Thursday, March 10, 2011

Simple Economics

The government should, in general, increase the money supply over time to support the growing economy. The way it does this is by deficit spending. The alternative is that the private creates more money via loans, but this does not increase the net financial assets of the private sector, since all new money is then offset by new liabilities. Inevitably, private debt gets too high and there is a deflationary collapse, unless the government steps in with a bailout. Better to get the deficit spending up front, rather than bailing out those who made the biggest mistakes...


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