Myth #6: Deficits and government borrowing takes away savings.
Reality: Deficits add to income and savings.
Reality: Deficits add to income and savings.
The truth is that deficits add to the total monetary savings held outside of government. To the penny. That's right, if the government deficit was 1 trillion dollars last year, then total net savings of everyone outside of government went up by 1 trillion. Not a penny more or a penny less.
Let's look at a simple transaction where the government deficit spends $100. Say the government sells US $100 of new treasury securities. We buy them and our bank account goes down by $100 when we pay for them, but we have the $100 of treasury securities we bought. Are we any poorer? Of course not! In fact, since we bought the securities voluntarily, we probably did it because we think that purchase made us richer. All we did was exchange $100 that was in our checking account for a $100 Treasury security.
After we pay the $100 for the Treasury securities, the next thing that happens is the government then spends $100 by buying something from us. So we now have both the $100 the government just spent and the $100 of Treasury securities we just bought.
So because of the $100 of deficit spending, we got our $100 back in our checking account, and we also have $100 in Treasury securities. Our monetary wealth is now $100 more than it was before.
The deficit spending of $100 added $100 to our savings. Yet all of our leaders insist that deficits take away from our savings.
You can now understand the reason our savings went up so much last year. It was because the government deficit was so much higher. Now you know more about that than anyone on TV.
~Warren Mosler, President, Valance Co.
