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Sectoral Balances

Hi Understand your excellent points.  Wouldn't it be fair, though, to say that, very roughly speaking, US private wealth consists of 60% real assets (housing, machines, software, structures, etc), 30% appreciation in financial assets (mostly equities - perhaps could be considered a claim on a real asset) and 10%  government bonds, bills, notes, etc.  That is, government deficits do contribute to financial wealth - at initial face values only.  So wouldn't it be fair to say that MMT is correct but the problem with MMTers is just that they don't provide the full picture? . Thanks.


Depends on how you look at it intra-sector. At the aggregate level all financial assets net to zero. The only thing left is all the real stuff. That is our true net assets. So it's better to say that financial assets are all claims on real stuff.

So no, I wouldn't say they have this right. I'd say they massively misrepresent it to create the illusion that we rely on govt deficits to net save and create net wealth.

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

Hi Cullen thank you for the perspective.

The main point to understand here is that there is no "net worth" in financial terms at the aggregate levels. Within the private sector we hold claims against the other individuals and other outside sectors. But even those claims net to zero in the end.

Cullen is right in saying that all financial assets are just claims on real stuff.

The problem within MMT is really simple. They claim that private sector saving is net accumulation of financial assets. This is actually pretty stupid because their definition of "net financial assets" is (G-T). So in the MMT world Saving (S) = Net Government Spend (G - T). S =(G-T)?  By that thinking, Zimbabweans must have the most saving in the world!

Of course, S = I. The MMT people make a rather basic accounting mistake in the pursuit of spreading their cultish ideology.

Yeah, it's really over the top when you think about it (as is much of MMT). Imagine if the govt funded all its spending by printing cash notes. By the MMT thinking this is all adding to our net financial assets. In the MMT world you can literally just print money to prosperity.

Of course, I always try to bring this back to investment. The reason investment is so important is because it creates the real assets that support the entire capital structure of financial assets and liabilities. SOME govt spending involves investment, but govt's are typically not great at investment so it's ludicrous to break the accounting down to S = G - T. Aside from being wrong in the most basic sense it assumes that govt spending adds to real resources. This is an insanely generous assumption.

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