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Government borrowing is pointless where a government issues its own currency

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  • Musgrave, Ralph S.

Abstract

The alleged justifications for government borrowing in a country which issues its own currency are examined here. The conclusion is that no justification exists for borrowing money in the normal sense of the phrase “borrow money”: that is, the use by one entity of money loaned by another entity, and so as to fund expenditure by the first entity. In contrast, and where a deflationary stance is required, it is justifiable for government (or as is more usual, the central bank) to borrow in the sense of withdrawing funds from the private sector and purely so as to stop those funds being spent. Moreover, inflation destroys a proportion of the money “borrowed”. Plus government effectively confiscates (via tax) the money needed to pay interest on this “borrowed” money. This is essentially a money shredding operation. This is not the normal meaning of the word borrow. Many of the points made here apply to the central bank of a common currency area. Individual countries within a common currency area are not considered.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20057.

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Date of creation: 15 Jan 2010
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Handle: RePEc:pra:mprapa:20057

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Related research

Keywords: Abba Lerner; Modern Monetary Theory; government borrowing;

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. How to dispose of the national debt in two or three years.
    by Ralph Musgrave in Ralphonomics on 2011-04-06 07:44:00
  2. Reducing the national debt does not involve much austerity.
    by Musgrave in Ralphonomics on 2011-02-02 03:04:00
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Cited by:
  1. Musgrave, Ralph S., 2011. "Monetary and fiscal policy should be merged, which in turn changes the role of central banks," MPRA Paper 30521, University Library of Munich, Germany.
  2. Musgrave, Ralph S., 2011. "Consolidation causes little austerity," MPRA Paper 34295, University Library of Munich, Germany.

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