J.K.Galbraith says, correctly, that deficits crowd out private money printing.

There’s an article by Galbraith in The Nation which is interesting. It’s entitled “In Defense of Deficits”. In it, he says (I’ve put his words in purple italics):

"For ordinary people, public budget deficits, despite their bad reputation, are much better than private loans. Deficits put money in private pockets. Private households get more cash. They own that cash free and clear, and they can spend it as they like. If they wish, they can also convert it into interest-earning government bonds or they can repay their debts. This is called an increase in "net financial wealth." Ordinary people benefit, but there is nothing in it for banks.

And this, in the simplest terms, explains the deficit phobia of Wall Street, the corporate media and the right-wing economists. Bankers don’t like budget deficits because they compete with bank loans as a source of growth. When a bank makes a loan, cash balances in private hands also go up. But now the cash is not owned free and clear. There is a contractual obligation to pay interest and to repay principal. If the enterprise defaults, there may be an asset left over–a house or factory or company–that will then become the property of the bank. It’s easy to see why bankers love private credit but hate public deficits".

Actually I very much doubt that “Wall Street, the corporate media and right-wing economists” are smart enough to realize that deficits crowd out private money printing. I suggest the latter collection of economic illiterates have just fallen for the ever popular idea that government and household budgets are comparable: i.e. the idea that government debt is some sort of “burden” and that that debt necessarily has to be repaid at some stage.

The latter “household analogy” is debunked for example by Steven Keen, the New Economics Foundation, and Richard Murphy.

At any rate,  Galbraith’s point ties up with (though is not identical to) the point I have been making for a long time, which is thus.

Full employment can perfectly well be achieved with just one form of money, namely central bank issued money or “base money” as it is often called. Private banks CAN BE allowed to then create their own rival form of money, but that will raise demand which means taxes have to be raised and base money has to confiscated from the citizenry.

Thus in effect, central and commercial banks are rival money printers. Both realise that excessive money printing leads to excess inflation. But at the same time,  both – certainly private / commercial banks – are keen to maximise the amount of money printing they do. And to that end, private banks devote very large amounts of money to bribing and cajoling politicians into leaving their money printing activities untouched.

The latter bribery and propaganda works a treat: politicians are fooled every time. Even self styled “progressives” are fooled.



And finally, please note that I am indebted to Kathryn Cannon for drawing my attention to the above Galbraith article.