Government Debt is the source of private savings

[Iseree22]

How is it possible for the private sector to save money unless the state first spends? This is equivalent to expecting people to save BTCs without minting BTCs first. Therefore to achieve a high level of private cash holdings the State must first spend.

Deficits lead to more private savings, and Surpluses lead to less private savings.

A Government Surplus means the State has more cash inflows than outgoings, where does this money come from?? Your wallets.

[Edits]

Holds iff the country issues its own currency

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[AyeYo]

Sorry, I don't see the connection.

In fact, it seems to be the opposite of what you've claimed.  The deficit has increased as the savings rate has declined.

[Iseree22]

Personal Savings Rate is not the best measure of savings(despite its term).

http://realclearpolitics.blogs.time.com/2007/02/22/personal-saving-rate-is-a-misleading-indicator/

To calculate the personal saving rate, government statisticians subtract taxes and spending from personal income. Income includes wages, salaries, interest, dividends, rent received, small-business profits, and some government benefits. Excluded are withdrawals from IRAs and 401ks, as well as capital gains. This is inconsistent with how most people measure their private fiscal health.

http://upload.wikimedia.org/wikipedia/en/a/a3/Graphic.png


http://savingjapan.files.wordpress.com/2011/07/us_debt_history.gif
This is a better metric.

Nonetheless, notice the steep increase that coincides with the 800Bill stimulus package of 2009.

[AyeYo]

That net worth chart is not inflation corrected, so it's not giving an accurate picture.

[Iseree22]

Does it matter?

Even if it were inflation corrected, which would mean that the graph would be translated downwards somewhat, the underlying trend would still be evident.

[AyeYo]

Find an inflation corrected chart and we'll see. All those charts show right now is an increase in money supply.

[Iseree22]

Find an inflation corrected chart and we'll see. All those charts show right now is an increase in money supply.

What did you expect to see? The opposite?

The op states that Government Debt is the source of private savings. So all of the Government Debt has to show up somewhere, otherwise the money has never been created. It is quite logical, despite the crap that is spread by media. How can you or me save bitcoins if they have never been created? Is not the summation of everyone's savings going to be equal to the total amount of money created( plus/minus counterfeit and natural destruction).

So the summation of all wealth across all individuals is going to trend very closely with the amount of money created. On a nominal basis the graphs clearly correlate with each other.

I didn't say anything about inflation. Inflation is irrelevant, perhaps I should clarify. The total amount of private savings on a nominal basis will be equal to the total amount of public debt. Meaning, as before the summation of all savings across all people will be equal to the amount of public debt. What can be purchased with those savings is an important but separate issue.

[AyeYo]

You're not accounting for the fact that government can be in debt to foreign entities. If the US government goes into debt with the Chinese, how is that boosting the personal savings of US citizens? It's not.

[Iseree22]

You're not accounting for the fact that government can be in debt to foreign entities. If the US government goes into debt with the Chinese, how is that boosting the personal savings of US citizens? It's not.

Correct, it is not boosting the savings of U.S citizens, but any economic actor outside of the public sector, so the relationship still holds. The disadvantage for the Chinese is they do not have a voting right.

As an aside, this idea that America or any other country with a Sovereign currency has some sought of evil debt is absurd. Basically the Chinese have purchased a treasury in exchange for some real goods & services. So America has received goods & services in exchange for some piece of paper that may or may not have value in the future. IMHO America benefits more from the trade.

[AyeYo]

You're not accounting for the fact that government can be in debt to foreign entities. If the US government goes into debt with the Chinese, how is that boosting the personal savings of US citizens? It's not.

Correct, it is not boosting the savings of U.S citizens, but any economic actor outside of the public sector, so the relationship still holds. The disadvantage for the Chinese is they do not have a voting right.

As an aside, this idea that America or any other country with a Sovereign currency has some sought of evil debt is absurd. Basically the Chinese have purchased a treasury in exchange for some real goods & services. So America has received goods & services in exchange for some piece of paper that may or may not have value in the future. IMHO America benefits more from the trade.

I agree on China, but it is more complicated than that, which is why we have a constant global chess game going on with currencies amongst all the central banks.


As for your original claim, now that you've expanded it to all non public entities, I'd gave to agree. However I'm not sure what point you're trying to make.

[Iseree22]

More public debt == more private savings.

Also the central bank's main role is supposedly regulating credit money(private debt). Private debt is what is causing most of our economic problems. One way to solve it is to increase everyone's savings, which implies that the State must issue more debt. Once people have more money, then they will spend more, employment increases, etc.

And when someone says they want to reduce the National Debt, what they are really saying is that they want to reduce your  savings.

[AyeYo]

More public debt == more private savings.

I think what you're trying to say is: more public debt = more money in circulation.

Once people have more money, then they will spend more, employment increases, etc.

This is where you're mixing it up.  Savings means savings, not spending.  You're right, if people have more money, they typically spend more money... so how are you coming to the conclusion that if they have more money, they'll automatically save more money?  This is why I said what I said above.

The savings rate has more to do with the rate of inflation and interest rates.  In a deflationary environment, people will spend less money (i.e. save more money), because spending is punished.  In an inflationary environment, people will spend more money (i.e. save less money) because saving money is punished.

And when someone says they want to reduce the National Debt, what they are really saying is that they want to reduce your  savings.

No, what they're saying is they want to reduce the national debt.  National debt and savings rates have no connection.

[The Script]

Wow.  I agree with AyeYo.

[Iseree22]

More public debt == more private savings.

I think what you're trying to say is: more public debt = more money in circulation.

Sure, but all things being equal, an increase in the supply of base money(M0-M2) will lead to an increase in savings.

Once people have more money, then they will spend more, employment increases, etc.

This is where you're mixing it up.  Savings means savings, not spending.  You're right, if people have more money, they typically spend more money... so how are you coming to the conclusion that if they have more money, they'll automatically save more money?  This is why I said what I said above.

The savings rate has more to do with the rate of inflation and interest rates...

And the amount of money in circulation. Where does money that is not moving sit? In someones account. Savings could mean any amount of cash that is not moving. This is the equivalent to BTCs in someones wallet. The only time that money is not in an account or BTC wallet is when it is being exchanged, the rest of the time it is idle in someones account, saved.

And when someone says they want to reduce the National Debt, what they are really saying is that they want to reduce your  savings.

No, what they're saying is they want to reduce the national debt.  National debt and savings rates have no connection.

This is silly. If some miner with taxing ability decides that they want to reduce the amount of BTC in circulation, where do they obtain those BTCs from? Everyone else.

[Ayo_4_Yayo]

While reading this thread I had some really really bad gas and I guess that sums up the thread quite well I think.

[Sovereign]

correlation != causation

[Iseree22]

correlation != causation

I presume that your referring to the graphs I posted, and is a fair point. What do you think is more likely; that an increase in household wealth caused an increase in public debt? Or an increase in public debt caused an increase in household wealth?

Naturally this would depend of on your perspective of the economy. I think that public debt is the source of private money, therefore I think the latter.

'Others' would argue the former. To me this makes little sense; if household wealth is increasing why would the State need more public debt to fund itself?? Wouldn't the state be collecting so much revenue that it wouldn't need public debt? You would expect that as household wealth increased, tax revenues would increase, and public debt would decrease. But these graphs show no indication of such correlation.

[Sovereign]

correlation != causation

I presume that your referring to the graphs I posted, and is a fair point. What do you think is more likely; that an increase in household wealth caused an increase in public debt? Or an increase in public debt caused an increase in household wealth?

This is a false dichotomy. You have established a correlation, but in no way you have been able to establish causation one way or the other. It is more likely that neither one causes the other. Increase in household wealth depends on many factors at once.

Naturally this would depend of on your perspective of the economy. I think that public debt is the source of private money, therefore I think the latter.

Private money? 'Money' has a specific meaning that is different from 'wealth'.

'Others' would argue the former. To me this makes little sense; if household wealth is increasing why would the State need more public debt to fund itself?? Wouldn't the state be collecting so much revenue that it wouldn't need public debt? You would expect that as household wealth increased, tax revenues would increase, and public debt would decrease. But these graphs show no indication of such correlation.

House hold wealth tends to increase with over-all economic growth. Increased public debt tends to correlate with future over-all economic shrinking: Greece example.

[Iseree22]

'Others' would argue the former. To me this makes little sense; if household wealth is increasing why would the State need more public debt to fund itself?? Wouldn't the state be collecting so much revenue that it wouldn't need public debt? You would expect that as household wealth increased, tax revenues would increase, and public debt would decrease. But these graphs show no indication of such correlation.

House hold wealth tends to increase with over-all economic growth. Increased public debt tends to correlate with future over-all economic shrinking: Greece example.

I have updated the OP, adding that my assertion holds iff the country issues its own currency. Greece's does not issue the Euro, therefore growth in Greek Public Debt does not increase public savings for Greeks. However, America which has its own Sovereign currency does issue its own currency. The graphs show that despite an ever increasing public debt 'burden' upon the American tax payer they have been able to increase their household wealth on a nominal basis. Emphasis must be given to the fact that household wealth is measured on a Nominal Basis. The creation of public debt has the same role as minting bitcoins, then as the amount of bitcoins increases, then so too does everyones bitcoin savings. However, the value of such bitcoins is an important but separate issue.

Naturally this would depend of on your perspective of the economy. I think that public debt is the source of private money, therefore I think the latter.

Private money? 'Money' has a specific meaning that is different from 'wealth'.

What is wealth measured in? Currency units. Therefore the total wealth of an economy is going to track very closely with the amount of money in circulation.

[Sovereign]

What is wealth measured in? Currency units. Therefore the total wealth of an economy is going to track very closely with the amount of money in circulation.

You have absolutely no idea what you're talking about. By this logic, Zimbabwe should be one of the richest countries, since it has a huge amount of money in circulation.



The Weimars had so much cash, they burned it to keep warm! So much for 'currency units'. Rofl.