But governments issuing their own fiat currency, subordinate to no higher authority, and owing no debt to anyone else in a currency other than its own can never go broke, or put another way, become insolvent. Because all they need to do to spend money is to issue credits to non-governmental sector accounts in banks, and all they need to do to pay back other Governments who have lent them their own currency, is to credit the accounts of the lender Governments in that currency, an action which they have full authority to do, absent any political constraint they have placed on themselves. We call such Governments “sovereign” in their own currency. And because they have this kind of sovereignty, they also have flexibility to facilitate economic activity to accomplish public purposes that Governments without that kind of sovereignty don’t have. But with that fiscal flexibility also comes fiscal responsibility – the responsibility to use the operationally unlimited spending power of an economically sovereign government to use that spending power for public purpose and not for private gain.
One of the Governments that fit these criteria and so can never go broke is the US Federal Government. Other common examples are Japan, Australia, New Zealand, Canada, Brazil, Argentina (though it was not always so), and the UK. Governments that don’t fit these criteria and that can go broke include the nations of the EU, such as Greece, Portugal, Spain, and Italy. Even France and Germany can go broke, since they no longer issue their own currency. Other examples include all those developing nations with loans from the IMF, the World Bank, and other international authorities that must be paid back in US Dollars, a currency they cannot issue; as well as state, local, provincial, and other governments subordinate to a super-ordinate currency-issuing authority such as California.
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Most governments that are sovereign in their own currency haven’t been fiscally responsible in a very long time. While some have performed better than others in seeking and achieving public purposes, most have continued to act as if they are constrained by the gold standard, and have attempted to either reduce spending at the expense of the less well off, or to fail to pursue programs for full employment, or to fail to make enough investments that will fulfill other pubic purposes. In most of these cases, deficit hawkism and specifically the desire to either reduce deficits, or to balance budgets, has trumped the desire to fulfill public purposes.
In short, governments sovereign in their own currencies have been acting like governments on the gold standard, or those who owe debts in currencies they don’t issue. They have been acting in a fiscally irresponsible way given their fiat monetary systems, while at the same time claiming to be fiscally responsible. They can get away with this, because very few people make the distinction between governments sovereign in their own currency and governments that are not. And even fewer go on to recognize that what may be fiscally responsible for gold standard governments, or governments that are not economically sovereign, is most certainly fiscally irresponsible for economically sovereign Governments.
In systems where governments are economically sovereign like the United States, it is a big mistake to measure how the nation is doing by using deficit, the national debt, or debt-to-GDP ratios. Those measures, in fact, are the wrong things to measure, since the government is a scorekeeper that can always credit accounts when it needs to spend or pay what it owes or even set interest rates by flooding the market with reserves and driving short-term interest rates down to zero. In such systems, the money is always there for the non-governmental sector, not in the sense that the government has accumulated some physical stock of it, but in the sense that the Government can always spend or pay back by crediting accounts, regardless of any physical stock it may have.
Satuin kuitenkin vilkaisemaan, ja sanon että en ole huolissani valtioiden kilpailukyvystä. Olen huolissani siitä, että köyhien valtioiden ei anneta hyödyntää mahdollisesti suurinta kilpailutekijäänsä, eli sitä että siellä tehdään halvemmalla ja ollaan toisinaan kiitollisia siitä että niitä töitä saatiin. Olen huolissani siitä että globaalia oikeudenmukaisuutta ei nähtävästi edes pyritä toteuttamaan muutakuin palopuhetasolla.
