By Matthew Berg
The central insight of the sectoral balances model of the economy is that not all sectors of the economy can net-save at the same time. That means that if all those of us in the private sector in aggregate want to (on net) take in more money than we spend, then some other sector will have to spend more money than it receives. In a simple three sector version, the three sectors are the domestic private sector, the government sector, and the foreign sector.
By Mitch Green
To many of the world’s most highly-regarded economists, the Eurozone’s meltdown has come as a major surprise. Committed to the belief that One Market needs One Money, most economists expected the Euro to serve as an important complement to Europe’s integration. But, as Cullen Roche at Pragmatic Capitalism has pointed out, those who recognized how the monetary systems actually work saw the writing on the wall, as the seeds of the Euro’s own destruction were unwittingly put in place right from the beginning. Wynne Godley was the first to point out that the unprecedented divorce between the Eurozone governments’ monetary and fiscal powers would place its members in a fragile position and render them powerless in the face of a crisis. It was a warning that Cullen suggested might amount to ”the greatest prediction of the last 20 years.” Similar praise came just last week from John Cassidy of The New Yorker magazine, who dedicated an entire piece to Godley’s insights, calling him “The Man Who Saw Through the Euro.”