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Why a federal surplus will cost you money

People have been led to believe, wrongly, that their personal financial circumstances will improve when the federal budget is in surplus, but the opposite is true.

A federal surplus occurs when the government taxes more than it spends, (and what the hell point is that?). The net result  is billions of dollars being sucked out of the economy.

A surplus means less money for everyone. Less jobs, less ‘innovation’, less goods and services and certainly, less consumer spending.

Economist, professor Bill Mitchell tells Renegade Inc. that if the non government sector wants to save a dollar then the government has to be in deficit a dollar. And when the government refuses to spend, households and the private sector must go into debt to finance their cost of living.

“It’s not an opinion it’s national accounting,” he says.

In the first quarter of 2017, America’s consumer debt rose to $12.73 trillion, exceeding its peak in the third quarter of 2008. Its household debt increased to 78.50% of GDP in the third quarter of 2017.

Australian household debt stood at 120% of GDP in the third quarter of 2017, and British household debt sat at 86.5% of GDP.

“For example, with an external deficit at 4% of GDP, the federal deficit has to be 2% of GDP to allow the non government sector to accumulate financial assets,” says Professor Mitchell. “It’s as simple as that.”

“The government deficit is still too low at the moment because unemployment is too high.

“They should vote out governments that say they’re going to run surpluses, that’s the bottom line. They should learn how the monetary system really operates and not believe in the lies told by mainstream economists. That would be my advice.”

Economist, Dr Steven Hail tells Renegade Inc. that modern-day monetary sovereign governments issuing debt securities and pretending to borrow their own currencies, is like World War II soldiers following procedures designed to accommodate horses in battle, when the days of horses in battle had been left far behind them.

“There is no good reason for it,” he says. “It isn’t even necessary if you want to maintain positive interest rates, as term deposits at the central bank would do that.

“It is inefficient, it is unnecessary, it encourages pointless speculative activity, and worst of all it misleads the public and politicians, and distorts economic policy in ways which are against the public interest.”

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