The Lies of Monetary Policies

I would say monetary policy is one of the most misunderstood aspects of our society. I don't claim to understand it all, but I (think I) know enough to understand the low-hanging fruits of it all.

The 1st lie the politicians tell us is that the government budget is like a household budget. In our own lives, we have jobs which bring us income, and we use that money to buy things, and we can't maintain a deficit balance in our budget for very long or we get into trouble. A government with it's own currency as we have in AU or US does not operate the same way. A government with its own currency can never run out of funds. It's not like household budgets. It always has the funds since the govt is the entity that creates the money.

The 2nd lie they tell us is that our taxes pay for the government programs. Taxes don't. The govt creates money for a program say like NDIS and spends it, before taxes come in, by crediting the bank accounts of citizens, disability organisations, etc. What taxes do is they destroy the created money... by the citizens, disability organisations, etc giving the money back to the govt (in the form of taxes) thus debiting their accounts, and destroying the money. Nowhere in this process are the taxes funding the programs.

The 3rd lie they tell us is that deficits are bad. They are only bad if they result in undue inflation. In fact, the opposite is true; surpluses are bad. Let's look at a surplus. The government spends $90, and the people pay $100 back to the govt in the form of taxes. So the govt has a $10 surplus. But the people have $10 less money to do things. That's bad. If the people have less money to provide services/products/etc, then the economy can become recessive. Conversely, if the govt spends $100 and gets back $90 in taxes, thus operating in a deficit, then the people have a surplus of $10 so they can invest, start new businesses, etc. The only problem, as I stated, is inflation.

So the politicians tell us that deficits rob the future generations by forcing them, in the form of increased taxes, to pay back all this currency debt. They don't. They tell us they can't afford certain expenditures, etc based on current tax revenue. They always can. They may decide expenditures would be unduly inflationary so they don't do them, but they can always create the funds.

It's all lies, convenient lies, but still lies nonetheless.