On February 7, 1992, the European Community signed the "Maastricht Treaty". All countries must control the fiscal deficit rate below GDP3%, and the debt ratio (i.e. government debt/GDP) below 60%. .
have become the standards for joining the Eurozone. Gradually it became an internationally recognized indicator. China's Vice Minister of Finance Zhu Guangyao questioned the deficit rate of 3% and the debt ratio of 60%.
The legal currency system is a system in which the sovereign government, as a violent institution, monopolizes the right to issue currency. Under the legal currency system, the only source of currency for non-governmental sectors is government expenditure. Only when the government spends, non-governmental sectors can obtain the currency needed to pay taxes by providing goods and services. This means that the government issues currency first and collects taxes later; without government spending, non-governmental sectors will not have the currency to pay taxes. Therefore, the purpose of taxation is not to finance government expenditures, but to ensure that members of society pay taxes using the currency they issue. The tax system is a mandatory system that can make its currency widely accepted by members of society. This is the modern state monetary theory. A theoretical explanation of tax-driven money.
Government expenditures come first and taxes are collected later, so the government needs to issue debt IOUs (treasury debts). When the suppliers of goods and services are repaid with taxes, the government balances its expenditures.
Currency is essentially a "debt-creditor's rights" relationship. Currency issued by a sovereign government is a government liability. For example, the U.S. dollars issued by the U.S. government are its liabilities. The current US$30 trillion in national debt in the United States forms the basis of the US dollar. This is called the "treasury debt standard" of currency.
The US national debt is the product of the US government's deficit spending: the total US national debt is the sum of its fiscal deficits over the years. The essence of
government spending and taxation is the dominant model of central bank directly purchasing government debt to supply currency. This process of " seigniorage " will inevitably cause serious inflation. The central bank directly creates credit currency to expand the total amount of currency in circulation. The government obtains all the increment of currency in circulation, but this currency increment does not correspond to any actual economic resources. At the same time, the total amount of currency in circulation in the private sector remains unchanged. If the government and the private sector exchange real economic resources through nominal currency, the increment of circulating currency owned by the government will dilute the amount of real economic resources corresponding to the circulating currency. And because the government monopolizes this increment, it is equivalent to the government issuing more currency to reduce the private sector's Appropriating resources for one's own use will result in 'seigniorage'.
This is why the United States is desperately trying to maintain dollar hegemony.
The prescription of 'increasing taxes' to curb inflation is counterproductive. After the private sector is implicitly transferred by the 'seigniorage', it suffers from secondary exploitation by taxes. This makes the real economic resources of the private sector more scarce relative to nominal currency, bringing about Larger and more widespread panic price increases. inflation.
Modern theory believes that the sovereign government does not need to "finance" tax expenditures. It must first issue sovereign currency to the private sector and create its own liabilities, and then it can recover the sovereign currency through taxation and destroy liabilities;
The process of government spending is to provide private The process by which the government issues sovereign currency. Treasury bonds issued by the government to the private sector through deficits are a claim on government resources.
The government has three purposes for recycling and destroying currency through taxation: first, to drive people to use government currency through taxation, otherwise the currency will be difficult to be accepted by people;
secondly, to eliminate part of the consumption power of the private sector through taxation, alleviate the pressure of inflation, and stabilize Aggregate demand;
Third, taxation has important functions such as income distribution and curbing bad behavior, but it does not have the "financing" function.
The government is the only currency provider. When government expenditure is less than tax revenue, the country cannot pay taxes; when government expenditure is equal to tax revenue, citizens just pay taxes but save; when government expenditure is greater than tax revenue, under deficit conditions, citizens will have net monetary assets.
As the economy grows, the money supply must also increase, otherwise deflation will occur.The national finance must be in a state of regular deficit, and fiscal surplus will release strong deflationary pressure. Only when there is a persistent deficit in the national finance, will the non-governmental sector have net monetary assets, which use the liabilities of the government sector to store its wealth. This is why national debt forms the basis of a country's modern financial market.
Government, in direct contrast to the non-government sector, businesses accumulate net savings only when their revenues exceed expenditures. Government liabilities in the form of national debt are equivalent to the monetary and financial assets of the non-governmental sector. It is the fiscal deficit that generates the surplus or savings of the non-governmental sector, that is, in the case of closed economy or foreign trade balance, the sovereign government finances Deficit = domestic private sector net surplus = domestic private sector net financial assets.
Now, in 2021, the U.S. fiscal deficit will reach $2.77 trillion.
So who should be international reserve currency ?
We are waiting for the outcome of the Russo-Ukrainian war.
