Why we can’t spend more than we bring in but Government can

Dr. Stephanie Kelton of UMKC explains that much of our current jobs crisis stems from a fundamental misunderstanding about the relationship between the US and its currency. She runs the blog New Economic Perspectives This lecture was given at Luther College in Decorah, IA on September 28th 2011.

Why You and I Can’t Spend More Than We Bring In, but the Government Can and Probably Should.

Uploaded on Oct 13, 2011 umkceconomists

Like the US, the UK is a sovereign government which issues its own currency.  In other words, what Stephanie Kelton says about the US economy also holds for the UK….. but it is not true of the eurozone countries because they use the Euro, which is effectively a ‘foreign’ currency.. and that is why the UK can never be like Greece!

This a similar graph to the one referred to by Stephanie Kelton in the video clip.  It shows that the different financial sectors of the economy always balance out… its a rule.

Picture 35

For further information, Alittleecon has written a very good explanation of “sectoral balances” on his blog There is an alternative.  He includes a similar chart, created by Neil Wilson, which shows exactly the same type of balance between the different sectors in the UK economy.

Picture 20

As Alittleecon writes:

The sectoral balances approach then allows us to consider how changes in government policy may impact upon the different sectors. Armed with this knowledge you would know that for the government deficit to go down, the private surplus and/or the trade deficit would need to shrink or disappear entirely. At a time of global recession, the prospects for a massively shrinking trade deficit don’t seem good, and the prospects for an already debt-saturated private sector to take on yet more debt also seem less than positive. Both of these things imply that any attempt to reduce the government’s deficit by cutting spending or raising taxes will ultimately be futile, and that’s exactly what we are seeing at the moment.

One thought on “Why we can’t spend more than we bring in but Government can

  1. Pingback: Why we can't spend more than we bring in but Government can | Welfare, Disability, Politics and People's Right's | Scoop.it

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