Nonsense from the IMF.

Their latest barmy idea is that government can be compared to a household in that they claim the ratio of government assets to government liabilities are important. The reality is demand for government liabilities would probably exist even if government had no assets at all.

Conversely, it is perfectly conceivable that despite a government having trillions worth of assets, there is relatively little demand for its liabilities. And if in that situation the relevant government tried to issue liabilities to match its assets, the private sector would just try to spend away those liabilities (i.e. base money and government debt): the result would be excess inflation.

The IMPORTANT consideration is what rate of interest government pays on its liabilities: if it has issued far more liabilities than the private sector wants to hold, government will have to INDUCE the private sector to hold those liabilities by offering a high rate of interest: not a good idea.

In contrast, if the rate of interest is about equal to the rate of inflation, as is the case with the UK at present, then in real terms, government is paying no interest at all on its liabilities. Personally I’d recommend always aiming to keep the rate of interest below the rate of inflation: that way the relevant government makes a profit at the expense of its creditors.

A very similar objective is a permanent zero rate of interest as recommended by Milton Friedman and the two co-founders of MMT, namely Warren Mosler and Bill Mitchell. For more on the permanent zero interest idea and for links to relevant works of those three authors, see my “Open Thesis” paper entitled “The arguments for a permanent zero interest rate.”