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So you think the country's broke? Think again.

Tony Wikrent's picture

Cross-posted from Real Economics.

The cover of a recent issue of Barron's magazine was presented in a recent post on Financial Armageddon. Please note the text on the cover at the top right of the globe (above the red arrow):

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"The dollar's swoon is drawing more investors to the $4 trillion-a-day foreign exchange market."

$4 trillion-a-day, folks. That's just in the forex market. There's trillions more traded in the stock, bond, futures, options, and derivatives markets every day. One fifth of one percent of $4 trillion is $8 billion. Multiplied by the number of trading days in a year, that's $2 trillion.

Budget deficit? Tobin Tax Initiative. Problem solved.

There's plenty of money out there. The problem is, we don't control it. But, what are governments for?

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letsgetitdone's picture
Submitted by letsgetitdone on

is increasing the net financial assets of the private sector. That doesn't happen when the central bank makes money and swaps it for financial assets having the same value. It only happens when the Government spends/creates money in excess of what it takes away through taxation; i.e. Government deficit spending.

So, no we're not broke, because we have an unlimited capacity to create those net financial assets through Government deficit spending. However, as long as we insist that we will only get money by taxing, or selling debt instruments, than we can feel broke when politics stops us from taxing and fear of the bond markets stops us from borrowing.

In short, we don't need a Tobin Tax, nor further debt issuance, in order to spend what we need to spend to solve our problems. All we need is to quit being stupid and to recognize that the US Government (Congress, the Executive, and the Fed, included) is the ultimate source of all money in our economy, and that it can always make as much of it as it needs to at will.