tekgek: I believe the reasoning is that budget surpluses simply soak funds from the economy, the government takes in more than it put out. This causes a decrease in the GNP. In essence, because of the way our budgets are calculated, we always need a little deficit to keep the balance just right. You could say, possibly that it is due to the lag between receipt and expenditures. The Government doea not keep its book based on cash flow, but based on receipt and outlays. The receipt are actual, but the outlays are always a little delayed (have you tried to get paid for a Government contract lately?).
If we are already discussing macroeconomic considerations and you are goig to visit the Fed's archive, I think that there is another little effect starting to play havoc with traditional "monetarist" thinking, and it relates to the growth of the money supply. Right now it appears tham M3 is blowing off. But I am not sure how reflective it is to the real money lubricating the wheels of industry. Not only is the money velocity a relative unknown (since we do not know the real size of the unreported underground economy as part of the GNP), but we now are called to lubricate a number of other economies as well. Whereever a foreign economy is becoming unstable or currencies are on the verge of devaluation, are are underrgoing a constant erosion in value, our dollars take the place of the surrogate currency. As a result a very large number of dollars are soaked out of here and go into mattresses in such economies (which is fine since each $100 bill cost us less than a penny to print and we are actually getting interest free loans) .
However, this money is counted as part of our money supply and this money has zero velocity. It is not a small factor, in Russia, a full strata of the economy accepts payments only in dollars, the same is true in other countries with controlled currencies. Over the world there are "black markets" with unofficial dollar rates well above the formal government exchange for their controlled currencies. Maybe in St Louis, you can find out how much of the growth in the money supply is really going to finance these underground economies in the developing and less than developing world.
Zeev |
