the economy

The diagram shows flows of money in blue and stocks at year end . GDP is the level of money in a holding tank at the end of the year. The government pours money into this tank and a counter keeps track of the outflow. Money flows through household and industrial sectors which exchange money between them and the money flows out to taxes and exports. A counter measures the tax flow which is counted. Money also flows from imports into the GDP tank. The counter readings also refer to conditions at year end.

(Counter_out) – (counter_in) is the deficit in the simple case with no external trade. With trade we add counters to imports and exports. Govt spending and imports feed GDP and taxes and exports remove GDP. In the diagram counters are not shown for imports and exports. The cumulative deficit is merely the number of dollars that accumulate over time, say from year 1800. The annual deficit is the counter reading in an interval of one year.

Social Security etc. are basically counter readings. Note that the flow does not requires taxation stream to go physically into the government pot because money is created by the govt out of nothing. There is no need for a debt ceiling or “living beyond your means” or such concepts which households are constrained by.

Banking operations shuffle money around and do not figure determining GDP.  All private sector savings are due to government deficit flow. If the government decreases the deficit flow every thing will come to a standstill with a big depression. The “deficit mania” and wasting time over “debt ceiling” are basically ignorant propaganda.

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