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markg
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Hi Steve, The point I was making is the govt debt is determined endogenously. The public's desire to net save financial assets (I am sure you know Treasury Securities are listed on the asset side of private sector balance sheets) can vary based on demographics, asset mix preferences and many other factors. That means the debt ratio could vary. There is no "right" or "maximum" debt/gdp ratio. Also, the govt can influence the economy by its policy torwards the demand side. If taxes are too high on the consumer side output will not be sold. Business and entreprenuers will not invest if they can not sell their goods. Case in point, are auto sales down because car manufacturers cannot build enough cars, or because they cannot sell enough cars?
I don't think the govt can control the debt ratio. The MMT position is the govt spends by crediting a bank account. Tax revenue is not required for this action to take place. If the recipient of the govt spending then spends the money, it is income to another. The govt taxes income. So each time the money is spent on down the line the govt gets a cut. Eventually the govt will get all the money bank as long as each person spends 100% of the income derived from the initial spending. But if each person saved a portion of the income they derived from the spending, the govt would not collect a tax on the money saved (because the saved money would not be available has income to another). The total money saved by each person would equal how much the govt initally spent minus how much the govt was able to collect back in taxes. Ultimately, it is the public's (including foriegners) desire to save that determines the debt ratio. There a many factors that determine how much the public wants to save. To put an exact ratio on those factors is impossible (Japan is currently at 200%). Glad to see you posting again Steve.
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Feb 2, 2011