budget defecit

[matthew.johnson@xxxxxxxxxxxxxxxxxxxxxxxxxxxx (MATTHEW JOHNSON)]

Warren,
      i have just read some of your 'comments on the budget debate' and was
wondering if you could clarify a few things for me.  running a surplus,
reduces reserves.  i have the impression this does not neccessarily reduce
the ability of the economy to function, as financial institutions simply
leverage more inside currency of the now reduced stock of reserves.  [this
is what i want clarification on]



therefore is it possible, so long as there is one dollar more than the
govt. is taxing, that the economy will continue to function
'normally'(reserve requirements are assumed to away).  as banks balance
sheets become incresing more illiquid, then there is more risk of a system
wide collapse.	to me this implies that at the extreme there is some sort
of 'minsky' hypothesis operating on the govt. defecit. in that eventually
they will be forced away from running a surplus, in order to save the
economy from total 'monetary' failure.

am i on the right track?

thanks

matthew johnson