financing, funding, etc

[Bill Mitchell <ecwfm@xxxxxxxxxxxxxxxxxxxxxxx>]

Bill had questioned the use of jargon that can easily take you back into a GBC
framework.

> >I think this misleads. The usual macro analysis of this issue is within the
> >Govt Budget Constraint
> >framework which suggests there is an ex ante financial constraint on
> >government spending. This
> >false analogy with the household (the user of the currency) then sets up a
> >range of spurious arguments
> >about the viability of net government spending.

Paul replied:

> Bill, you obviously o not understand my meaning of the financing as different
> from funding -- I ask you to see the difference of definitions in my book
> FINANCIAL MARKETS, MONEY AND THE REAL WORLD.

Bill:

I do understand it, I just don't agree with it.

> BILL: >Government spending does not need to be financed.
>
> PAUL: oF COURSE IT MUST5 BE FINANCED.  BY FINANCE WE MEAN THAT THE SPENDER
> MUST HAVE
> "FINANCE", I.E.,  MONEY OR ACCESS TO MONEY SO THAT THE SPENDRE CAN DISCHARGE
> ITS LEGAL CONTRACTUAL OBLIGATION TO PAY FOR WHATEVER IT BUYS. To not have
> finance means to take possession of something  the seller possesses without
> paying for it.

BILL: Of-course, in that sense. But there is a fundamental distinction
between this concept
applied to the users of the currency and trying to use it for the issuer
(which is a single entity).

In the former case the acts of spending and financing are separate and can
be analysed
separately. The financing constrains the spending also.
In the case of the federal govt (issuer) this separation is problematic and
ultimately not
necessary. Spending and as you want to call it "financing" are the same act
.... an
adjustment to some bank account or a cheque being mailed out.


> BILL: >Using this terminology is unnecessary and misleading and brings the
> >discussion back into the
> >parameters set by the orthodoxy. Those parameters are not helpful.
>
> PAUL: Absolutely wrong -- by drawing a definitional difference between
> finance and
> funding, permits one to distinguish between the function of a banking system
> to finance working capital loans so that the payrolls and other costs of
> assembling expensivedurable goods can be met -- before the final buyer must
> obtain the funds to purchase the final product.

an opinion cannot be absolutely wrong ...

> BILL: If the government wishes to provide financial assets to the private
> sector
> >it has that choice but that
> >is an act of monetary policy (rate support) not fiscal policy (spending).
>
> PAUL: That is strange condsidering Warren Mosler's argumen t that if the
> government
> runs a deficit [FISCAL POLICY} it is to provide financial assets to savers
> who
> want to increase their holdings of financial assets.

Not strange at all. I think you have misconstrued the point although I will
let Warren
speak for himself.
Speaking for myself, net government spending provides the basis of the
private sector
credit structure. Yes, this provides "financial assets to savers" but they
do not have to be
in the form of government debt. You can run a deficit and provide a sound
basis for
the non-govt credit structure and not issue a single $ of government paper.

> BILL: >There is no real imperative
> >on the government to worry about the portfolio options available to the
> >private sector. The private
> >sector still have choices including disposal of the money stocks as
> >spending flows, for example.
>
> PAUL: Yes but if the private sector wants to increase its liquidity --
> then telling
> it spend its liquidity (dispose of money to increase spending flows) isw not
> the answer.

excuse me? if it wants to increase its liquidity is can. bank accounts. if
it wants
to change its portfolio of financial assets it can. private sector debt
underpinning
real investment. if it is not happy with that then it can spend.

best wishes
bill

William F. Mitchell
Professor of Economics
Director, Centre of Full Employment and Equity
University of Newcastle, NSW, Australia
E-mail: ecwfm@xxxxxxxxxxxxxxxxxxxxxxx
Phone: +61-2-4921 5065
Fax:   +61-2-4921 6919
Mobile: 0419 422 410

http://e1.newcastle.edu.au/economics/bill/billeco.html
http://www.billmitchell.org