The Budget Deficit and the Versailles Rag
On Friday, the Government reported its 2010 Fiscal Year results. Here are some fragments from a “news” article in WaPo by Vincent Del Giudice.
The U.S. government posted its second straight annual budget deficit in excess of $1 trillion as lingering unemployment constrained tax revenue.
The shortfall totaled $1.294 trillion in the fiscal year ended Sept. 30, second only to the $1.416 trillion deficit in 2009, the Treasury Department said today in Washington. . . .
. . . The national debt totals more than $13 trillion, exceeding the size of the economy, unadjusted for inflation. . . .
In September, the budget shortfall was $34.5 billion, the second straight year of uninterrupted monthly deficits, compared with $45.2 billion in September 2009, according to the Treasury. . . . .
It may seem that this is a piece of “objective” reporting from the WaPo because the deficit, roughly, is just the difference between Government spending and tax revenues, and all the article does is to point out what this difference is and also the size of the accumulated deficit from the beginning of the Republic up through the end of fiscal 2010. But the article clearly puts a negative connotation on the deficit. . . .
It says it’s the second straight budget deficit in excess of $1 Trillion, and also that the deficit was second only to the 2009 deficit in size. It also mentions that the national debt is bigger than the annual size of the economy, and also that this is the second straight year of uninterrupted monthly deficits, as if the constant shortfalls of tax revenue to Government spending are a problem.
This view is then underlined by quotes from Ben Bernanke and Alan Greenspan about the need for “rules” about spending and debt, about fiscal sustainability, about whether adjustments of this gap will be “careful and deliberative” or the result of “rapid and painful” response to a “fiscal crisis,” about “scary” budget gaps, and the need for “entitlement spending cuts” because we’re “involved in a dangerous game” where the gap between our debt and our “borrowing capacity” is being closed at a rapid pace.
So, there is not much doubt that the WaPo article buys into the idea that the deficit and the debt are growing problems that we must shortly do something about. That is not an objective view because there’s another point of view about this that says that the difference between tax revenues and Government spending has an entirely different significance, that is totally ignored by this "news" article. Here’s Warren Mosler on his third “deadly innocent fraud.” (p. 42)
This third deadly innocent fraud is alive and well at the very highest levels. So here’s how it really works, and it could not be simpler: Any $U.S. government deficit exactly EQUALS the total net increase in the holdings ($U.S. financial assets) of the rest of us – businesses and households, residents and non residents – what is called the “non government” sector. In other words, government deficits equal increased “monetary savings” for the rest of us, to the penny.
Simply put, government deficits ADD to our savings (to the penny). This is an accounting fact, not theory or philosophy. There is no dispute. It is basic national income accounting. For example, if the government deficit last year was $1 trillion, it means that the net increase in savings of financial assets for everyone else combined was exactly, to the penny, $1 trillion. (For those who took some economics courses, you might remember that net savings of financial assets is held as some combination of actual cash, Treasury securities and member bank deposits at the Federal Reserve.) This is Economics 101 and first year money banking. It is beyond dispute. It’s an accounting identity. Yet it’s misrepresented continuously, and at the highest levels of political authority. They are just plain wrong.
So, here’s another narrative about the deficit report based on Warren’s point of view straight out of Modern Monetary Theory (MMT):
The U.S. government posted its second straight annual contribution to non-Government sector savings in excess of $1 trillion as lingering unemployment constrained tax revenue.
The contribution totaled $1.294 trillion in the fiscal year ended Sept. 30, second only to the $1.416 trillion contribution in 2009, the Treasury Department said today in Washington. . . .
. . . The national cumulative contribution to non-government sector savings totals more than $13 trillion, exceeding the annual size of the economy in fiscal 2010, unadjusted for inflation. . . .
In September, the Government contribution was $34.5 billion, the second straight year of uninterrupted monthly contributions, compared with $45.2 billion in September 2009, according to the Treasury. . . . .
In spite of the size of the net Government spending contribution to the non-Government sector in fiscal 2010, the contribution still fell short of what was needed by the non-Government sector of the economy, since aggregate demand is still way below where it needs to be to end unemployment — which remains at roughly 9.6% or nearly 18% depending on which measure of unemployment one uses.
This alternative narrative suggests that the real problem is that Government spending and the deficit were both too low in 2009 and 2010, and that our deficit problem is a pure myth. And it is one that is ruining the lives and futures of many Americans, killing those who cannot afford health care insurance, and driving more and more Americans into bankruptcy, foreclosure, and penury.
WaPo, Bernanke, Greenspan, Obama, and the rest of the Washington elite say that:
“Federal Government budget deficits take away savings.” But this is a myth, “a deadly innocent fraud.” The fact is that:
Federal Government budget deficits ADD to savings.
And another fact is that if WaPo were an objective newspaper instead of a Versailles rag, it would report not only the deficit hawk narrative on the budget facts, but the deficit owl counter-narrative of MMT on them as well.