Given income, how much will be saved. Given saving, in what form
will it be held? By L. Randall Wray In the previous two weeks we
have shown that government budget deficits take the form of net
credits to bank reserves at the central bank and as well to the
deposit accounts of those who receive net government spending.
Normally, this leads to excess reserves that are drained through
the offer of government bonds, sold either by the central bank
or by the Treasury. Hence, budget deficits normally result in
net positive acquisition of Treasuries. But even if they do not,
the nongovernment sector ends up with net saving in the form of
claims on government. To put it as simply as possible:
government deficit spending creates nongovernment sector saving
in the form of domestic currency (cash, reserves, Treasuries).
This is because government deficits necessarily mean the
government has credited more accounts through its spending than
it debited through its taxes. Remembering the comments on the
previous post, we n