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Revisiting S = I + (S – I)


Hello @cullen-roche,

I think I'm getting this. In a zero national debt scenario, everybody can still have a positive net worth or be positive equity because people assets are a total of financial assets and non-financials assets. So even if you have a billionaire convert all their assets to cash meaning a large group could be in negative financial assets but its their non-finacial assets that could keep them in positive equity?

You mention non-finacial assets increase from revaluations like a house price going up. Is that not just from people willing to borrow more more?

Also can the non-financial assets increase just by making stuff (i.e. making solar panels) rather than revaluations?


Kind regards,


Hi @jon,

Yes, there are a few things going on here. The most important fact is that most of our net savings is real assets. It's things like stock market valuations, house valuations, etc. Your retirement account is probably stocks for the most part. For most Americans their net worth is comprised of their house value.

The issue MMT people like to focus on is this idea that the govt needs to spend money to give the private sector net financial assets. This is a bit misleading because they're arbitrarily segregating the sectors. For instance, the household sector holds net financial assets against the corporate sector. That's the main way in which we hold net financial assets. MMT prefers to present this as a private sector vs public sector view when, in reality, it's more of a private sector vs private sector view. Of course, it's good that we can leverage our govt to provide liquidity and spending for certain things that the private sector won't or can't. But MMT presents it as though the govt "must" be spending when the reality is that the private sector is almost always expanding its intra-sector balance sheet and providing more than enough savings to create and sustain a healthy economy.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

Thanks @cullen-roche for explaining that.

There are two issues going on here:

  1. Stocks vs 2. Flows.

From both a stock and flow perspective it's clear that balance sheets balance. Every dollar spent is a dollar earned. If you want to save then that's essentially pulling a dollar out of the system in any given period. This means that a dollar has be created elsewhere to allow the economy to have the same amount of income.

MMT people usually like to argue that the government should create that dollar. But in reality the private sector can create that dollar by borrowing more. There's nothing necessarily good or bad about one vs the other except as Cullen has noted previously, most of the private sector borrowing is supported by a real asset.

So another way of thinking about this issue is to say that someone's balance sheet always needs to be expanding if someone else wants to save.

From a flows perspective this is totally incoherent because people don't save dollars for very long. Most of the savings that exists in the economy is held in the form of bonds and stocks. So the stocks vs flows issue is a largely a moot point because the corporate sector provides the net financial assets that matter the most to us all.

All that said, it doesn't matter that balance sheets balance within the private sector. We don't need government assets to thrive. Yes, they can help, but the idea that the government must spend NFA is wildly misleading.


Is that a good thing, to have net financial assets increase from private debt? We saw what happened in great financial crash when there was a build up of too much private debt. If the private sector need more money, increasing the private debt could become dangerous.


Private debt and public debt aren't necessarily good or bad. Cullen has written some good stuff on this. Whether debt is good or bad depends on how it's being used. In general, when there is excess supply the government can print money (or issue bonds) to try to stimulate demand. The private credit system also has an endogenous way of creating demand via debt creation. Neither one is necessarily better than the other.

The important thing about private debt is that it's often created with a coinciding asset. For instance, most household debt is mortgage debt which is supported by the underlying value of the real asset. This is only destabilizing  to the extent that the underlying home prices are destabilized.

I would argue that the government plays a bigger role (or as big) in pumping up asset prices and destabilizing the economy.

Also, public debt is only stable because there are private assets supporting its value. So it's safer to assume that public debt is only strong when the private sector's debt (and assets) are strong.