit finance can indeed expand to accommodate growth in the private sector in the presence of insufficient fiscal deficits, but this growth will be inherently unstable. Only fiscal deficits can provide the foundation for stable growth and employment.' Professor William Mitchell.
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'The non-government sector can only accumulate net financial assets if the government runs a fiscal deficit. For example, when the treasury department purchases some equipment for a school, it will instruct the central bank to put funds into the bank account of the private supplier of the equipment. The bank entry is created because the government required it to be created. In effect, the entry was created out of thin air. The private supplier now has a higher bank account balance (an increased asset) but there is no offsetting liability within the non-government sector. Net financial assets have increased in that sector as a result of the government spending. Conversely, when the government extracts tax revenue from the non-government sector, the taxpayer will, depending on the arrangements within the tax system, see more income exstracted from its pay cheque or an existing bank deposit reduced by the amount of the tax liability. Either way, financial assets decline in the non-government sector without any corresponding decline in liabilities. As a result, net financial assets decrease. These transactions occur every day, and if the government spends more than it receives by way of tax revenue (a deficit) then net financial assets in the non-government sector will rise. The main thing to keep in mind about taxes is that they reduce liquidity in the private sector. Fiscal deficits increase the financial wealth of the non-government sector. Fiscal surpluses, clearly, have the opposite effect: they destroy net financial assets and financial wealth in the non-government sector. So when politicians call for deficit reduction and a shift to fiscal surplus, what they are really calling for, probably unwittingly, is the reduction in non-government financial assets - our wealth.' Professor William Mitchell one of the world's leading heterodox macro economists.
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'There is a parable that allows us to understand better the relationship between the government and non-government sector. Imagine a small community comprising 100 dogs. Each morning they set off into the field to dig for bones. If there are enough bones for all the dogs buried in the field then they would each succeed in their search no matter how fast or dexterous they were. Now imagine that one day the 100 dogs set off for the field as usual, but this time they find there are only 90 bones buried. As a matter of accounting, at least ten dogs will return home bone-less. Now a imagine that the government decides that this is unsustainable and decides that it is the skills and motivation of the bone-less dogs that is the problem. They are not skilled enough. They are idlers, skivers and just need to 'bone-seek' harder. So a range of dog psychologists and dog trainers are called into work on the attitudes and skills of the bone-less dogs. The dogs undergo assessment and are assigned case managers. They are told that unless they undergo training they will miss out on their nightly bowl of food that the government provides to them while bone-less. They feel despondent. Anyway, after running and digging skills are imparted to the bone-less dogs, things start to change. Each day, as the 100 dogs go in search of 90 bones, we start to observe different dogs coming back bone-less. The composition of the bone-less queue changes. However, on any particular day, there are still 100 dogs running into the field and only 90 bones buried there. At least ten dogs will always return bone-less. The only way for all dogs to get a bone is for the government to increase the number of bones. Professor William Mitchell.
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'Most citizens don't love the State or identity with it, and thank goodness they look to their families, their neighbourhoods, and traditions for the belonging and loyalties that give life meaning. But they also know that they need a sovereign with the power to compel competing sources of power in society to serve the public good. People don't want big government but they do want protection. They're perfectly willing to take responsibility for the risks they take themselves, but they want some public authority to protect them from the systemic risks imposed on them by the powerful. They refuse to see why large corporations should privertise their gains, but socialise their losses. They want to have a competent sovereign, and what goes with this, they want to feel that they are sovereign.' Michael Ignatieff. 'The vast majority of people don't belong, and never will belong, to the globetrotting international elite, their sence of citizenship, collective identity and common good is intrinsically and intimately tied to nationhood. Ultimately, being a citizen means to deliberate with other citizens in a shared political community and hold decision makers accountable.' Professor William Mitchell. A progressive vision of national sovereignty should aim to reconstruct and redefine the national state as a place where citizens can seek refuge' in democratic protection, popular rule, local autonomy, collective goods and egalitarian traditions,' Wolfgang Streeck. A new construction of a new international (ist) world order, based on interdependent but independent sovereign states.
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