So Long Mr. F. (R.I.P)
Canada's Minister of Finance suddenly resigned earlier this week. The government's major fiscal policy plank is to "balance the budget" next year in 2015 and according to their press briefs and ex-Minister in charge Mr. Flaherty, that goal will be reached for sure; no need to stick around. All is well, carry on.
I don't have a Canadian chart equivalent but the chart mashup shows the U.S. sectoral balances to demonstrate that a country with a modern monetary system and who is an autonomous issuer of its own non convertible currency can always pay its federal government bills and when necessary can go into a deficit at the federal level to do so. The bottom panel shows the U.S. sectoral balances going back to post WWII and for most of the time the feds ran a deficit.
The ability to deficit finance is a feature that does not extend to provincial or municipal (state & local) governments nor does it extend to the corporate and household private sector; everyone except the federal government has to operate on surpluses otherwise they run out of credit (Greece, Detroit, BlackBerry etal).
What does the sectoral balance chart show? The Private Sector balance (Savings less Investment) plus the Public Sector Balance (Taxes less Government Spending) plus the Foreign Sector Balance (Imports less Exports) always results in a balance sheet bottom line of zero! It can be no other way; it's an accounting fact. it's the way we keep score.
ie: The private sector balance is equal to the addition of the government and trade balances; or "... private sector saving is the source of net finance for the government deficit and the international capital account deficit." Source Material: monetaryrealism.com
Well guess what folks... Canadian exports are not booming, there is a global slowdown in demand for commodities, finished products and services and a falling CA$ which is good for exporters has not yet materially changed the current account balance which remains in a deep funk since the Pit of Gloom in March 2009. The CA$ dropping is however affecting the private sector balance with increased costs on import prices and a rising cost of living for our consumer dominant society.
I suspect that Mr Flaherty and Canadian Finance Ministry staff have seen a sectoral balance chart before and they know that their federal government surplus goal IS GOING TO DEPRESS THE PRIVATE SECTOR EVEN FURTHER because the math tells us that a shrinking federal government deficit in the absence of a positive current account increases the private sector deficit and forces the private sector to either sell off assets (labour, equipment, and fixed assets like real estate) or go deeper into hock to maintain spending (lifestyle).
But the government also knows that their ideological policy of "balancing" the federal budget always sounds good in question period and in media sound bites because every tax payer has a visceral reaction to the notion of having to balance 'the budget" and this fear of "going broke" is a prelude to staging the coming federal election where we will hear that the federal "surplus" will be "spent" funding the most deserving lobbies and loyalists and that will energize the job creators.
Look at the chart again and notice the U.S. federal government surplus during the Clinton years of the late 1990's and the subsequent March 2009 crash and reversal back to federal deficit financing. The federal surplus led directly to the private sector deficit which caused weak hands to liquidate, repair balance sheets and build up savings again.
So Long Mr. Flaherty, nice timing on your exit. The new guy Joe Oliver cut his teeth with Merrill Lynch investment banking and probably also understands sectoral balances but finance ministers are hired on ideology not merit.
Jim Flaherty (1949-2014) died April 10, 2014 soon after his resignation.
"So Long Marianne" Leonard Cohen
Live at Wembley Arena, London 2012
Hyperinflation is very poorly understood by modern economists.
Cullen Roche's research has shown that this is likely due to the lack of evidence showing direct connections between economic environments and consistency in prior cases of hyperinflation.
The widely held belief is that government debt and deficits (aka, “money printing”) lead to hyperinflation. But Cullen's research shows that hyperinflation is not merely the result of “money printing” or an expansion of the money supply and in fact tends to occur around very specific and severe exogenous economic circumstances which lead to an increase in the money supply ultimately leading to hyperinflation.
Hyperinflation is not merely high inflation or a collapse in confidence, but is actually due to severe exogenous shocks with very real and provable transmission mechanisms. Historically, these events tend to be:
History, Charts & Curated Readings
"History, real solemn history, I cannot be interested in.... I read it a little as a duty; but it tells me nothing that does not either vex or weary me. The quarrels of popes and kings, with wars and pestilences in every page; the men all so good for nothing, and hardly any women at all - it is very tiresome." Jane Austen spoken by Catherine Morland in 'Northanger Abbey'
"Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement; and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it." George Santayana Vol. I, Reason in Common Sense