Re: financing, funding, etc

["Dr. Bruce R. McFarling" <Bruce.McFarling@xxxxxxxxxxxxxxxx>]

On Mon, 3 Feb 2003 09:36:55 -0500
Paul Davidson (pdavidso <pdavidso@xxxxxxx>) wrote:

[Warren Mosler wrote]
>>Sure, Japan deficit spent 20T yen which it leaves
>>as excess reserve balances in member bank accounts
>>at the BOJ.  These are simply deposits best understood
>>as balances credited by the BOJ as payment by the MOF
>>when it (deficit) spent.

>No by double entry bookeeping, this has to be a liability
>of the Treasury -- annd a liability is, in essence, an
>IOU.   You can't use double-entry bookeeping as a basis
>only when you want to. You point is merely that the IOUs
>of the Treasury are simply an IOU from one government
>agency to another quasi-government agency.   It still is
>a liability -- even though you can argue the BOJ will
>never call the government to "cover" its IOU.

As far as the institutional rules, it seems more likely
that the BOJ is not allowed to call the government to
"cover" its liability.

Is the question here semantics?  It may be that one
side of the argument called everything that is a
liability under double entry bookkeeping a debt, while
the other side of the argument calls it a debt if it is
a legal debt ... that is, an obligation to repay an
amount under specified terms.  If the only liability
that the Treasury is under is to accept the account as
a valid payment of a tax, then the liability might be an
"I Owe You Yen's Worth of Tax Receipt", but it does not
seem appropriate to me to call it a debt.  The problem
is that we then need another technical term to refer
to that thing that has to be repaid under X terms and
that can cause the debtor to be in default if the terms
are not met.

Indeed, the purpose of a term like liabilities is
that not all liabilities are debts, otherwise the
terms would be redundant.  A preferred share places
the common shareholders under a liability to pay the
preferred shareholders their dividend at the required
rate before the common shareholders can issue any
dividends to themselves.  But the liability is
contingent, and on its own can't make the company
insolvant.