Deficit Owls | How To Start A Currency From Scratch (Short Version) @deficitowls5296 | Uploaded October 2016 | Updated October 2024, 1 hour ago.
Professor Stephanie Kelton (UMKC and economic adviser to Bernie Sanders) running a little live currency creation experiment! She begins by levying a tax on the subjects of her nation Keltonia, in order to create a demand for her currency, Keltoni. This leads to her citizens demanding that she spend some Keltoni into existence, so that they have the Keltoni to pay the tax. She then does this, spending 500 Keltoni, and taxing 200, for a deficit of 300. Since Kelton has a deficit of 300 Keltoni (she has spend more than she has taken in) this must mean that the non-Kelton sector has a surplus of 300 Keltoni (it has taken in more than it has spent out).
Then her citizens decide to import some goods from a foreign country. The foreigners are willing to accept Keltonis because they want to buy what the people of Keltonia export. They spend 100 Keltoni, which results in 100 Keltoni leaving Keltonia, ending up in the foreign sector.
This illustrates the principle of sectoral balances. The people of Keltonia now have 200 Keltoni, the foreign sector has 100, and Professor Kelton has -300. The surpluses/deficits of each of these sectors must add to zero: 200 + 100 + -300 = 0. This is an accounting identity.
The important takeaway here is that in order for the people of Keltonia (the domestic private sector) to be in surplus, then either Professor Kelton (the government) or the foreign sector or both must be in deficit to supply these funds. If the foreign sector is in surplus (confusingly called a "trade deficit") this means that financial assets are net leaving the domestic private sector to go off to foreign lands, so the government must run an even larger government deficit to compensate to supply those funds.
And finally, Kelton demonstrate how bond sales work. First, a bond sale by the government is NOT "borrowing money," but rather is a service to pay interest to savers. (The government doesn't need its own currency back in order to spend, and you can't even buy a bond until the government has first spent some currency into existence so that you have the bond). Investors and foreign nations who accumulate our currency (because they run trade surpluses against us) choose to buy our bonds because the bonds pay interest, while the cash they hold doesn't. This in no way burdens the domestic private sector though: the government does not need to raise taxes in order to spend or pay back bondholders.
See the whole video here: youtube.com/watch?v=ba8XdDqZ-Jg
Follow Deficit Owls on Facebook and Twitter:
facebook.com/DeficitOwls
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Professor Stephanie Kelton (UMKC and economic adviser to Bernie Sanders) running a little live currency creation experiment! She begins by levying a tax on the subjects of her nation Keltonia, in order to create a demand for her currency, Keltoni. This leads to her citizens demanding that she spend some Keltoni into existence, so that they have the Keltoni to pay the tax. She then does this, spending 500 Keltoni, and taxing 200, for a deficit of 300. Since Kelton has a deficit of 300 Keltoni (she has spend more than she has taken in) this must mean that the non-Kelton sector has a surplus of 300 Keltoni (it has taken in more than it has spent out).
Then her citizens decide to import some goods from a foreign country. The foreigners are willing to accept Keltonis because they want to buy what the people of Keltonia export. They spend 100 Keltoni, which results in 100 Keltoni leaving Keltonia, ending up in the foreign sector.
This illustrates the principle of sectoral balances. The people of Keltonia now have 200 Keltoni, the foreign sector has 100, and Professor Kelton has -300. The surpluses/deficits of each of these sectors must add to zero: 200 + 100 + -300 = 0. This is an accounting identity.
The important takeaway here is that in order for the people of Keltonia (the domestic private sector) to be in surplus, then either Professor Kelton (the government) or the foreign sector or both must be in deficit to supply these funds. If the foreign sector is in surplus (confusingly called a "trade deficit") this means that financial assets are net leaving the domestic private sector to go off to foreign lands, so the government must run an even larger government deficit to compensate to supply those funds.
And finally, Kelton demonstrate how bond sales work. First, a bond sale by the government is NOT "borrowing money," but rather is a service to pay interest to savers. (The government doesn't need its own currency back in order to spend, and you can't even buy a bond until the government has first spent some currency into existence so that you have the bond). Investors and foreign nations who accumulate our currency (because they run trade surpluses against us) choose to buy our bonds because the bonds pay interest, while the cash they hold doesn't. This in no way burdens the domestic private sector though: the government does not need to raise taxes in order to spend or pay back bondholders.
See the whole video here: youtube.com/watch?v=ba8XdDqZ-Jg
Follow Deficit Owls on Facebook and Twitter:
facebook.com/DeficitOwls
twitter.com/DeficitOwls
