global financial crash yay!
- Thread starter sufi
- Start date
vimothy
yurp
The private sector's NFA *are* the net financial liabilities of the government! This is totally consistent with the model and stock-flow consistency. It should be implicit at every step--that initial $100 (NFA) came from somewhere--where? A cross-sectoral deficit flow: government deficit spending.
vimothy
yurp
True. However:
Any endogenous credit money-growth merely pairs new financial assets with new liabilities on the sectoral aggregate balance sheet--summing to zero for no new net financial assets.
NET new financial assets can only be created by a cross-sectoral deficit flow.
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vimothy
yurp
No, I've just said that you are correct that there are two different ways to create money. However:
Any endogenous credit money-growth merely pairs new financial assets with new liabilities on the sectoral aggregate balance sheet--summing to zero for no new net financial assets.
NET new financial assets can only be created by a cross-sectoral deficit flow.
NET new financial assets can only be created by a cross-sectoral deficit flow.
Remember China!
"Any endogenous credit money-growth merely pairs new financial assets with new liabilities on the sectoral aggregate balance sheet--summing to zero for no new net financial assets."
Yeah eventually the money gets withdrawn, but for the time being that money circulates in the economy creating a financial asset and liability - i don't get why you say net, because they always net to zero. Eventually taxes are taken to pay for the treasury that allowed the government to spend without monetizing. Then those assets (cash) and liabilities (treasury debt) cancel out. Does that mean that no financial asset was created, unless they monetize the debt?
Yeah eventually the money gets withdrawn, but for the time being that money circulates in the economy creating a financial asset and liability - i don't get why you say net, because they always net to zero. Eventually taxes are taken to pay for the treasury that allowed the government to spend without monetizing. Then those assets (cash) and liabilities (treasury debt) cancel out. Does that mean that no financial asset was created, unless they monetize the debt?
vimothy
yurp
The key issue is that since, for any period, within a sector all balances sum to zero, a cross-sectoral flow is needed to satisfy the accounting for whatever financial assets remain. Government deficit spending represents that very deficit flow and allows AD for the private sector to decrease, posting a net saving rate greater than zero without destroying output, solving the paradox of thrift. The government provided the *net* financial assets that boosted output and allowed the flow of saving to increase.
For the Sino-American macroeconomy, read "America" instead of "the government", and "China" instead of "the private sector".
For the Sino-American macroeconomy, read "America" instead of "the government", and "China" instead of "the private sector".
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This is what is tripping you up:
Godley & Lavoie p. 24
"In the initial standard
national accounting – as was shown in its most elementary form with the
help of Table 1.1 – little room was left for banks and financial intermedi-
aries and the accounts were closed on the basis of the famous Keynesian
equality, that saving must equal investment. This initial system of accounts
is a system that presents ‘the sector surpluses that ultimately finance real
investment’, but it does not present ‘any information about the flows in
financial assets and liabilities by which the saving moves through the finan-
cial system into investment. These flows in effect have been consolidated out’
(Dawson 1991 (1996: 315)). In standard national accounting, as represented
by the National Income and Product Accounts (NIPA), there is no room to
discuss the questions that Copeland was keen to tackle, such as the changes
in financial stocks of assets and of debts, and their relation with the transac-
tions occurring in the current or the capital accounts of the various agents
of the economy. In addition, in the standard macroeconomics textbook,
households and firms are often amalgamated within a single private sec-
tor, and hence, since financial assets or debts are netted out, it is rather
difficult to introduce discussions about such financial issues, except for
public debt. "
Godley & Lavoie p. 24
"In the initial standard
national accounting – as was shown in its most elementary form with the
help of Table 1.1 – little room was left for banks and financial intermedi-
aries and the accounts were closed on the basis of the famous Keynesian
equality, that saving must equal investment. This initial system of accounts
is a system that presents ‘the sector surpluses that ultimately finance real
investment’, but it does not present ‘any information about the flows in
financial assets and liabilities by which the saving moves through the finan-
cial system into investment. These flows in effect have been consolidated out’
(Dawson 1991 (1996: 315)). In standard national accounting, as represented
by the National Income and Product Accounts (NIPA), there is no room to
discuss the questions that Copeland was keen to tackle, such as the changes
in financial stocks of assets and of debts, and their relation with the transac-
tions occurring in the current or the capital accounts of the various agents
of the economy. In addition, in the standard macroeconomics textbook,
households and firms are often amalgamated within a single private sec-
tor, and hence, since financial assets or debts are netted out, it is rather
difficult to introduce discussions about such financial issues, except for
public debt. "
Tentative Andy
I'm in the Meal Deal
Thanks, had a listen to this last night in an idle moment and found it really interesting.
Been ruminating back and forth over the paradox of thrift today and I think I just about get it...
vimothy
yurp
rumble--I am very pressed for time at the mo. Not sure how this addresses the problem. Can you expand? Cheers.
vimothy
yurp
Yeah, the paradox itself is probably not hard to grasp. It's trying to integrate it into an internally consistent macro conceptual model that is blowing my mind at the minute. But I think it is def. pretty mint that you've jut listened to an hour long podcast about Keynesian macro! Nice one Andy.
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