Russkie wrote:Tell me how a surplus or balanced budget destroys savings.
Simple: Government is the monopoly supplier of currency. Any money that exists in the economy is there because of government spending. If government taxes all the money it spends, then that leaves nothing left for savings. Savings therefore come from deficits. If government taxes more than the net desired savings rate, that means that previous years' savings get paid in taxes, and once you tax away all the net savings, you get deflation.
The government is not a business, a business will get less money next year if they have a surplus, that is true. But the government doesn't care about that, it loves deficits since its previous debt will have less value in real terms.
Yes, government is not a business. That is precisely because businesses are currency users
while the government is a currency issuer
(at least the American government -- the Eurozone are a bunch of currency users, so they're more inhibited in their fiscal options).
Rancid wrote:And you can't see how this is a problem if say the government starts to issue $100000000000000000000000000000000000000000 trillion of debt instruments say over the next year?
Where did I say this would be unproblematic? It depends on the ratio of spending to taxes. If that gigantic number you mention was equivalent to the net desired savings rate, then it would be fine, but I don't think anyone would seriously suggest that the net desired savings rate would approach that number by a long shot. And again, the issue is not the debt. It's the deficit. The money to buy the bonds is already created through fiscal policy.
If it's done slowly and responsibly, I agree, it probably wouldn't be a problem. The problem occurs if the government goes batshit with this.
My point still stands, there is no such thing as free money for the government, there simply isn't.
I agree. But it's not about the absolute numbers, nor is it about debt solvency. It's about the ratio of spending to taxation.