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Taxes.
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KyussBishop wrote: »Fact is, if a country has control over it's own currency, there is nothing to stop it from both creating and spending its own money, and also taxing and destroying that money, to prevent inflation .
This is not the case for a small country that is dependant to any degree on imports, as Ireland is, e.g. for fuel oil. You need to pay for these in a currency accepted by other countries, which in turn means generating and holding foreign currency reserves. The only way of generating these reserves is via exports, similarly charged in foreign currency which gets held in a reserve. Once you have any kind of a shortfall, or as would be the case in Ireland if we left the Euro-zone, you start in a position of debt, your back to borrowing funds in a foreign currency and paying interest in that currency. To balance the books, you have to put massive taxes on imports, such the local produce is always preferred. Even without import duty, foreign products such as cars, electrical goods, iPhones etc... become very expensive as they are still priced in a foreign currency, and consumption is only affordable for locally manufactured goods.
Of course for small businesses such as my own, manufacturing locally and exporting, it would be a great boon. Paying wages in the new devalued Punt and getting paid in Euros or Sterling would make me far more competitive. First thing I'd do in this scenario would be to set up a bank account out of the country for trading purposes, because the closed economy would necessitate strict control of moving currencies in and out of the state. Every other exporter would likely behave in a similar manner thus further throttling the states ability to import.
Much of this has happened before in Ireland's recent past, where importing and exporting were a nightmare, as the relative value of the local currency fluctuated wildly, and you needed to fill out a bunch of forms to move anything anywhere. (Anyone else in biz long enough to remember endlessly filling out carnets and getting them stamped?).
I do agree unemployed people should be viewed as a valuable potential labour resource more than a burden, but just don't know how or if this potential can be realised. I suspect in your new economy, they'd soon be planting potatoes
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It's the case for any country with control over it's own currency. It's not the case for Ireland, simply because we are in the Euro, and don't have control over our own currency (the UK is a better example).This is not the case for a small country that is dependant to any degree on imports, as Ireland is, e.g. for fuel oil. You need to pay for these in a currency accepted by other countries, which in turn means generating and holding foreign currency reserves. The only way of generating these reserves is via exports, similarly charged in foreign currency which gets held in a reserve. Once you have any kind of a shortfall, or as would be the case in Ireland if we left the Euro-zone, you start in a position of debt, your back to borrowing funds in a foreign currency and paying interest in that currency. To balance the books, you have to put massive taxes on imports, such the local produce is always preferred. Even without import duty, foreign products such as cars, electrical goods, iPhones etc... become very expensive as they are still priced in a foreign currency, and consumption is only affordable for locally manufactured goods.
Of course for small businesses such as my own, manufacturing locally and exporting, it would be a great boon. Paying wages in the new devalued Punt and getting paid in Euros or Sterling would make me far more competitive. First thing I'd do in this scenario would be to set up a bank account out of the country for trading purposes, because the closed economy would necessitate strict control of moving currencies in and out of the state. Every other exporter would likely behave in a similar manner thus further throttling the states ability to import.
Much of this has happened before in Ireland's recent past, where importing and exporting were a nightmare, as the relative value of the local currency fluctuated wildly, and you needed to fill out a bunch of forms to move anything anywhere. (Anyone else in biz long enough to remember endlessly filling out carnets and getting them stamped?).
I do agree unemployed people should be viewed as a valuable potential labour resource more than a burden, but just don't know how or if this potential can be realised. I suspect in your new economy, they'd soon be planting potatoes
There are too many assumptions in your post, about where the money would go, and the limitations of what can be done with it, so I'll give a much better example:
You can adopt that method of funding (government creating money for spending, taxing money to be destroyed), without changing the quantity of spending or taxes.
This does not have an effect on the economy because spending/taxation are the same, but now government doesn't need to rely on debt or taxes for funding.
Reorganizing funding like that, without any further changes, has no effect on the economy, but has a fundamental effect on all of politics and economics (it changes the entire narrative/understanding of politics/economics, in a kind of mind-blowing way tbh).
I think that above, might actually be a new and very important/useful way for me to frame that particular debate, so I'm curious if people see what I'm getting at here and understand/agree?0 -
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Yea pretty much. The effect of this is, if you think about it: Government no longer needs taxes or national debt for funding.joseph brand wrote: »I think so. An example would be:
Government workers get paid from money created by the Central Bank (not private like the US Fed)?
Think also: The main difficulty with using national debt for funding, is that it requires interest payments, and they can become unsustainable; this problem disappears altogether.
So, if unsustainable debt is no longer the limit to government spending, what is the new limit? (there is a limit, but am just leaving it an open question)
This also completely change the purposes of taxes, because taxes would no longer fund government; what are the new purposes of taxes?
To realize just how unbelievably important this is, look at what it does to the austerity narrative: It completely shreds it.
No longer is debt-scaremongering a valid argument against government spending, and no longer can all government spending increases be countered with "my taxdollars pay for 'x'" type arguments.
It destroys most right-wing economic arguments in general.0 -
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