Deficit Owls | Government Deficits Create Assets, Central Banks Just Liquify Them @deficitowls5296 | Uploaded August 2016 | Updated October 2024, 7 hours ago.
Professor L. Randall Wray discussing net financial assets in the economy. All financial assets net to zero: your asset is my liability. But, since only the government holds government liabilities, the private sector can have positive net financial assets, since the private sector doesn't include the government. These assets are created when the government deficit spends: if it created (by spending) $10, and only destroyed (by taxing) $3, then the private sector is holding $7 of new financial assets.
By buying and selling assets, a central bank like the Federal Reserve just changes the form of these assets held by the private sector: it might change a bond to bank deposits, or bank reserves into a mortgage-backed security. But the total is still the same. The central bank might even buy real assets, but as long as it pays market price it's still not adding or destroying financial wealth: if the central bank buys a zoo, the previous owner of the zoo used to have a zoo as an asset, but now has bank deposits. The total amount of financial wealth is still the same. But zoos are very difficult to buy and sell, while bank deposits are very easy, so the Fed buying a zoo would add "liquidity" to the private sector.
See the whole video here:
youtube.com/watch?v=SFf95BVx9Qw&index=7&list=PLYvSXI9SKGf2lIno6TI0r_PbLX_cpAwuu
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Professor L. Randall Wray discussing net financial assets in the economy. All financial assets net to zero: your asset is my liability. But, since only the government holds government liabilities, the private sector can have positive net financial assets, since the private sector doesn't include the government. These assets are created when the government deficit spends: if it created (by spending) $10, and only destroyed (by taxing) $3, then the private sector is holding $7 of new financial assets.
By buying and selling assets, a central bank like the Federal Reserve just changes the form of these assets held by the private sector: it might change a bond to bank deposits, or bank reserves into a mortgage-backed security. But the total is still the same. The central bank might even buy real assets, but as long as it pays market price it's still not adding or destroying financial wealth: if the central bank buys a zoo, the previous owner of the zoo used to have a zoo as an asset, but now has bank deposits. The total amount of financial wealth is still the same. But zoos are very difficult to buy and sell, while bank deposits are very easy, so the Fed buying a zoo would add "liquidity" to the private sector.
See the whole video here:
youtube.com/watch?v=SFf95BVx9Qw&index=7&list=PLYvSXI9SKGf2lIno6TI0r_PbLX_cpAwuu
Like Deficit Owls on Facebook here:
facebook.com/DeficitOwls
