BEE Partner, South Africa Economy Watch

William Vickrey (1996: 10) argued, ‘The “deficit” is not an economic sin but an economic necessity. Its most important function is to be the means whereby purchasing power not spent on consumption, nor recycled into income by the private creation of net capital, is recycled into purchasing power by government borrowing and spending. Purchasing power not so recycled becomes non-purchase, non-sales, non-production and unemployment.’ In an endogenous money world, there can be no crowding out unless the monetary authority stops lending.

The recent Asian financial troubles and IMF intervention have once again given credence to the view that increasing levels of debt will eventually lead to lenders refusing to take up further public borrowing. Usually this is cast in terms of countries with low levels of capital that have major private debt denominated in a foreign currency used to finance imports. Crises occur when the export revenue, which services the debt, falls for one reason or another. But none of these countries would have any trouble issuing debt in its own currency. Read the rest of this entry »

The International Labour Office (1999) argues:

[A]ny strategy for full employment must be based on a sound macroeconomic framework. To achieve this, unsustainable current account imbalances, or foreign debt accumulation, must be reduced and low rates of inflation achieved. This requires the continuous adjustment of policies, a realistic exchange rate, fiscal discipline and wage moderation (wage increases in line with labor productivity). But in times of global deflation this is not necessarily sufficient as a guide to policy, and a boost to demand may be needed, perhaps going so far as to generate expectations of inflation, in addition to the accepted policy of balancing budgets over the business cycle as a whole (International Labour Office, 1999). Read the rest of this entry »